YNAB You Need A Budget

[kcastle]

Note: I posted this over at my journal also (journals-f18/kcastle-journal-t15882.html), but I'd love as much input as I can get! Thank you!

I have the story problem. Do you have the math skills?

We want to save for a house down payment, and we'd love to get into something sooner than later. Saving aggressively, we could have our DP in 1 1/2 to 2 years. However... We are paying off the rest of a $20k student loan next month (which is why we have no current home savings) and we'll have $12k left to pay at around 5% interest.

Currently, E and I both work, and we put my earnings toward loans and savings. But we're hoping to have a baby next summer, at which point I will either quit work or cut back significantly. Given this, should we a) pay the loan completely and then start saving for a house, or b) pay the debt and save at the same time?

I used to abide by the Ramsey-ian philosophy of NO DEBT WHATSOEVER, but since we have never ever had consumer debt of any type and are done taking out school loans, I'm less concerned about simply abiding by a debt-free principle and want to do what's smart mathematically.

Our rent is around $1000/month (and will keep going up over the years, as we live in Portland, OR, and landlords here like to ream renters). I hate throwing rent money away when we could be paying off a mortgage, but I don't know if our rent or our student loan interest will add up to more over time.

Thanks for your thoughts!

[Turf_Hacker]

Given your near-term plans (have a baby AND reduce your income), I would recommend going after the debt first. Babies are expensive (been there, done that three times), and combining this with a planned reduction of your income to me it makes more sense to get rid of the debt first if you can. It will be a consistent drain on your budget, and eliminating it will free up more money to be saved for the down payment later. My advice is to see how everything shakes out with a new baby and reduced income before you take the plunge into home ownership (houses are expensive too!). Don't forget that when you own your house, you'll have to do all of the repairs that your landlord currently has to do. Water heater fails? You'll have to buy and install the new one...

Not trying to put too big a damper on it, but you need to know what you're getting into and be prepared to handle it.

[kcastle]

Thanks Turf,

I was leaning that direction but it helps to hear some wisdom from someone who has, as you say, "been there done that."

You're right that we could knock out the debt pretty quickly — within the year, I hope!

K

[litterbug]

I'm in a completely different part of the country, and having been a student and nomad most of my adult life, I've been renting and devoid of house hunger, so have never seriously considered buying. I once started casually shopping for a condo, and my credit union was ready to pre-approve me for more than I was comfortable paying on a mortgage because even I realized that maintaining a house and its appurtenances would take all of my discretionary income, and from talking with a friend with an inexpensive small house, I knew that at my income level and the small size of the loan, I wouldn't even reap much, if any, of a tax break.

So it's worth thinking hard and doing some serious calculations before making the decision to buy. As my brother, my family's only financially astute member, has told me, buy if owning a home is a higher priority than saving or debt reduction, but don't buy as an investment. Over the long term, in most markets, and at this point in our nation's financial development, and taking inflation into account, it's safer to expect that your home will be worth what you paid for it than to think of it as a retirement plan.

Many will disagree, and maybe I'm just justifying my own decisions, but each of us has their own special circumstances, and I hate to hear of people making that "but home ownership is the American dream!!" decision without having all the information about the consequences of such a huge financial decision.

ETA: Here's a calculator, but note that different markets might unexpectedly change the long term outcome, no matter what situation is when you're considering buying.

http://www.nytimes.com/interactive/business/buy-rent-calculator.html

[bookman413]

So it's worth thinking hard and doing some serious calculations before making the decision to buy. As my brother, my family's only financially astute member, has told me, buy if owning a home is a higher priority than saving or debt reduction, but don't buy as an investment. Over the long term, in most markets, and at this point in our nation's financial development, and taking inflation into account, it's safer to expect that your home will be worth what you paid for it than to think of it as a retirement plan.

Many will disagree, and maybe I'm just justifying my own decisions, but each of us has their own special circumstances, and I hate to hear of people making that "but home ownership is the American dream!!" decision without having all the information about the consequences of such a huge financial decision.

http://www.nytimes.com/interactive/business/buy-rent-calculator.html

yes, I agree...if you have the income or the savings, and you can afford to buy a home and WANT to own a home, great. But a home is not an investment....it is an nonappreciating (for most intents and purposes) asset that comes with expenses.

In most cases, the only kind of real estate that is an investment is commercial or residential real estate that you buy to invest sums of money that you already possess, to rent, or to develop and resell. In the develop and resell category, it's possibly to make money using leverage....but for a residential home you live in...when you evaluate the numbers...it's not an investment, it's a home and a home costs money on an ongoing basis, doesn't pay you money on an ongoing basis, and usually won't pay you through increased resale values either.

Very important to work the numbers.

[bookman413]

Ok, getting back to the original question: without the amounts of your student loan, the total term of your loan, and particularly,, the interest rate of your loan and how much your payment is out of your monthly income, there's not enough info to give good advice about whether you should pay them back aggressively or let them ride.

I hate throwing rent money away when we could be paying off a mortgage, but I don't know if our rent or our student loan interest will add up to more over time.

Ok, provide some figures and someone here will be sure to help.

What price house, what size mortgage, what rate morgage, length of terms of mortgage.

Then: student loan balance, interest rate, length of term and monthly required paymenst.

Those are the base bits of information that need to be assembled to evaluate your situation from a dollar perspective.