Help to Review my situation (Long time member )

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I am not posting as a newbie to hide my handle so need honest opinions from fellow Fatwallet friends ..Pls be gentle and understand the reality of the questions and not the past ....
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Please don't ask about the past ,as lot of things happen and we are starting over fresh from the last 3-4 years .
Have a relatively stable job and family (3 person family .1 kid 7 years old ).Here is my monthly expense . 
Wife is taking care of kid and not working now and want to work in the near future (3 -5 yrs )


Monthly Expense 
---------------
Rent :1600 
Utilities :100
Car /insurence :800 (2 cars 1 paid out 1 outstanding 30K with 10K paid out already )
Internet/Phone : 100
Groc: 400
Kid extra curricular : 300 (Swimming /karate/Arts/maths etc )
Fuel :100
Misc :400-500

Average Monthly exp as above vary between 3.5-4K 

Income :
150K base and 32 K Annual bonus (and 4% top of this as 401K match ) . So gross package will be around 190K and looking for a 20K raise next year 
i am good at my job and always got 100% of the bonus in the last 3-4 yrs (after i started this job). 
401K company max at 4% match for my 5% contrinution so hitting that 5% mark 
401K current balance 35K ) ( PLs don't ask why didnt start in the past as multilpe things happend and we just starting over for the last 3 yrs only
401 itself started last 2-3 yrs ago only.
I have a cash balance of 60K in Discover checking for 1% APY
safely net of 8K in my day to day checking account 

Monthly take home around 8k and with all the above expense we net around 4k savings monthly (annual bonus not included in the savings ,that after tax will be around 18-20K)

Here is my ASK and suggestions 

I know my net worth and Savings are not in the right range for a 150K salary person but I am just re -starting out at a relatively later age (35 yrs old now )

We are thinking about buying a home and our requirements home starts from 500K only in the area we are looking (simple req ; 3-4 Bd /3 Bath ,2500 Sqft ,relatively new const , Best schools and in a developed community not far from regular things )
We are in IL suburbs and Tax rates are high . All the homes we looked o far has a tax rate of 12K minimum per year and a HOA of 200-400K ( we want a community not a independenet single house due to my trael req and family safely in a closed community )

All the Rent Vs buy calcs so far suggest to keep renting 


Questions : 

1. Am I saving enough ?.  suggest if any suggestions to max the savings 

2. Should i buy or keep renting for some more years before even thinking about buying 

3.where can i start getting more value for money (than the 1% APY in discover . I had some bad investing exp during the last recession but can try again a relatively safe investment strategy )

4. Any other suggestions for investments or buying strategy 

5.Am I living too high for my income do i need to step down anything (I know new car was my bad decision . but some times we live once and got into the flow...I still regret it but anything i do now for that is not going to improve that ). 

Member Summary
Most Recent Posts
I've found that living in a way so that all your friends think you're poorer than they are tends to work out really well... (more)

Infinion (Oct. 21, 2016 @ 1:20p) |

You could buy now, but not advisable.

If you really want the suburban lifestyle for your family, go rent a house in the b... (more)

rascott (Oct. 23, 2016 @ 6:10p) |

Thanks for all the suggestions . I decided to continue my rent for another year at least before thinking about buying .M... (more)

zeal4thil (Oct. 27, 2016 @ 9:14a) |

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Senthil,

I have a feeling that your monthly spending might be more than 3.5k to 4k, from my experience having a very similar family and mortgage lower than your rent.

With respect to buying, the property prices kind of hot now, wait for it to cool down a bit by December.

I am also intrigued to know a 2500 sqft sfr is in $500k range in IL suburbs.

To compensate the low retirement savings, do you have any investments in foreign countries?

You need to add more info to people to give you suggestions.

I am based out of downtown office but do travel a lot and my company compensate me for mileage on top of rentals ,fuels ,air tickets etc which usually be another 500-1000 per month on top of this so that will take care of additional misc spend.

I don't have significant foreign savings due to some bad choices .As I mentioned not want to go in deep of past ,as i know i could/should have saved significant by this time . SO wanted to move and focus on future from this base .
 

Keep renting, save $4k/month plus your 401k and you'll be fine.  When you've got enough cash saved up ($50k ish), consider investing the rest in some index mutual funds or ETFs.  Vanguard has some Target retirement ones which are cheap and simple, for example.  Don't be in a rush to buy a house.  Maybe your job will take you out of IL and you could save a bundle on state taxes then too.

