Quote:
Originally Posted by adaway
JIMOhio
Wow, that’s helpful to look at the differences between the three over a long time frame.
So, my priorities in order are:
1. Retirement, Retirement, Retirement
2. SL
3. Savings (finish ER then house/other fund)
I worked on a prelim budget (didn’t have one before) and it looks like after changing withholdings, and contributions to workplace retire plan I will have $950 to work with for above.
I think I am comfortable for this year working with following breakdown:
650 for SL
100 for RothIRA
200 for Savings
I know this goes against my priorities as listed above, but this is what I am thinking I would feel more comfortable with doing for this year’s changes. I can tweak in the near future and especially as salary may change. If for example I get a raise more that 3%, I will contribute any additional take home towards the RothIRA. Then again, if I change something on my taxes or if in the following year a great raise comes around, I will add to the SL. How does this sound for a plan? I think this can work.
Regarding comparing rent vs. buy, I think buying would more than double what I pay for rent including utilities. So buying does not seem to be a good option now, plus I would only consider buying if I had the 20% down. But thanks for the suggestion. I will do a comparative at some point when I begin to feel like buying is more realistic in my situation.
Thanks!
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What is $1200+401k contributions as a percent of salary? If 8% of salary plus $1200 per year is higher than 10%, I think this is a solid plan.
As for the savings, what is this invested in? I assume a money market account? What is the interest? I assume the increase in savings is because the house is a priority? Consider applying this to student loans instead if the house is the reason for savings over IRA. Your lowest net return is on money applied to savings (IRA>studentloans>savings). If the goal is the house, the student loans are in the way IMO), even if the 20% down criteria is being used for the house.
Who does your income taxes? If you have not filed for 2007, I might suggest buying turbo tax and teaching yourself a few things after you file. Copy your return after you file, and see what buying now gives you on a "new" return.
I have never put 20% down on either of the two properties I bought, and my cash flow improved each time because of the tax deductions.
For example $750/month rent was worse, for me, than a $950 house payment. 5 years later a $2300 payment still has good cash flow.... the $1000+ increase came when the student loans and cars were paid off.
For the tax analysis, pay attention to the following criteria
1) did you take the standard deduction? (you probably do this, I did when I was single and renting too).
2) if you itemized (now, or do this as the experimental return), and took $9000 in mortgage interest as a deduction, did the tax return improve? By how much? If you added in a $3000 property tax deduction, did the return improve? By how much?
3) then take the increase in tax return and consider where to apply it (pay down student loans? invest? If loans get paid of x months quicker, rethink cash flow from that point forward.
4) FYI, you will possibly get 15% or 25% of the $12000 interest and taxes paid back when you file. Depends how many other deductions you have, and how much standard deduction was helping you.
5) To buys a house with less than 20% down, the programs I used were
1) 5% down, paid PMI
then refinanced to
2) 80-15-5 where 80% was first mortgage, 15% was second and 5% was down. Did not pay PMI and tax return went up (the mortgage interest was deductable and PMI was not, the payments were within $75 of each other).
3) bought a bigger house 80-15-5
4) refinanced bigger house 80-15-5
5) I am planning another refinance if rates go down. We have enough in savings to go 80% pure if we chose to do that.