Starting over: Roth 1st, or home purchase?

[seanof30306]

Regarding the cars/bike

The cars are my hobby, as well as my transportation. To me, 50 bucks a week is not much to put into hobbies. I'm very disciplined about it, and have yet to go over that amount. I have friends who pay 40+ in greens' fees each time they go out golfing. My neighbor's bass boat payment is over 300.00 per month. I could go on and on with similar examples. The difference between my hobby and theirs, is that my hobby also provides me with daily transportation.

You're focused in on "3" vehicles, but, the motorcycle is a long-term money saver. At 2.75 per gallon, my Jeep's fuel cost is .14 per mile. My Firebird's is .16 per mile. The motorcycle's is .05. I drive a little over 12,000 miles per year. If I only drive 8,000 of those miles on the bike, I'll save at least 720.00 this year, and that's using the Jeep's lower cost per mile, not the Firebird's. Also, that 8000 mile figure is low, I'll drive more on the bike versus the car(s), which increases savings. That's also calculated on an average gas price of 2.75 per gallon. The higher gas goes, the more I save.

With a 1,000.00 initial investment, I'll have recouped the initial 1,000.00 investment in the bike in a year, or a little more. Remember, all repairs and upgrades from this point forward come out of the 50.00 per week already budgeted for Vehicles; it's hobby money, so that .05 cost per mile is all savings after the initial investment is recouped.

At 50.00 per week, my Vehicles budget line comes out to 216.67 per month.

When I bought my Jeep in 1996, my payment was 376.00 per month. The payment on my girlfriend's 2007 Honda is 394.00 per month. Since I'm not willing to go 6 years or longer on a car loan, there's no way I could come out with a payment lower than 350.00 per month on anything I'd like to own. Therefore, I'm actually saving well over 100 bucks a month with my old cars/old bike plan over what I'd be doing if I went the "standard" way of owning a newer car with a payment.

I pay less in insurance for my two cars and a bike than I used to on my Jeep because I've gone from full coverage to liability-only. If I owned my girlfriend's Honda, I'd be paying more for insurance than I do now, too, for the same reason.

I pay less to tag all three of my vehicles than my girlfriend does on her Honda.

I spend more than she does on tire rotations, oil changes, alignments, etc., but, they come out of that 216.67 monthly budget line, while hers are all in excess of her car payment, so, she actually pays much more.

The fact is, I spend considerably less owning and operating my 3 vehicles than the average American does owning a single vehicle with a car payment. My hobby provides my daily transportation, at a cost significantly lower than what most people spend on their daily transportation, alone.

Most importantly, though. I like my two cars and a bike. Life's a journey, enjoy the ride. I am absolutely concerned with retirement savings, etc., and want to make the best decisions possible with my retirement planning, but, every day lived is a day lost, and I'm also determined to get enjoyment and satisfaction out of each. For me, a huge part of that is playing with my two cars and a bike.

[seanof30306]

Regarding the condo:

I currently pay 650.00 per month for a 1200 sq ft duplex. I keep one room closed off, as I don't use it, and am currently in the process of downsizing my life. 900 sq. ft. will be more than enough space. I have all my furniture, etc., so there's no expense there.

The monthly condo fee is 85.00, but, that includes water/trash/sewer, which I currently pay 35.00 per month for, so the real cost is 50.00 per month.

And, I couldn't disagree more on the 100.00 per month being enough for maintenance and repair on a condo.

Until my current situation, I have owned my own home (along with my friends, the mortage companies) for over 25 years. I've never averaged more than 1000.00 per year for maintenance/repair, and that's on houses, where I had to deal the exterior, as well as the interior.

With a condo, I don't have to deal with the roof, siding, paint, or any other exterior expenses (I don't have to cut the freaking grass, either). That's all included in the 85.00 per month condo fee.

As far as the interior, the reason you spend the extra money to have a home inspection done that is much more thorough and detailed than what the mortage company requires is so you can lower the probability of an unexpected catastrophic failure, or to identify potential problem areas to give you leverage to either have the seller repair the problem prior to the sale, or to negotiate a lower sale price to allow you to repair it without pulling additional money out of your pocket.

