Need help planning my finances..

**Broken Arrow** · 12-23-2007, 07:26 PM

Wow, I wish I could be in your financial situation.

Let me see if I get this straight. You're paying $1900 a month into your 401k? So, that's $22,800 annually. For 2007, I believe the IRS limit is $15,500, and anything beyond that is taxed anyway. So, I would dial down the contributions to the IRS limit.

As for your monthly expenses, what is this "other" that's costing you 100-200 a month? Maybe I'm being anal, but I'd want to know that. Also, I guess maybe food can be trimmed down if you really want to, but I don't think it's all that bad. Overall, the budget seems efficient enough.

Just FYI, but there are 2 numbers we need to know in terms of employer contribution. The first is the percentage income limit they're willing to match, and the next is the cents per dollar they are willing to match. So, for example, if they're willing to match up to 6% of your gross at 50 cents on the dollar, that means they'll match only 6k of your 100k annual salary, and at 50 cents on the dollar, the total employer match is 3k a year.

As for buying a house, I don't know what kind of situation the bay area is in right now. For that, I hear zillow.com is a good starting point to arm yourself with some information. In general though, I think it's a great time to buy! Lots of sales and foreclosures from the subprime mess and so forth. For those who qualify, I'll bet you can get a great deal right now, and if I was in your shoes, I would definitely look into it.

I know I've always argued that renting is certainly an alternative to buying, but sometimes-- and depending on how the numbers come out-- it really does make sense to buy. Again, I would find some realistic example houses that you guys would be interested in, crunch the numbers, and find out for sure if renting really is "saving" you guys money, or if it's being wasted when you can build equity instead.

As debt-adverse as I am myself, I say this: Don't afraid of debt. Properly managed debt can be a powerful tool in your financial arsenal.

Finally, and perhaps most importantly, do you guys have an emergency fund? You know, in case for some crazy reason, you lost your job or got injured? 6 months is the usual recommendation. Adjust accordingly to your comfort level. In your case, it shouldn't take long to build up. You may also want to look into a separate car fund after that. A 96 Honda will serve you well, but not forever.

In the end, I think you guys will do just fine.

**MonkeyMama** · 12-24-2007, 04:59 AM

I am from the Bay Area. From what I hear prices haven't dipped a bit (starter homes are in the $800k range). I guess it depends where you are because $1200/month rent sounds like quite a deal to me!

(BA - there is nothing to be jealous of - the COL is insane - hehe).

I would recommend saving at that pace, most if not all, in cash, so you can put a decent chunk down on a house down the road. I would really wait it out. I have too many peers - close to your age range - in risky mortgages. I just keep figuring something has to give. Wait it out a few years as all these ARMs adjust and see what happens. (Musch as you already figured).

You can also make life tremendously easier by buying a condo or a townhome (after saving for a while). Everyone in my family did this and was able to buy a home in the Bay. So while my peers are struggling, all my relatives started smaller and had substantial equity to put down when they moved up to a house. (Not sure if you had thought that plan, but really I think it is the only way to buy in the Bay - unless you start making a lot more money. Condos are very good investments in the Bay Area - when we owned they appreciated faster that the houses because no one could afford the flipping houses). You can kind of hedge your bets this way if in a few years you are not sure to buy or not. The Bay Area market defies all odds.

I think you are off to a good start. We were saving around $3k/month cash and had a nice 20% down payment for a nice condo in little over a year, when we were first out of college. You have a longer ways to go (as prices have gone up considerably). & I would kind of wait out the market a bit. But the thing is you need to save up a lot of cash if you want to continue to live there in the long run. But for us it was the best thing we ever did. Just build up a good foundation before kids and commitments and all that. It doesn't get any easier than this, my friend. You are doing well; just keep at it. (I could not imagine saving so much money now at 30 with 2 kids and a mortgage and all that stuff... But it was so easy when we were younger.)

Oh, the general rule is don't invest in the stock market for money you need in the next 5-10 years. I think outside of retirement you are best to build up cash. You can find a 5% return at some of the online banks or by investing in CDs.

**gekkoplus** · 12-24-2007, 05:50 PM

Thats terrific! Thanks BA and MM for your valuable inputs. I highly appreciate it.

BA: Yes, you are right. I forgot to mention that it is 50 cents match to a dollar for 401K. I started investing into 401K only in October. So its is 1900*3=5700 (and some match from employer) for year 2007.

MM: Thanks for your advice regarding looking into condos. Starting prices are from 400K onwards and considering that I will accumulate around 50K after an year or so, that is still just not enough for a 20% down payment.

Slightly digressing here, but I saw a couple of houses in south bay section of craigslist listed for 250-300K, and started wondering if it might be worthwhile to research into those. One more thing I did not understand was "monthly cost of space" running around $800 - what is this cost for? I assume it might be cost of place shared by each condo owner in the community or something? Doesn't it defeat the purpose of owning the house if I were to put down almost the cost of rental I pay now in addition to mortgage premiums?

Need help planning my finances..