Yesterday I posed the question, where do I go from here? Getting out of debt was fun and exciting. Building up an emergency fund was also something that I could see grow. The big question was is this it? Am I just doomed to a life of saving and being careful with the money? Then a reader asked a series of questions:
Stamperitis wrote:
Jason, do you have a chart for your house savings account? How about your emergency fund? Vacation fund? Your retirement, do you only want to have stocks and bonds or do you want to have extra properties that you rent out? Do you want to be a snow bird and go south for the winter? Take what you want and then create your plan and then create your charts to see your progress. This may help you as you seem to be perhaps a visual person. Wanting to SEE how things are going.
There are a few questions in there so I’m going to break this all up and answer them as best I can.
do you have a chart for your house savings account?
No I do not. I could make a chart. But I’m not sure where I want the goal to be. With paying off debt it is very easy, I want all the debt eliminated. With building an emergency fund it is also easy, I want X number of dollars for emergencies. I know I need to save a down payment, however I am unsure what size I want to it to be at. Or is there even a cap? If average houses in the area are $200,000 than I know I want to save up $40,000. Do I have to stop at $40,000? no of course not. The larger the down payment than better.
Of course that is for an average house.
I can start to look when I have less money, in that case I’m looking for a house that costs less than average. I might find what I’m looking for in a house that is below the average house price. Of course I might not. In this case setting a goal seems a bit redundant, I want to save and continue saving till the price of a house that fits our needs matches with the down payment we have saved.
How about your emergency fund? Vacation fund?
Our emergency fund is done. We can live for quite a while on the cash we have saved up. The hope is to never use it. Of course that is everyone’s hope. As for our vacation fund, a set amount is placed in that fund every month. We don’t take a vacation till we have enough for the plane ticket and all the other costs. There is never a set goal amount for that, since plane tickets and hotel costs can vary quite a bit, when vacation costs matches the vacation budget, we start to look at planning a trip.
Your retirement, do you only want to have stocks and bonds or do you want to have extra properties that you rent out? Do you want to be a snow bird and go south for the winter?
Retirement is something I’m going to be saving for a long time. I currently only see myself holding stocks and bonds. I could get into extra properties in the future when I have more money, however I don’t see that happening any time soon. Currently it is easier to just save and invest in stocks and bonds.
Do I want to be a snow bird? You bet. I’d even love to just retire to another country, put my feet up and enjoy life. Of course to do that at the country I’m thinking of would require around $10 million or more. It is good to dream but that is a very big dream.
So will I create charts and graphs to see our progress? I know it wouldn’t hurt. It is something to look into as a family craft project one night or even on a lazy Sunday afternoon.
If you have a question for me feel free to write to me at: info@outofdebthelp.ca
You know, just because you have a goal doesn’t mean it’s written in stone!
), is this: sit down and have those dream/wish conversations with the Mrs. and choose a few that are things you can agree to dream on together. Build your charts.
My advice (for the $0.06 it’s worth
Sure, maybe you surf MLS tomorrow and find a cheaper house that doesn’t require the $40K you’ve saved up. Oh well, that much more towards the downpayment!
Likewise, choosing a destination for vacation – even if you decide to change it in 6 months because something comes up (ever seen Up?)
Sure, your debt was a nice defined goal to work towards, and easily tracked. But as the voice from ancient history, let me point out that was NOT the case on debt round 1. It really took you defining the goal (technically, goals) before you got traction.
Better to change the plan than not have one!
@ Opal,
I couldn’t agree more. We saved for our house the 25% of what we thought we’d be looking at and then it took 2 1/2 years to find a house in our price range that we liked. What did we do… continued to save. Bought our $69,500 house with 47,500 down with a 22,000 mortgage 24 years ago. We got a 7 year amortization with bi-weekly payments. We paid an extra 10% down each year (without penalty) and paid it off in 3 1/2 years just 6 months after our son was born and my maternity leave ran out. I didn’t go back to work due to his severe allergies and it was okay because our home was paid off.
I think part of our problem with savings is there is no concrete goal for my husband. I do believe he is a little more like Jason and needs see a dream/goal as well. However, when I try to talk with him he really isn’t interested in participating. As long as there’s money in the bank he’s not interested in participating more in the process. Although he did perk up when I showed him our net worth statement I did up a while ago.
In his trade he sees too many marriages fall apart due to the long hours and absences from home and I think when there’s “too much” money in the accounts it makes him nervous I think. But as he refuses to buy disability insurance as it is well over $400/month for him and there’s a real possibility of a severe disability I’m plugging away the best I can and trying to encourage from the sideline. I can see his “I need to buy another car” problem creeping up again. Trying hard to steer them (him and our youngest son) to see that we should wait until after our big trip and see how much of our vacation fund is left over when we return.
Jason, remember too that when you purchase your home there are lots of extras. Gail Vaz Oxlade has lots of articles about the real cost of home ownership and I think the bare minimum to save is not just the downpayment but also the first year taxes (depends where you are in the year what portion you’ll owe, lawyer fees, inspection fees, land title search (to look for liens against the title), land survey to make sure fences are on your property, sheds and garages are within municipal by-laws etc, hook ups for water, sewer, power, phone, internet etc. Depending if you have a relationship with any of the companies already or not they can charge a little or a lot.
I agree with the other posters.
Plan for around 5-10% of the house cost to go to closing, lawyers, moving etc. (anything you don’t use can be put back into savings – better to save than not).
Start the discussions around what you want and what you must have in a house. Then start looking for what the baseline for your expectations is. Figure out what you’re comfortable paying into your mortgage monthly (I’d cut your rent by about a quarter to a half) and figure out what that would amount to in a mortgage. When you’re a homeowner, you have lots of other expenses that will take up that money (property tax, utilities, repairs & maintenance). With all of this information gathered, you’ll know what you need to save. If it’s going to take a few years, I’d plan on a bit more.
So for example, let’s say the average price of houses that meet all your needs and most of your wants (or with potential over time to meet the wants) is $250K. Let’s also say that you know that you don’t want to have to pay more than $400 every two weeks in mortgage payments. That means your downpayment should be somewhere around $50K (25%) -$100K ($800/month payments). Add onto that 5%-10% for closing and that’s another $15K.
That gives you a pretty definite savings goals for a few years. If, in that time, you find a dream house that is less than you were expecting bonus. Goals are important!!!
Now know…..I didn’t do all this……but if I had to do it over again, I absolutely would have.