You should also think of how career progression will be for your field of work.

If you think you can crack $300k mark in next few years, then a $500k house is easily affordable by all means.

Some peple hit the ceiling at certain pay levels and have to keep that in mind when making decisions.

What other savings do you have? Stock trading/ precious metals etc?

Strictly from a finance perspective, following the rent/buy calculator would be the right thing to do. But there are intangible benefits to owning that might make you want to buy anyway.

Does your wife have any marketable skills once she joins the workforce in 3-5 years?

cdddazz said:   Does your wife have any marketable skills once she joins the workforce in 3-5 years?
  I want to plan for the worst case scenario of she not going for job .so not considering her potential skills in to my situation .anyway after 2-5 yrs what ever skill she has now may be obsolete 

TravelerMSY said:   Strictly from a finance perspective, following the rent/buy calculator would be the right thing to do. But there are intangible benefits to owning that might make you want to buy anyway.
  this is the exact reason why even i am considering the buy option . we are living in a two bedroom apartment now (which is ok on most of the time ) and  lot of our friends are living in own home .every time we go for a party or get together .we feel the need for additional space and backyard . 
Financially i may be able to stretch it and buy but my monthly savings will come down to less than 1.5 k or even worse . 

The only thing i am considering buying is to give my kid a lifestyle of basement ,back yard ,friends get together etc...
 

iyrishraven said:   You should also think of how career progression will be for your field of work.

If you think you can crack $300k mark in next few years, then a $500k house is easily affordable by all means.

Some peple hit the ceiling at certain pay levels and have to keep that in mind when making decisions.

What other savings do you have? Stock trading/ precious metals etc?

  currently there is no other savings other than what i listed . i had lost a significant part of savings in some bad investments (my earnings in age 20-33 ) . 

You're not doing the rent vs. buy correct. Compare renting or buying the same space!

TravelerMSY said:   You're not doing the rent vs. buy correct. Compare renting or buying the same space!
  current rental is 1200 sqft and i am comparing this to homes around 2200+ sqft .so more like a affordability of my current situation question .i need a base to compare so took the current rental as base for affordability .

 

Did u factor in appreciation in your rent/buy calculation?

If the 2-bed space works for you for 99% of the time, but you want to be able to entertain your friends, then stay in the apartment and throw a couple of shindigs a year at swanky places and you'll still save lots of money AND your friends will think you are cool.

From a financial point of view continue renting and save as much as you can. You do not have enough cash for a down payment & an emergency fund. Pay off the car and religiously make that payment to your savings. You thus get a return on your payoff of whatever rate you are paying the bank or loan company.

From a non financial point of view: Buy. However, you are looking at homes that exceed your current living situation and thus are more than you can afford. Figure out what you can compromise on. Perhaps a 3 bed, 2 bath, 1500-2000 square foot house in an area such as you described.

You are going to fall in the trap of trying to keep up with the "Jones". The Jones are great people, but they either made better choices than you or family gave them money. If you don't make enough, then stop trying to buy what you can't afford. Just be thankful you have friends that are doing well. You will get there, it may just take longer. In the immortal words of Captain Ackbar, "Its a trap!"

You manage to save ~$45-50k/yr not including bonuses and you wonder whether you are saving enough?

This type of thread used to be called out as epeen measuring.

Start maxing out the 401k to the IRS annual limit. No sense in saving $4k post-tax money per month when you have $68k cash. Max the 401k, take home less for savings, and use that tax advantaged account to therefore pay less taxes annually.

ETA: "5% mark" - what is this mark you speak of? The only "mark" I'd aim to hit at your income and with your lack of serious liabilities is the annual IRS maximum.

drew2money said:   You are going to fall in the trap of trying to keep up with the "Jones". The Jones are great people, but they either made better choices than you or family gave them money. If you don't make enough, then stop trying to buy what you can't afford. Just be thankful you have friends that are doing well. You will get there, it may just take longer. In the immortal words of Captain Ackbar, "Its a trap!"
  This is what my financial sense tell me but the intangible benefits of owning the home  and the above average yearly income trick me so wanted to have a second opinion before sucked into a trap .

Thanks for all advises . 

SUB said:   You manage to save ~$45-50k/yr not including bonuses and you wonder whether you are saving enough?

This type of thread used to be called out as epeen measuring.

  by no means i didn't intend to imply like that .that's why i said "Please don't count" my past and i am starting over .Apologize if it meant so . 

