With The Current House Prices, How Are You Guys Giving Any Saving Advice?

[disneysteve]

It is getting to the point where my financial advice is no longer valid. My lecture was based on a low cost of living and low interest rate environment.

If the advice you were giving only worked in a LCOLA and low interest rate environment, it wasn't very good advice generally speaking.

I've been on this site for 17 years. The advice I give today is exactly the same advice I've been giving for 17 years. Nothing has changed. The fundamentals remain the same as they have for decades. If you're going to lecture people on personal finance, you need to focus on those fundamentals, as several people have said in this thread. I really don't know what other answer you're looking for.

[Singuy]

If the advice you were giving only worked in a LCOLA and low interest rate environment, it wasn't very good advice generally speaking.

I've been on this site for 17 years. The advice I give today is exactly the same advice I've been giving for 17 years. Nothing has changed. The fundamentals remain the same as they have for decades. If you're going to lecture people on personal finance, you need to focus on those fundamentals, as several people have said in this thread. I really don't know what other answer you're looking for.

I create a hypothetical budget plan for 3 years, 10 amd then 30 years using the student's loan, debt, and potential income. I show them what is possible if they somehow live a life following such plan.

However when income is the same but everything else 2x, you see how I am having a difficult time motivating students?

So I need to find ways to reduce expense by half in an already what people believes to be a tight expense plan.

[disneysteve]

I create a hypothetical budget plan for 3 years, 10 amd then 30 years using the student's loan, debt, and potential income. I show them what is possible if they somehow live a life following such plan.

However when income is the same but everything else 2x, you see how I am having a difficult time motivating students?

So I need to find ways to reduce expense by half in an already what people believes to be a tight expense plan.

Part of the teaching needs to be explaining the realities of cost of living and illustrating what their money will get them in different parts of the country. Show how pricey your area has gotten compared to other places. They need that info to make an informed decision when they are job hunting.

[Singuy]

If the advice you were giving only worked in a LCOLA and low interest rate environment, it wasn't very good advice generally speaking.

I've been on this site for 17 years. The advice I give today is exactly the same advice I've been giving for 17 years. Nothing has changed. The fundamentals remain the same as they have for decades. If you're going to lecture people on personal finance, you need to focus on those fundamentals, as several people have said in this thread. I really don't know what other answer you're looking for.

I think your mistake is assuming I am looking for answers, but in fact just looking for a discussion. Like how are people you know who are new grads seeing the situation and what kind of advice are you giving? Have these advice changed or stayed the same? It's kind of in the title of this thread and the point of the thread. I am pushing back keeping the discussion going just to see if there's anyone who lived through a situation like this and how the person navigated through it. I am also explaining myself that my advice should or needs to change because our personal experiences are no longer relatable. We went though the longest bull market in history with low house prices thanks to the 08 crash, low interest rate for a decade and low inflation. Any new young adult starting life would just roll their eyes and think "yeah of course you made it because you had the opportunity to buy a house for peanuts, had half the debt I have, and living expenses was 50% cheaper."

[disneysteve]

I guess I feel my personal experience is more relevant. We bought in 1994. Interest rates were higher than they are now. I believe we paid 9%. I owed $102,000 in student loans which was a lot of money back then (still a significant amount today). We scrimped and saved and didn’t jump into the “doctor lifestyle”. We lived well below our means (and still do). A major national magazine even did a feature story on us after I wrote them a letter pushing back at some things they had published about how hard it was for young doctors to make ends meet. It was bs then and it’s bs now.

I have a number of young colleagues fresh out of school. Financial topics come up regularly as they are getting married, house hunting, starting a family, etc. My advice to them is the same today as what I told the magazine that interviewed us over 25 years ago. And they appreciate it. They respect that we made it work by cooking at home and shopping at thrift stores and mowing my own lawn and buying a modest house in an older neighborhood and buying a used car and keeping it for 14 years and staying at the EconoLodge when we traveled and everything that went with that frugal lifestyle.

I also talk about the importance of regular savings, no matter how small. Do whatever you can do but do something. We started the month after we got married investing $50/month into a mutual fund. Eventually we increased it to $100 then more and soon enough we were saving 6% then 10 then 15 then 25%. As my income rose we kept our spending pretty level and boosted savings and paid off debt (of course I talk to them about debt too).

So yea. The advice I give today is the same as always.

[AllyStreelman]

Perhaps restructuring the advice to include long-term renting as a viable, respectable option. I think there has been little room for this conversation as owning a home has been a part of the American dream, but for many people in HCOL areas, that just isn't feasible until much later in life, and that's OK. You can invest in a lot of ways other than real estate with a lot less and earn an often-better return on your money.

