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URL:  http://boards.fool.com/but-how-did-you-decide-how-much-to-save-how-much-13795834.aspx

Subject:  Re: How did you do it? Date:  11/28/2000  7:55 PM
Author:  2gifts Number:  15380 of 128688

But how did you decide how much to save, how much home you could afford, how much home you WANTED to afford, and when you were ready to go for it? And how did you rationalize not putting the money away for the future?

There's a side of me that just doesn't want to let that go, even if it IS for a house. Part of that has to do with "future security," and part of it has to do with the fact that any money NOT in our 401K plans is income taxed now. Part of it has to do with being really happy about how much I've saved for retirement so far, and not wanting to stop.


Whenever we were househunting, I reduced our 401k contributions and our company employee stock plans to the minimum allowed to still stay in the plan, and put the extra into the house downpayment account. My reasoning was that this method allowed me to increase my percentage withheld at any time rather than having to wait for the next enrollment period, so I could get back into the plan anytime instead of having to wait 6 months. Your plans may or may not work the same, but this is a method to use if your plans allow it. Other than that, I figured we would still have plenty of time to save for retirement, but we needed a place to live.

Goals are nice, and retirement does need to be funded, but there are also other things you need to do along the way. In my mind, that includes things like owing our own house and putting the kids through school. I adjust our standard of living accordingly, and so we are able to put aside for all these things.

Another tactic we used when we were buying our first house was to buy a multi-family and live in the worst apartment. That allowed us to really have someone else pay the mortgage while we saved for the downpayment on a single family house. I'm not sure that would work for you in Silicon Valley, but it might be worth thinking about.

As far as how much to put down, we have always put down at least 20% so that we could avoid PMI. And I only like to use 1 paycheck to qualify for the mortgage, so our 2 single-family houses have had mortgages that meet that criteria. This allows us flexibility in terms of job opportunities or having one of us stay home for some period of time, something both hubby and I have done at one point or another without changing our lifestyle and while continuing to save for the kids' college.

I have always decided ahead of time based on my salary what we could afford for a house with that number going up as our downpayment rose or, in our case, we got relocated so someone else paid closing costs and moving expenses.

Whenever we were saving for a house, we have always gone into what I think of as 'massive house savings mode.' That means we cut out all non-essential expenses for at least 6 months or however long it took to save the downpayment. Things we got rid of included any eating out, always brown-bagging to work, cutting back on the thermostat, and cutting back on Christmas gifts.

As far as focusing on retirement, that's OK if that's really your primary goal, but you might need to revisit that now because you want to save for the house, and sometime down the road when you may have children and want to save for their college. Early retirement is a nice goal, but I don't believe it should be at the expense of everything else along the way. You do have to live, and you should enjoy your life now as well as in the future. There can be a balance.
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