I am aware and thankful for 40-50K Savings now but this savings is only from for the past couple of years (@ 35 years of age ) . No tangible Savings till 2 years back and that's why i want to take a reality check whether i should buy or should continue rent and live below the means to save till enough safely net is created for future before making a big decision of buying a home in 400-500K range .I may not have multiple start over opportunities if this go south ..

Thanks for the honest opinions .I appreciate it 

jaytrader said:   Start maxing out the 401k to the IRS annual limit. No sense in saving $4k post-tax money per month when you have $68k cash. Max the 401k, take home less for savings, and use that tax advantaged account to therefore pay less taxes annually.

ETA: "5% mark" - what is this mark you speak of? The only "mark" I'd aim to hit at your income and with your lack of serious liabilities is the annual IRS maximum.

  I agree and take your point to max out the 401K limits 
5% mark is the max contribution i need to do to max company contribution (4%) ,post which it's going to be only contribution . I was delaying the max limit to build some liquid cash as safely net and to save enough if need to put a decent down payment (15-20%) .
as of now my annual contribution at based on my 5% and 4% company match come to ~15K (fortunate my company contribute 4% on my bonus payout and take out 5% from my bonus payout too ) .So little room for improvement to max .
but point taken .will increase to hit the limit 

You can afford to buy a home but not right now.

First steps

1. Do you have adequate life insurance? If not, get it. I would get a minimum of $1.5 milion 20 year term in your case.
2. max out your 401k
3. then laser focus on paying off those cars.

You should be debt free within the year.

Then increase retirement and college savings to 18-20% of your gross income (about $30k-$35k per year)

Then save for a minimum 10% down payment on a house; 20% is better.

Then I think you can buy the house you want in the $500k range.

I wouldn't worry about appreciation over the next 2 years. Markets are leveling off some.

psychtobe said:   You can afford to buy a home but not right now.

First steps

1. Do you have adequate life insurance? If not, get it. I would get a minimum of $1.5 milion 20 year term in your case.
2. max out your 401k
3. then laser focus on paying off those cars.

You should be debt free within the year.

Then increase retirement and college savings to 18-20% of your gross income (about $30k-$35k per year)

Then save for a minimum 10% down payment on a house; 20% is better.

Then I think you can buy the house you want in the $500k range.

I wouldn't worry about appreciation over the next 2 years. Markets are leveling off some.

  Thanks for the inputs .points taken .

zeal4thil said:   
jaytrader said:   Start maxing out the 401k to the IRS annual limit. No sense in saving $4k post-tax money per month when you have $68k cash. Max the 401k, take home less for savings, and use that tax advantaged account to therefore pay less taxes annually.

ETA: "5% mark" - what is this mark you speak of? The only "mark" I'd aim to hit at your income and with your lack of serious liabilities is the annual IRS maximum.

  I agree and take your point to max out the 401K limits 
5% mark is the max contribution i need to do to max company contribution (4%) ,post which it's going to be only contribution . I was delaying the max limit to build some liquid cash as safely net and to save enough if need to put a decent down payment (15-20%) .
as of now my annual contribution at based on my 5% and 4% company match come to ~15K (fortunate my company contribute 4% on my bonus payout and take out 5% from my bonus payout too ) .So little room for improvement to max .
but point taken .will increase to hit the limit 

  $18k is the employee max. Employer contributions don't count against that.

5% of $150k = $7500
5% of $30k = $1500
Total employee contributions = $9000. You're only halfway there.

jaytrader said:   
zeal4thil said:   
jaytrader said:   Start maxing out the 401k to the IRS annual limit. No sense in saving $4k post-tax money per month when you have $68k cash. Max the 401k, take home less for savings, and use that tax advantaged account to therefore pay less taxes annually.

ETA: "5% mark" - what is this mark you speak of? The only "mark" I'd aim to hit at your income and with your lack of serious liabilities is the annual IRS maximum.

  I agree and take your point to max out the 401K limits 
5% mark is the max contribution i need to do to max company contribution (4%) ,post which it's going to be only contribution . I was delaying the max limit to build some liquid cash as safely net and to save enough if need to put a decent down payment (15-20%) .
as of now my annual contribution at based on my 5% and 4% company match come to ~15K (fortunate my company contribute 4% on my bonus payout and take out 5% from my bonus payout too ) .So little room for improvement to max .
but point taken .will increase to hit the limit 

  $18k is the employee max. Employer contributions don't count against that.