Even if something gets by your inspection, a budget line dedicated to a non-specific expense like repair/maintenance is about the long run. While you may have short-term expenses that go over the monthly budget, you will also have many months where the expense is zero. It all evens out in the long run, and a hundred bucks a month is more than enough, over time, to cover interior repair and maintenence on any 900 sq.ft. condo I can think of.

As far as it being "possible" to do, I think it's a lot more than "possible". I don't think you should make long-term financial decisions based upon the possibility that you might dip into the budget lines for coffee, beer, or blue jeans. If you're that irresponsible, you need to work on your basic discipline, and/or rearrange your budget so you can have an occasional cup of coffee or beer, or buy a pair of jeans every now and then.

If I bought the condo I'm currently looking at, my payment would be 306.00 per month. The condo fee is 85.00 per month. Taxes and insurance would run 73.00 per month, for a total monthly expense of 464.00 per month. That's a savings of 194.00 per month over my current situation. Since the 85.00 per month condo fee replaces my current 35.00 per month water/sewer/trash bill, there's an additional savings of 35.00 per month, making my real-world savings 229.00 per month.

It's not that owning a condo is that important to me, it's that I'm currently spending 650.00 per month on rent; it's dead money. It covers my housing expense, but no more. As I see it, buying not only saves me money on a monthly basis, but also puts the money I allocate to housing to work for me as well, giving me an appreciating asset and lowering my tax bill as well.

Since getting into ownership quicker is not at the expense of retirement investing, I'm on track to have my 2007 Roth contribution made in full by mid-January, 2008, I can't see how there's a negative attached to getting back into home ownership as quickly as possible.

The original question here was: "When I get the 5-7,000.00 tax refund back, which should be my first priority, accelerating my plan to get to the point where I'm making my Roth contribution at the beginning of the contribution year, instead of at the end of the year, or getting into home ownership sooner?"

Again, it's not whether to buy a home at the expense of the Roth contribution, I'll make the max yearly contribution, no matter what. It's whether to buy the home, or get ahead on the Roth several years earlier than I'm already scheduled to do.

[Fern]

OK, this is the 1st time i'm seeing what the actual monthly condo cost would be...$306 a month is very reasonable! I guess OK costs are quite a bit lower than here in CT.

You are bound and determined to do this, and i realize now you're not gonna budge on the cars and bike. And your latest post has demonstrated you really have looked at all the angles. Being naturally cautious when it comes to major financial decisions, I tend to play devil's advocate. As to the Roth question, i'm not sure it makes a really big difference either way? I think some people would say make the Roth contribution sooner rather than later as the tax deferral benefits would then start working for you 11 months earlier if you did it earlier in the year, or whatever. Others would say it's better to dollar cost aveage into it, not knowing how the market will be.

[seanof30306]

OK, this is the 1st time i'm seeing what the actual monthly condo cost would be...$306 a month is very reasonable! I guess OK costs are quite a bit lower than here in CT.

Yes, they are. But, even if they weren't. If you can buy a property, pay all fees, taxes, and insurance, put 1,200 a year away for repair and maintenance and still save a hundred bucks a month over what you're paying for rent, I can't understand why that wouldn't make good financial sense, regardless of the cost. If you can afford to pay the rent, whatever it might be, then it just stands to reason that you can afford to buy and save a hundred bucks a month.

You are bound and determined to do this,

That's not correct. What I am bound and determined to do is get back into home ownership as soon as it makes good financial sense. After posing my original question, I dug deeper and deeper myself. The more I did so, the more buying first appears to me to be the smartest choice. I've posted my thinking on this, and how I arrived at it, in order to give anyone who knows more about finances than I the full scope of my situation so, if they choose to give me advice, they have all the information.

If that advice runs contrary to my research, though, I'd like to know why, so I can learn something.

and i realize now you're not gonna budge on the cars and bike.

On that one, you are absolutely correct!

Even if it didn't make good financial sense, with all three of my vehicles costing me significantly less than the average person pays to own and operate a single car; even if that money also didn't cover my hobby spending, and in itself be less expensive than many men spend on their hobbies, I quite simply like my cars and bike.

And your latest post has demonstrated you really have looked at all the angles. Being naturally cautious when it comes to major financial decisions, I tend to play devil's advocate. As to the Roth question, i'm not sure it makes a really big difference either way? I think some people would say make the Roth contribution sooner rather than later as the tax deferral benefits would then start working for you 11 months earlier if you did it earlier in the year, or whatever. Others would say it's better to dollar cost aveage into it, not knowing how the market will be.

