Inheritance

[Greg2012]

Soooo...

I'm 29, newly married in Aug, and I inherited $120,000 in Feb.

We spent some money on the wedding, lived well on the honeymoon, paid off the wife's 5k credit card debt and her car and now that the dust has settled, I wanted to reach out online and get a couple different answers on what we should do.

We're both 29. We have a Yellow Lab...but hope to have 2 kids in the next 5 years.
I bought a house in 2009 for 247,000 and put 20% down making the mortgage roughly 200,000. The estimated price of the house on Zillow.com is now 200k. We'd like to move into a bigger house, in a much better school district.

Combined income : 120,000
Current credit Debt : 0
2 Cars paid off---low enough mileage.
Mortgage balance : 189k @ 5.125%
Savings acct earning 1% : 90k
Metlife TCI acct earning 3% : 19k

We don't spend a dime on health insurance(my job(UPS) pays 100% for great coverage). I do not currently save anything for retirement, tho my current union job pays a 3000 monthly pension.

Wife sets aside some money in a Blackrock acct(not sure what), and is supposed to get a pension(teacher) at 25 years, though with NJ currently in debt, I'm not betting on it.


Houses we're "looking" at are around 450,000. We're not planning on moving for at least another 3 years though.

Any suggestions on growing that money in the next few years before the new house purchase? Or any other suggestions?

[BMEPhDinCO]

Sounds like y'all are in a good position!

First, I'd open a Roth for you both and put in $10k ($5k each). You can take out the principle for a house, education, etc or leave it for retirement. If you do this every year, you could even retire earlier, use it until the pensions kick in, and enjoy your last half of your life.

Second, I'd put some in a safer index fund for your kids, once you have them, move to a 529 for each child for education.

Third, if you are interested in a house that's got a $90k downpayment, create a house fund and start going to work on that after the first two above are taken care of.

Good luck!

[EEinNJ]

Warren Buffett is quoted "If you can be in the stock market 5 years you shouldn't be in it 5 minutes".

So if you need the money in 3 years, don't put it in stocks. If you have 100K left and you invest it, by then you might have 120K. Or only 80K!

I wouldn't put too much faith in Zillow, it could be off +/- 20K on your house. House prices are coming back up, and time is on your side. However, that 450K house could be 500K by the time you break even on your current house.

Keep it in cash, maybe take 5K & start a Roth IRA. Consider it savings for the house and emergency fund if one of you looses a job.

Whatever you decide, make sure you and your new spouse agree.

[bjl584]

With your current income a $450K house is a little out of your price range. I'd scale back to $350K tops.

I know that UPS offers a 401K, so you should sign up as soon as possible and contribute at least to the company match. Starting ROTH IRA's is a good idea as well.

Since you plan to move, don't pay extra on the mortgage. Any extra money after saving for retirement should be saved as cash for your next house. You can try a CD, but interest rates are so low that it's almost not worth the trouble.

[sandrark]

With your current income a $450K house is a little out of your price range. I'd scale back to $350K tops.

I know that UPS offers a 401K, so you should sign up as soon as possible and contribute at least to the company match. Starting ROTH IRA's is a good idea as well.

Since you plan to move, don't pay extra on the mortgage. Any extra money after saving for retirement should be saved as cash for your next house. You can try a CD, but interest rates are so low that it's almost not worth the trouble.

+1. Rough rule of thumb is 3x your gross income for a house price.

My biggest concern - with a house at $450K, and two kids, either one of you will want to stay home (decreasing income) or keep working (increasing expenses in terms of day care).

I know of a LOT of now-moms who feel trapped into working outside the home because they bought a house that requires two incomes to pay for it.

For me personally, I don't want my PITI + HOA dues to exceed 20% of my NET household income on a 15 or 20 year mortgage. 30 year mortgages make me cry. You'll still be paying on a house when your kids need assistance for college, AND you'll be helping your parents, AND you'll be staring your own retirement needs in the eye.

Too many people, IMO, make the biggest mistake when they upsell themselves in regards to housing, and cars. If you can keep those two things under average, everything else gets easier.

[snafu]

Congratulations getting married and starting on a whole new chapter of life. I add my voice to others suggeting you join your employer's retirement plan at minimum to 'free money' company match. If there is any 'catch-up' grab it! I'm not clear whether you have reduced your $120K inheritance to $90K due to costs of wedding, honeymoon, car[s] & CC pay offs...or if you now are working with $220K.

You've not outlined monthly expenses but I'm hoping you and dear bride hold the same views on money management having worked together to create a budget/cash flow. It needs to include a minimum of 3 months, easily accessible Emergency Funds to cover your expenses. Will your wife return to teaching after children are added to your family? It takes about 35 ears of contribution for her to access full pension potential. Long term, it pays to take advantage of your age to ride out the ups and downs of the market plus the wonders of compounding to take well thought out higher risk to create a personal retirement plan for each of you.

All the gurus suggest you need a minimum of 5 years to 'invest' for real return. I suggest you consult with a fee based money manager for a written outline. You will have to pay for his time but it can save horrid mistakes/losses. Before you take any action, I suggest you formulate a plan and post it here so that many knowledgeable posters can point out benefits and potential flaws. The folks here have no axe to grind and only want to see you succeed as an investor.

[red92s]

For me personally, I don't want my PITI + HOA dues to exceed 20% of my NET household income on a 15 or 20 year mortgage. 30 year mortgages make me cry. You'll still be paying on a house when your kids need assistance for college, AND you'll be helping your parents, AND you'll be staring your own retirement needs in the eye.

I just don't see how this is feasible anywhere near a major metro area. I'm at a similar income level as the original poster, and I'd have to be looking at 2/1 or 2/2 homes in near-teardown condition to have a PITI payment in that range on a 20 year mortgage . . . and that is at a 3.2% rate! I can't see how that situation works favorably for raising a family. It's not like we are in Orange County, or mandate granite counters and stainless appliances, but there are several million people in the area who all need to live somewhere. You could move farther out and spend $400 a month on gas, but how is that an improvement?

[sandrark]

I just don't see how this is feasible anywhere near a major metro area. I'm at a similar income level as the original poster, and I'd have to be looking at 2/1 or 2/2 homes in near-teardown condition to have a PITI payment in that range on a 20 year mortgage . . . and that is at a 3.2% rate! I can't see how that situation works favorably for raising a family. It's not like we are in Orange County, or mandate granite counters and stainless appliances, but there are several million people in the area who all need to live somewhere. You could move farther out and spend $400 a month on gas, but how is that an improvement?

I live in the SF Bay Area, so I do live in a major metro area.

When we bought, we bought in a lower-middle class neighborhood, 15 miles from work. We were (combined) making $46K a year, and the house cost $150K. We put down 10%, and then rented out a bedroom to a friend to pay for the improvements we planned.

It was a probate sale. The only things going for it were large rooms, a detached garage, and a semi-decent neighborhood.

We spent 19 years doing DIY on that place. We had a renter for nearly half of that time. DIY and home improvement became our major hobby, other than travel. We sold it last year, and bought even further out, a house that is much closer to our "dream house." The first house sold for $400K. The new house we bought for $550K. We parlayed the original $15K investment into a $150K downpayment on the new place, even after fees and upgrades.

The irony? Our buyers bought with an FHA 3.5% down loan. Their mortgage is for $390K - they're paying what we pay, for a much more deteriorated house and city.

Yes, I spend $400 per month in gas. But I have a much better quality of life. And because we were willing to save and work and improve that place all those years, the new place is affordable on our now-much-improved income.

You can't have it all overnight. It takes years. And sometimes a housemate. That's what you're missing.