[ua_guy]

I think your mistake is assuming I am looking for answers, but in fact just looking for a discussion. Like how are people you know who are new grads seeing the situation and what kind of advice are you giving? Have these advice changed or stayed the same? It's kind of in the title of this thread and the point of the thread. I am pushing back keeping the discussion going just to see if there's anyone who lived through a situation like this and how the person navigated through it. I am also explaining myself that my advice should or needs to change because our personal experiences are no longer relatable. We went though the longest bull market in history with low house prices thanks to the 08 crash, low interest rate for a decade and low inflation. Any new young adult starting life would just roll their eyes and think "yeah of course you made it because you had the opportunity to buy a house for peanuts, had half the debt I have, and living expenses was 50% cheaper."

Yeah, have definitely lived through the situation you are describing and I think it's relatable to today, as many areas are just now approaching home prices in our HCOL of 15 years ago. We made a combined $120k when we bought our first home, in quasi-teardown condition, back in 2006, greater Seattle area. It cost $450k and we didn't have a down payment. I think my advice above is pretty solid, as I've lived some it myself or have seen where it's been helpful for others. I wouldn't recommend the position we put ourselves in from a financial perspective, but we worked over time to correct it and get on top of it. Our first home wasn't big, it came with a commute to our jobs, and we didn't have a perfect financial situation, and a lot of people told us it wasn't the right time to buy. We bought a home anyway.

My only other advice, which I've given some of the young adults in my family is: Do something. Yes, it's hard, and prices are higher than before. I have no shortage of peers who said the housing market was going to implode and put of starting families or buying a home. Fact was, even in the downturn homes weren't as affordable as they thought they were going to be in HCOL markets where they wanted to live. Here we are 15 years of home ownership later, and a lot of them say "I wish I would have bought back then". You can grip while you advocate for change, or start working on your dream, but don't just do nothing.

[Singuy]

Yeah, have definitely lived through the situation you are describing and I think it's relatable to today, as many areas are just now approaching home prices in our HCOL of 15 years ago. We made a combined $120k when we bought our first home, in quasi-teardown condition, back in 2006, greater Seattle area. It cost $450k and we didn't have a down payment. I think my advice above is pretty solid, as I've lived some it myself or have seen where it's been helpful for others. I wouldn't recommend the position we put ourselves in from a financial perspective, but we worked over time to correct it and get on top of it. Our first home wasn't big, it came with a commute to our jobs, and we didn't have a perfect financial situation, and a lot of people told us it wasn't the right time to buy. We bought a home anyway.

My only other advice, which I've given some of the young adults in my family is: Do something. Yes, it's hard, and prices are higher than before. I have no shortage of peers who said the housing market was going to implode and put of starting families or buying a home. Fact was, even in the downturn homes weren't as affordable as they thought they were going to be in HCOL markets where they wanted to live. Here we are 15 years of home ownership later, and a lot of them say "I wish I would have bought back then". You can grip while you advocate for change, or start working on your dream, but don't just do nothing.

Just came back from Seattle due to an Alaskan cruise. I was kind of mind blown by the cost of living there, rivaling California. Not something I expected given the geographical location(not benefiting from having the so-cal perfect weather). Makes a lot of sense you were sounding the alarm a few years back about affordability/wages.

[LivingAlmostLarge]

I think your mistake is assuming I am looking for answers, but in fact just looking for a discussion. Like how are people you know who are new grads seeing the situation and what kind of advice are you giving? Have these advice changed or stayed the same? It's kind of in the title of this thread and the point of the thread. I am pushing back keeping the discussion going just to see if there's anyone who lived through a situation like this and how the person navigated through it. I am also explaining myself that my advice should or needs to change because our personal experiences are no longer relatable. We went though the longest bull market in history with low house prices thanks to the 08 crash, low interest rate for a decade and low inflation. Any new young adult starting life would just roll their eyes and think "yeah of course you made it because you had the opportunity to buy a house for peanuts, had half the debt I have, and living expenses was 50% cheaper."

Hey I have posted in depth that you ignored about living in a HCOLA making little money and sacrifices to be made. You never address my posts for some reason and gloss over them. I've been through like timing wise the dot.com job bubble pop (and lost money in the stock market) AND graduated around that time, lived through buying a house in one of the worst markets in the 2008 housing crash (looking at you san diego), rode out the housing bubble pop, left a job in the midst (no income for a year with kids), buying insurance, AND walking the line on a startup.

So where haven't we been? We've also finished graduate degrees phd, paid for a MBA with loans, and bought homes about 5-7x our incomes, bought cars with loans

Home #1 2002 = $40k income, $150k purchase price, 10% down payment, stated income loan of 6.375% then moved to a HELOC floating rate mortgage
Home #2 2005 = $120k income $550k purchase price, 20% down (from 1st home), 4.875% 7/1 arm, refinanced in 2012 to 4% 7/1 arm 3 bd townhouse
Home #3 2017 = varied, $1.1M purchase price 20% (from prior homes), 3.875% 30 year fixed move to 3% arm in 2020, then moved to 2% 7/1 arm in 2021. 2100 sq ft "starter" home 3 bd/3 ba in reasonable shape but not turn key, we sunk another $55k when we moved in to finish the lower level and garage.

