Advice for my financial situation and plan

[Addison89]

Hello everyone,

I have been reading these forums for a while now, and they seem to be full of great advice, and I am hoping to get some advice on my progress/plan so far:

About me: Age 24, been working 2 years, making $58,000/year, have zero debt.

Take home after tax/month: $3443
Housing Expenses: $897
Spending/Other Expenses: $1200
Savings: $1346 (39% of take home)

Retirement: 10.5% of paycheck into 401k (6% me, employer match 4.5%)
Retirement Total: $18500 (10,000 401k, 8500 Roth IRA)

Cash: $38500 ($35000 Savings, $3500 Checking)

Questions
1) How am doing so far and is there anything I should be doing differently?
2) I am thinking of buying a condo/town-home between 150-175k, and putting 20% down (hence the high savings), with the possibility of keeping it as a rental property when i buy a house later on (~5 years). Is this a valid plan?
3) I am thinking about starting to fund a taxable investment account since I am already fully funding my retirement. Is this a good idea?

Thanks in advance

[Olivia1]

Only thing I would add is to not dump your savings as a down payment. Have a 3-6 month emergency fund available, then save up for a condo down payment.

[disneysteve]

A couple of things....

I think it is cleaner to base all of your numbers off of gross income, so rather than saying you save 39% of take home pay, express that in terms of % of gross.

Don't include employer matching funds when stating the % of income you are saving for retirement. It isn't actually 10.5% of your paycheck. It is 6% of your paycheck.

1) How are you doing? I think you're doing great! You have no debt, a fully-funded emergency fund and are on your way to saving a down payment for a home. You are saving a very respectable % of your income. Great job.

2)Personally, and this is just me, I wouldn't buy a "starter" home if I only expected to be there about 5 years. I don't want to be a landlord so renting it out later doesn't appeal to me, though you may feel differently. In that situation, I'd continue renting and saving up my 20% down payment for my permanent house purchase.

3) I would maintain a 6 month EF in savings. If the timeline is 5 years, I might put a little of the down payment money into something a bit more aggressive but I'd be very careful about that given the market being on the high side today. I wouldn't want to see that balance drop between now and the time I'm ready to buy. Beyond that, a taxable portfolio is certainly the way to go.

[TBH]

I like the idea of a starter home you plan to rent later, personally. And interest rates are so low right now that it would be great to lock them in. Having a rental property with a 3.5 percent mortgage rate would make it a lot easier to get cash flow from it.

I agree that you should save the down payment on top of a solid 3-6 month emergency fund, however. So I think you have a ways to go.

Once you've got your emergency fund on top of the down payment, I'd increase retirement contributions. It looks like you are funding your IRA in addition to your 401k, which is great. But you might want to increase 401k contributions as well when you can afford to do it.

[riverwed070707]

Deciding to buy a home and rent later isn't always black and white. Many people here have moved into new homes, decided to rent the old (whether it be because the market wasn't good to sell in or otherwise) and don't break even on their expenses. Renting a house isn't always profitable, and the answer to whether that is a good idea largely depends on where you live. Whats the rental market like there? Will it rent quickly? Will you get enough to cover taxes, insurance and maintenance? Also, you're young. Are you certain you'll be staying put in the area you're in? Being a landlord is tough. Being a long distance landlord is tough and expensive and potentially very stressful. Renting a property can be a good deal but don't go into it because you feel like "you're throwing your money away renting". I assure you, saving for a downpayment on a house you want to be in long term while renting will be far better financially in the long run than buying now and buying again in 5 years.

Ditto DS on the retirement savings. You're doing well but you aren't fully funding your retirement. Aim to contribute 10-15% of your gross, not including any company match. Its fine if you increase to that slowly, but theres room for improvement there.

[MonkeyMama]

On the house plan, it just depends. We bought our first home in crazy expensive city and so home ownership was only going to work with a "start small and move up" plan. We bought second home in a very inexpensive city (comparatively) and so just bought the "forever home" we wanted at that point (even though it was far more than we needed at the time we bought). I wouldn't do anything differently - both plans were the best considering the circumstances - so it really just depends. Low interest rates make buying a more long-term home purchase more enticing these days. Of course, it probably also makes a rental more enticing.

What do you mean that you are fully funding your retirement? Do you mean you are funding enough for you to retire with? You should be able to put away $17,500 into your 401k this year. I would work on putting as much as possible into the 401k before I would start investing in taxable accounts. Of course the exception is if the 401k choices and particularly terrible and high-cost. Keep in mind that putting so much into your 401k would significantly decrease your taxes.