5% of $150k = $7500
5% of $30k = $1500
Total employee contributions = $9000. You're only halfway there.

  Thanks for the insights .will check this and improve my limit to max .

Have you checked out the rent for house in the area? Most often the house rental may only be $150-$250 more per month which could solve your concerns about backyard and stuff

From the OP "Monthly take home around 8k". This equals 96K. Since gross is 190K, it means nearly 94K is being deducted from payroll before living expenses are spent

Some of the payroll deductions are

payroll taxes (soc sec 7% capped at 120k, medicare 2%) 12K
401K 4% 8K
state tax est 10k
fed tax est 30k
medical 5k

Total deduction = 65k so net = 125k

What else is in the deductions to take the net down to 96K?

I doubt he was counting the bonus in a monthly fashion. Your math is cherry picking...

$8k monthly take home * 12 months = $96,000

OP said bonus was about $18-20k net... $96k + $20k = $116k

That's within the ballpark of your $125k take home figure, which is VERY rough.

jaytrader said:   I doubt he was counting the bonus in a monthly fashion. Your math is cherry picking...

$8k monthly take home * 12 months = $96,000

OP said bonus was about $18-20k net... $96k + $20k = $116k

That's within the ballpark of your $125k take home figure, which is VERY rough.

  this is right . I am not counting bonus payout in my monthly take home.
On average i am expecting to net 118-125k range this year including bonus after all tax,401k contributions (at current 5% ) and my health insurance contributionsetc..

zeal4thil said:   
jaytrader said:   I doubt he was counting the bonus in a monthly fashion. Your math is cherry picking...

$8k monthly take home * 12 months = $96,000

OP said bonus was about $18-20k net... $96k + $20k = $116k

That's within the ballpark of your $125k take home figure, which is VERY rough.

  this is right . I am not counting bonus payout in my monthly take home.
On average i am expecting to net 118-125k range this year including bonus after all tax,401k contributions (at current 5% ) and my health insurance contributionsetc..

So deducting 48K expenses, you are left with savings of about 70-75 K every year.

To your questions
1. You can always save more but you seem to be doing fine
2. Buy vs rent - Save 150 K first. Then buy a home. if you buy a home of 500 K with 20% down, PITI + HOA costs would be near 36000 per year. Out of this 28 K would be on Schedule A giving you tax credit @ marginal tax rate of 30% fed and 6% state. So you are left with home expense of 21400 per year or 1785 per month (including HOA and Insurance but not including principal). Comparing this to your rent of 1600, buying a big new home in a good area looks like the right choice
3. It is possible to get more than 1% if you are able to take more risk or do more work or lose liquidity. Stay with 1% until you get settled in your home and get back to 150K savings. 
4. None - Keep adding 75 K or more to the savings and keep looking for a home
5. Living high - I think your savings rate is 40% after all taxes and expenses are paid. That is not living high
 

zeal4thil said:   
drew2money said:   You are going to fall in the trap of trying to keep up with the "Jones". The Jones are great people, but they either made better choices than you or family gave them money. If you don't make enough, then stop trying to buy what you can't afford. Just be thankful you have friends that are doing well. You will get there, it may just take longer. In the immortal words of Captain Ackbar, "Its a trap!"
  This is what my financial sense tell me but the intangible benefits of owning the home  and the above average yearly income trick me so wanted to have a second opinion before sucked into a trap .

Thanks for all advises . 

  
I've found that living in a way so that all your friends think you're poorer than they are tends to work out really well.  Once they know you're loaded they expect you to pay for everything.  

On the Rent/Buy question:  First, lots of people grow up in tiny apartments and turn out just fine.  Second, there are other places to rent if that's a better option or a compromise for now.  This depends on the area, but in my area, a large apartment complex provides a lot more amenities than I, or anyone else living here, could otherwise afford.  I don't have kids, but my neighbors that do are able to give their kids a huge lake out back, a swimming pool, a playground and volleyball courts, and lots of 'backyard'.  For parties and friends, you've got the whole pool deck, the common areas in the office building, etc.  Since you travel, I'd think the built in maintenance and community protection of a rental would be nice for the fam.

You could buy now, but not advisable.

If you really want the suburban lifestyle for your family, go rent a house in the burbs. I'm sure you could find something for around $2k that would fit your needs.

Thanks for all the suggestions . I decided to continue my rent for another year at least before thinking about buying .Most of your suggestions point me to the same way .

 



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