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May 21, 2013

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I'd sell the condo (which you're losing money on every month because your renters arent covering its true costs) and buy a place in the Bay area where you do want to live. Maybe you can use some of your maternity leave to better organize your food budget spending and get that into a range so you can start a 529 for your new baby or pay down more student loan debt.

^huh??

Congrats on the new addition! You're doing great on offense, and know you need to shore up your defense. Good future plans.

You may have figured out why your classmates are paying the minimum on their student loans :) I'd start doing that and throw everything at house down payment. 10% is good, but 20% is better! I could not hate PMI any more. Once you have your new house and you're not saving for down payment anymore and aren't paying PMI, you can resume your triple student loan payments.

@Jenny may have misread, looks like your condo is a cash cow, hold on to that thing, prices in the DC area are on a very upward trajectory.

I'd up your car savings fund, $250/mo is probably not even 1 carpayment/mo.

You are both doing so well at your young age that I don't think you need any advice or are likely to receive any that you haven't already thought of.

The SF area is a great place to live and so is California. It's great to have wonderful weather and be far, far away from the Atlantic Ocean and all of the climate problems that it spawns, especially since the world has pretty much ignored the increasing effects of global warming. We are in Silicon Valley and love it, and after travelling all over the world there is nowhere we would rather be, especially now that we have been happily retired since 1992.

Wow. I see only about $5K in true continuing expenses (everything else is student loans and savings accounts). So you basically save around two-thirds of what you make after tax. That's absolutely incredible.

@old Limey...huh? Global warming? Interesting that its been the mildest spring in 100 years on the mid-Atlantic coast including several record breaking days of cold weather during the winter. What would you attribute that to? I would continue saving, avoid buying a house on the flaming liberal west coast and buy a much more affordable home on the other side of the country in the next 10 years. Unless you truly believe that SF will be a good investment and not another bubble to pop which will leave you in financial ruin. Good luck.

@Biere

There is much more to life than saving money.

I typically enjoy old limey’s posts and perspective, but that comment was a burr under my saddle as well. I like this blog because it typically avoids these unrelated explosive tangents and I am afraid this opened the door.

OP seems to be doing great and I want to encourage them to continue on their deliberate path. I share her enthusiasm and encouragement toward continued education. I also caution readers to have a goal and cost benefit analysis (as OP obviously did) in mind prior to choosing loans to finance education.

You guys are doing pretty well in terms of income and saving!

Bringing in $2,700 in rent on a place costing you $1,500 is pretty good. I would keep that :)

Paying down $110,000 of your school loans in 30 months is pretty good! If I were you, I would probably continue to pay those down aggressively so that they're gone before you have to pay for childcare since that'll cost you around $2k/month. I would even make sure your student loans are gone before you buy a house, to be honest. You have about $55,000 left. If you take the monthly savings you're putting into an emergency fund each month, house savings, and add those to your student loans, you should be able to wipe them out within 11 months and with your bonuses, probably a bit sooner. Then once they're gone, you have enough cash flow cleared up to be able to keep stashing money away into a house savings fund AND pay for childcare. If you still had your student loans, you probably couldn't still do that. (If you didn't have a baby on the way, I would almost say take your $55,000 in cash savings and just wipe out the loans today and build your savings back up over the next year.)

I would probably also look into your food spending. I would start by trying to cook one night a week and then slowly increase that. Or not even cooking, but frozen food from the grocery store instead of eating out as a baby step.

Have you done some analysis of how much of a mortgage payment you would be paying if you put 10% versus 20% down? Can you afford the mortgage payment with only 10% down? Personally, I would only put 20% down. You're going to have to pay PMI and what if prices drop again and you're stuck underwater? That would be really unfortunate. My other issue with rushing into buying a house is that you don't know how your world will change in the next few years with a kid or two. You don't know where your job might take you since you plan on changing jobs. You don't know where you would want to send your kids to school. You also don't know if you will end up having one kid or two or three for sure until you're far along in another pregnancy or two. At your guys' age, I wouldn't buy a starter home - I would buy the house you hope to stay in for the next twenty years. And if that's the case, you're not really in a hurry. Your first baby isn't even born yet and it won't go to school for another 4 years, so that gives you plenty of time to find a house in the right school district - FOUR YEARS.