I'm not at all knowledgable about finances, but I have many years' experience creating and managing budgets. I have no doubt as to my ability to have come up with the budget I currently have, and to stick to it. I've left myself room in that budget to take an occasional day off, have a nice, thick steak every now and then, etc. My problem is in knowing what to do with the money I budget towards investing for the future, and, I can't devote much time towards learning it.

I believe you strive for the best, but plan for the worst. The budget I've created assumes my only income is from my job. The fact is, I also make money playing poker, but, my poker bankroll is kept completely separate from my "life money". I've taken a profit out of my bankroll for each of the past 17 months, but, poker is poker, and the one thing you can count on is that you will not always win. Profits from the poker bankroll are split monthly, with half going towards further building the poker bankroll, and half going into my "life money" Once it goes there, it can never come back.

I also spend virtually every free moment I have developing a beginners' Texas Hold'em learning system I plan to market. It makes the extremely complicated underlying odds and probabilities of the game easy for "non-math" people to master. The beauty of it is there are no development expenses, but, in order to get my patents, I have to provide proofs for every bit of math involved. It'll take me at least two more years to finish them all.

Even if the system flops and never makes a dime, developing it has turned me into a winning poker player, and the further I develop it, the better I get, so I win, either way.

The problem is, every moment spent not working on that system delays my finishing it, and my ship's potentially coming in, so when I looked into learning about investing, etc., and saw it was way too involved to learn without a major investment in time, I realized i just can't afford to give that time up right now.

I have my 401K in the Fidelity 2025 mutual fund, and my Roth in the BOA 2025 mutual fund. My thinking is, even if I could manage a 2-3% better return over the 2025 funds after educating myself about investing (and there's no guarantee of that), since I'm so close to retirement, that variance doesn't represent that great a difference. On the other hand, if my poker learning system takes off, the payoff will be much greater.

This is all new to me. In my past life (pre-crash & burn), money wasn't something I had to worry about. I made enough to cover all my monthly expenses, and still put a significant amount away each year, as well. Efficiency wasn't that important to me; it is now.

In some ways, it's fun. When you make way more money than you need, that money, and the things you aquire with it, doesn't mean much to you. When you squeeze every dime, though, you get a real sense of accomplishment from things which to some, may seem a bit silly. My navy shower head, for example. I've cut my water bill by 25% with it. It's only a few bucks a month, but, I still get a kick when I get that bill every month.

[Tree0164]

At 50 years old, I am little hestiate at advising anyone going into a 30 year mortgage especially when you haven't saved much for retirment. If you could swing a 15 year mortgage, you may want to do it. Make sure the rate is fixed.

Could you get a roommate to help with the mortgage?

I would continue maximizing your retirement funding. At what age do you plan on retiring?

[Hot dog]

The fifteen year mortgage sounds like a great idea see how that will affect your numbers. If it is too much make sure you do make extra payments on your mortgage you could be 65 and done with mortgages and ready for retirement. That seems more reasonable. However having lower monthly payments does give one peace of mind. Someone else may be more help because I am also learning but with the target retirement funds you can purchase any year you want but the earlier the target date the more conservative the investments will be they will invest a larger percentage in bonds and less in stocks that may have a greater return. The less amount of time you have until retirement the safer they try to keep your funds.

[seanof30306]

At 50 years old, I am little hestiate at advising anyone going into a 30 year mortgage especially when you haven't saved much for retirment. If you could swing a 15 year mortgage, you may want to do it. Make sure the rate is fixed.

I'd never go with anything but a fixed-rate mortage. The plan is to do a 30-year fixed, and make at least one principle reduction payment every year, so as to have the mortage paid off by the time I retire.

Could you get a roommate to help with the mortgage?

I'm buying a very small, very inexpensive space so I don't have to do that. I'll be saving 200 per month over what I am currently spending on rent.

I would continue maximizing your retirement funding. At what age do you plan on retiring?

While I'd love to be able to retire early, that's clearly not in the cards. Barring some serious financial windfall, it'll be 70. I'm already maxing the Roth, and am putting 11% in my 401K.