Student loans LAL $30k 2002-2006 accrued, paid off around 2010
LAL DH ~$50k borrowed and cost $90k for MBA from 2007 - 2010, paid 2010

No help from parents on home, cars, education, etc.

So my point about buying a condo is only HCOLA applicable?

Well how's this, these people need to buy starter homes and not 2800 sq ft. AGAIN i am repeating it, that' s bigger than what I live in now. So how's this. Tell them they do NOT NEED 2800 sq ft. They can buy a home in a nice neighborhood that is 3 bedrooms/2,5 ba for $350-400k. That will be affordable for a couple making $120k.

I made $120k and our $440k mortgage was TIGHT. But we had no kids and lived super cheap and our cars had just gotten paid off. We also had a friend rent a room to help with our costs for 3 years until we had our 1st child.

My heating bills on the 1880s victorian during the winter ran about $800 and that was keeping it to 55. I wore clothes in the house all the time a lot of it. People came over and commented how cold it was. I drove the same car from college a 1999 toyota corolla and 2000 ford focus. Our lifestyle was not the "dr" lifestyle and even now it's still not.

So how's that budget? Want my $120k budget with a home that costs $550k in a state that charges 6.2% state income tax? High property taxes? high car insurance and registration? Super high utility bills? I have it still.

My advice to people like ua_guy is don't wait. Go for it. You always have to be working to something because life doesn't stop. Want to switch careers? Do it. It's only money. You work 1 year long now at 38 or one year longer at 58. You tell me which you prefer.

Want to know how to not overspend? Write down every penny you spend on a CC and you'll track your money. I used to do that to stick to our $3600/month budget. We lived on $3600/month for about 10 years. We lived on that when we had no income in 2015/2016 and moved stated. NOTHING changed. If we couldn't get under that number it didn't happen.

Why $3600? Because our mortgage was $2400 plus HOA and taxes = $3k so we had an easy budget number. $5k month/month for 1 year for DH to switch careers. We used $80k that use with the move, and living and he had a job exactly 12 months later and we began rebuilding.

But INSTEAD of spending more we lived on our $2400 rental home for 1 more year and lived on $3600 a month and moved into our 2017 home purchase. We banked so much money that year.

Now our mortgage is $5k instead of that being all we spend and we spend more. But costs have gone up, our kids are more expensive as they get older, AND we realize we can't take it with us.

We've done well enough that saving 50%+ of our income isn't needed.

How's that? Want a detailed budget for florida? I can send you mind from 2005-2017. I lived it. And had 2 kids in that time. I also maxed out a 401k, two roth IRA, 2 esa, and ESPP during that time. Yes our income from 2005 to 2015 doubled, then it grew again in 2016 and we moved to a cheaper area. But it really is cheaper.

So my advice? Buy what you can afford, live below your means, seems applicable anywhere.

[Singuy]

Hey I have posted in depth that you ignored about living in a HCOLA making little money and sacrifices to be made. You never address my posts for some reason and gloss over them. I've been through like timing wise the dot.com job bubble pop (and lost money in the stock market) AND graduated around that time, lived through buying a house in one of the worst markets in the 2008 housing crash (looking at you san diego), rode out the housing bubble pop, left a job in the midst (no income for a year with kids), buying insurance, AND walking the line on a startup.

So where haven't we been? We've also finished graduate degrees phd, paid for a MBA with loans, and bought homes about 5-7x our incomes, bought cars with loans

Home #1 2002 = $40k income, $150k purchase price, 10% down payment, stated income loan of 6.375% then moved to a HELOC floating rate mortgage
Home #2 2005 = $120k income $550k purchase price, 20% down (from 1st home), 4.875% 7/1 arm, refinanced in 2012 to 4% 7/1 arm 3 bd townhouse
Home #3 2017 = varied, $1.1M purchase price 20% (from prior homes), 3.875% 30 year fixed move to 3% arm in 2020, then moved to 2% 7/1 arm in 2021. 2100 sq ft "starter" home 3 bd/3 ba in reasonable shape but not turn key, we sunk another $55k when we moved in to finish the lower level and garage.

Student loans LAL $30k 2002-2006 accrued, paid off around 2010
LAL DH ~$50k borrowed and cost $90k for MBA from 2007 - 2010, paid 2010

No help from parents on home, cars, education, etc.

So my point about buying a condo is only HCOLA applicable?