Another thing - buying a house is a Big Life Change. So is giving birth. So is moving. Finding the right house takes a lot of time and effort. So does moving. Going back to work with a newborn is also a Big Life Change. So try not to too many of things within a year. I would recommend buying a house and moving either before the 7 month marker of your pregnancy (which you guys aren't ready for) or after the kid is at least a year old, since then you'll be a bit more knowledgeable about how things are going. I wouldn't stress about the low interest rates so much. I would make sure that you guys are in the right LIFE frame for buying a house before the money - with your income and ability to save, the money will fall into place eventually. You can also always rent a house/townhouse :)

Sorry for the long comment! Congrats on the baby! You guys are doing well!

@Blake, what comment was a burr under your saddle and an EXPLOSIVE (watch out everyone!!) tangent? About the weather/global warming effects on the east coast? Seriously, that's what sets you off? I'd rather deal with rain showers then hurricanes every year.

I'd like to live in San Fran...so far I've made it to Texas from Florida, so I'm getting closer.

@Biere, global warming doesn't necessarily equal warmer weather. Do some actual reading on the subject.

@Biere, not to politicize this blog, but you may have missed that 97 percent of scientific studies agree on manmade global warming ...

http://www.washingtonpost.com/blogs/capital-weather-gang/wp/2013/05/17/97-percent-of-scientific-studies-agree-on-manmade-global-warming-so-what-now/

From one MBA consultant to another...

1) Seriously consider whether you're too "time poor" to handle the added stress of owning a house. I just switched from an apartment to a townhome. Though I still am a renter, with the demands of my job (startup-like environment) there are things I just don't have the bandwidth to take care of. Like taking the trash out to the curb on Tuesdays. There are weeks I'm traveling and simply not home to take trash to a curb. I miss the trash chute from my former high-rise. Yes, it's the mundane stuff that kills.

2) Don't switch your housing situation and your job at the same time. All the minutiae that must be handled and require attention, though not all that hard, are time-consuming and attention-consuming. I work 5 min from where I live, but I had to ask a friend to "housesit" for a day to wait for the gas guy and the cable guy to get my utilities connected, because I can't take 4 hours off to stay at home while I'm in a brand new job. A new baby would make that exponentially more complicated. Keep your housing situation stable during your first year with your baby.

3) Consider creative alternatives that might cost a little more $ but buy you flexibility. Transitioning out of consulting, I now need a car. I don't know what I want or how long I'll live where I do currently (suburbs) so I don't want to take a car loan. I'll know better in a year whether I'm in a long-term good fit or not. So, I'm taking over someone else's lease for the remaining 14 months so that I have a nice car, at low cost, with no up-front cash outlay.

@Ryan, I've done reading on the subject but it hasn't been from some flaming liberal publication. You know what they say about someone who assumes...

My wife and I are in a very similar situation, and have chosen a different path. We both work in consulting, on the cusp of making partner, and just had our first baby last fall.

We are moving from San Francisco to the East Coast because we want a place to call our own, and value other things in life highly too. Even though we have considerable assets and high incomes, looking at paying $1M+ for a (small!) house meant a) a high proportion of our income would go to housing nearly indefinitely, b) we would have virtually no flexibility for my wife to stop working at any point in the near future and still save anything.

S.F. is great for people like Old Limey who bought their house in 1971 for $18 or the people who have gotten rich off the tech boom(s). For everyone else, there is a high degree of slavery to housing.

Also, everyone likes to say "having a kid changes everything". It does and it doesn't. I know from experience, you work won't care a bit once you've been back a week - they have the same demands regardless, and you having a kid at home will be quickly forgotten about. Most people at our level have the competitive desire (plus the carrot they have been dangling for many years) to try for partner - but having the kid did change that for both me and my wife. I'm saddened at the thought of exchanging 3 nights away from my daughter every week for a pile of money.