[seanof30306]

Someone else may be more help because I am also learning but with the target retirement funds you can purchase any year you want but the earlier the target date the more conservative the investments will be they will invest a larger percentage in bonds and less in stocks that may have a greater return. The less amount of time you have until retirement the safer they try to keep your funds.

I have my 401K in the Fidelity 2025 fund, and my Roth in the Columbia Management 2025 fund. Since Columbia Management is a wholly-owned subsidiary of BOA (my bank), I get it with zero fees.

I think people get hung up on the name "lifecycle fund" or "target retirement fund". Honestly I doubt many people will buy one of these funds and stay in it for 20, 30 or 40 years as the allocation adjusts. However these happen to be great low-cost core funds that are close to perfect diversification.

There's no rule that says it has to be the only fund you ever buy, or that it must be held for 30 years, or that it even needs to be for retirement. It just makes for a nice core fund, especially for those who have a relatively low portfolio balance (say, less than $50,000).

[Fern]

In some ways, it's fun. When you make way more money than you need, that money, and the things you aquire with it, doesn't mean much to you. When you squeeze every dime, though, you get a real sense of accomplishment from things which to some, may seem a bit silly.

This i find is very true.

[terri77]

I personally don't see the problem with going with a 30 year mortgage, 15 year would be better, but if you don't buy you're going to have that housing cost with renting as well.

I bought a 3/2 townhome last year and maintenance doesn't nearly run me $100 a month. Most big problems are covered by the association dues. Things on the inside are my responsibility, but I had a home warranty requirement as part of my offer.

[Tree0164]

I personally don't see the problem with going with a 30 year mortgage, 15 year would be better, but if you don't buy you're going to have that housing cost with renting as well.

One part of good retirement planning is being out of a mortgage by the time that you retire.


Getting a mortgage at age 50 for 30 years isn't the smartest strategy unless you know that can aggressive paying it.

With no retirement assets at age 50, the OP needs to be contributing the max to a Roth.

It might be smarter to rent at this point in his life.

[seanof30306]

One part of good retirement planning is being out of a mortgage by the time that you retire.


Getting a mortgage at age 50 for 30 years isn't the smartest strategy unless you know that can aggressive paying it.

With no retirement assets at age 50, the OP needs to be contributing the max to a Roth.

It might be smarter to rent at this point in his life.

It's not an either/or proposition, though.

The max contribution to the Roth is a given. It's my first financial priority. No matter what else I do or don't do, the Roth gets maxed every year.

The only question was whether a 7,000.00 windfall is better applied towards getting ahead on the Roth contribution, allowing me to make the full yearly contribution earlier in the year, and therefore reaping the earnings benefits associated with that, or to accelerate my second financial priority, getting back into home ownership ssoner.

Again, either way, the maximum Roth contribution will be made each year.

As far as the 15 year vs 30 year loan; the 30 year loan allows me to take the money I'm currently allocating to rent, make the house payment, pay insurance, taxes, and homeowner's association fees, save 100 a month in a maintenence and repair budget line, and make a 1,000.00 yearly principal reduction payment. That principal reduction pays the loan off in under 15 years.

I believe you strive for the best, but plan for the worst. That's why I prefer the 30 year loan to the 15 year loan. It leaves me with options; some "wiggle room" in case of short-term financial reversals in the future.
Worst case scenario, I know I can always scratch up the payment on the 30 year loan, and should have no problem doing principal reductions, as well. If there are problems, though, I can always put those principal reductions off; especially if I'm aggressive with them when times are good.

[terri77]

One part of good retirement planning is being out of a mortgage by the time that you retire.


Getting a mortgage at age 50 for 30 years isn't the smartest strategy unless you know that can aggressive paying it.

With no retirement assets at age 50, the OP needs to be contributing the max to a Roth.

It might be smarter to rent at this point in his life.

Well yes, of course, having a paid off house is better than not having a paid off house, but at this late in the game it's could have, should have, what if.

The poster has to decide if it's better to rent than buy for his or her particular situation. If it's the renting that is costing him a significant amount of money that could be going to retirment, then it's renting that isn't the smartest strategy.

I would look more at what renting and buying options you have. Maybe you could find a less expensive place to rent.