Well how's this, these people need to buy starter homes and not 2800 sq ft. AGAIN i am repeating it, that' s bigger than what I live in now. So how's this. Tell them they do NOT NEED 2800 sq ft. They can buy a home in a nice neighborhood that is 3 bedrooms/2,5 ba for $350-400k. That will be affordable for a couple making $120k.

I made $120k and our $440k mortgage was TIGHT. But we had no kids and lived super cheap and our cars had just gotten paid off. We also had a friend rent a room to help with our costs for 3 years until we had our 1st child.

My heating bills on the 1880s victorian during the winter ran about $800 and that was keeping it to 55. I wore clothes in the house all the time a lot of it. People came over and commented how cold it was. I drove the same car from college a 1999 toyota corolla and 2000 ford focus. Our lifestyle was not the "dr" lifestyle and even now it's still not.

So how's that budget? Want my $120k budget with a home that costs $550k in a state that charges 6.2% state income tax? High property taxes? high car insurance and registration? Super high utility bills? I have it still.

My advice to people like ua_guy is don't wait. Go for it. You always have to be working to something because life doesn't stop. Want to switch careers? Do it. It's only money. You work 1 year long now at 38 or one year longer at 58. You tell me which you prefer.

Want to know how to not overspend? Write down every penny you spend on a CC and you'll track your money. I used to do that to stick to our $3600/month budget. We lived on $3600/month for about 10 years. We lived on that when we had no income in 2015/2016 and moved stated. NOTHING changed. If we couldn't get under that number it didn't happen.

Why $3600? Because our mortgage was $2400 plus HOA and taxes = $3k so we had an easy budget number. $5k month/month for 1 year for DH to switch careers. We used $80k that use with the move, and living and he had a job exactly 12 months later and we began rebuilding.

But INSTEAD of spending more we lived on our $2400 rental home for 1 more year and lived on $3600 a month and moved into our 2017 home purchase. We banked so much money that year.

Now our mortgage is $5k instead of that being all we spend and we spend more. But costs have gone up, our kids are more expensive as they get older, AND we realize we can't take it with us.

We've done well enough that saving 50%+ of our income isn't needed.

How's that? Want a detailed budget for florida? I can send you mind from 2005-2017. I lived it. And had 2 kids in that time. I also maxed out a 401k, two roth IRA, 2 esa, and ESPP during that time. Yes our income from 2005 to 2015 doubled, then it grew again in 2016 and we moved to a cheaper area. But it really is cheaper.

So my advice? Buy what you can afford, live below your means, seems applicable anywhere.

Can you breakdown that budget and how you managed to have a 3600 monthly budget when you had that 550k house? Mortgage alone is 3300 plus you were also paying student loans during that time.

[disneysteve]

Can you breakdown that budget and how you managed to have a 3600 monthly budget when you had that 550k house? Mortgage alone is 3300 plus you were also paying student loans during that time.

Well she said in her post mortgage was $2,400. HOA and taxes brought it to $3,000 so it wasn’t $3,300 for the mortgage.

[Singuy]

Well she said in her post mortgage was $2,400. HOA and taxes brought it to $3,000 so it wasn’t $3,300 for the mortgage.

My bad, I thought interest was 6.3% but its 4.8% due to the arm.

Still, that leaves 600 dollars left for her budget and we haven't included the student loan payment yet. Utility plus student loans would put the monthly spend at least to 3600, tho I doubt she is paying 200 to 300 a month toward SL if she finished it by 2010. 300 would just barely cover interest.

[scfr]

Singuy - Is the goal of your course to help your students deal with the real world . . . in other words, be self-aware, informed, realistic, and adaptable? Or is it to provide a rah-rah motivational course on living a fantasy lifestyle? I'm trying to decide if I want to expend any time & energy replying. I'm frankly not interested in discussion just for the sake of discussion.

[Singuy]

Singuy - Is the goal of your course to help your students deal with the real world . . . in other words, be self-aware, informed, realistic, and adaptable? Or is it to provide a rah-rah motivational course on living a fantasy lifestyle? I'm trying to decide if I want to expend any time & energy replying. I'm frankly not interested in discussion just for the sake of discussion.

I teach one student at a time, tailored specifically to their debt and income expectations. The lecture goes through taxes, mortgages, budgeting, and investing. The goal of the lecture is to get students to see how far their 120k salary will take them in life, and give them an eye opening view of how little their 6 figure salary will get them, and how difficult it is to navigate through life coming out of the other side within a reasonable time and retire a fruitful life. Lots of sacrifices will need to be made, many additional hours needed to be worked beyond 40, and it's a mad dash to be financially competent before making their first major life expenses(house, kids, etc etc).

People who are already in the rat race call it the "suck all the fun out of life" lecture. Students who haven't started rate it as one of their most valuable life lessons per survey.

[disneysteve]

many additional hours needed to be worked beyond 40

If you need to work many hours beyond 40 to get by on 120K income, you're doing something seriously wrong.