You'll find out quickly after your child comes which way you lean.

I don't have much to add except if you are really looking at wanting to change your eating out, you may consider looking into one of the many meal planning services online. For a small monthly fee, most will provide a week of dinners with recipes for preparing them and include a grocery list. Many of these services cater to a wide range of eating preferences like small scale meals for 2, gluten free, "real" unprocessed foods, or allergies. Another consideration would be a grocery delivery service.

You are doing well. I would suggest waiting to buy until you have at least 20% down and have your remaining debt paid off. I would consider selling the condo as a way to have additional funds towards the downpayment.

I agree with Strick. You guys got it going on. Your "fixed" needs/expenses are a smaller percentage of your income than your voluntary "wants"/savings.

That is just great.

In your case, in my humble opinion, it is just a matter of prioritizing your "wants".

You already aggressively pay down student debt, you have targeted savings accounts for future "wants" like a house and a car, you save the max in your retirement accounts etc....

I say focus on those voluntary savings accounts and simply prioritize them. There is plenty of money there to live a nice life and save an appropriate amount. Figure out what is most important to you and literally list these things in priority order. You may decide that a used car is good enough. You may decide that your emergency fund can double up as your condo rainy day fund. You may decide that paying the student loan is higher on the priority scale vs buying a house.

These are personal decisions only you can make.

As far as guidelines.... if it were me I would focus on putting most of my money in investments that appreciate or create income rather than those that do not. House wins over a car. I would keep the DC condo too. Maybe refinance it at todays low rates if there is equity. You could take out some "tax free" loan proceeds to use toward your down payment? I would wait to buy your new house until you could truly afford it as well. In my opinion-- 20% down is the minimum required.

Your doing great. Good luck.

It sounds like your careers are not conducive to raising children. Between travel and insane hours when in town you will need lots of family support to raise a child or you will likely need more than just traditional daycare,you may need a live in nanny or something.

I'm kind of thinking the same thing Jessie is. I know I'm biased because I'm not a competitive "Type A" kind of person...but 2 people working full time and raising a kid in the Bay Area just sounds like a rat race to me no matter how you slice it.

Try out HelloFresh - it combines meal planning + grocery delivery for 3 dinners per week. Compared to buying your own, it's pricey, but compared to eating out it's a bargain. For people who are time-poor, I think it's a brilliant innovation.

SB,

You are doing great. My advice would be to avoid lifestyle inflation as much as possible- very difficult when having a child (and I am speaking from experience)- both of you working full time may be difficult with a baby so try to save as much of the dual income as you can.

You probably should think about getting a house, ideally you would have more savings on hand since there will be unexpected expenses that come up with home ownership- but if you find a nice place you may need to jump on it now.

Best of luck- Mike

Great job! I have a very simalar situation. First of all, the one bedroom didn't work for us. We had to move when the baby was 7 months so have a contingency plan for that. We paid off all student loans before Baby. We also paid off a vacation home debt. It was simply for peace of mind and like you, we save 50%+ of our after tax income and max our retirement savings. We are now renting out our former bay area condo at double the mortgage and simply renting a very nice single family home in a nice neighborhood but mediocre schools. We will wait to buy when our children reach school age. We want to have more money down and it's not like interest rates will skyrocket overnight and if they did, I assume home prices will adjust accordingly. For work, I came back to work at 30 hours a week and got a nanny. An aupair is much cheaper but my husband does't want anyone living with us but it may work for you if you moved. At work I keep getting raises, bonuses, and promotions so I haven't suffered yet for this decision. I suggest reading Lean In, I think it is very possible for women to have high level careers and have a family life. Don't take yourself out of the job market before you know what is possible. Perhaps coming back from maternity leave a little earlier at a reduced schedule just to see how it works. You just may be able to have everything you want.

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