Well I'm out of debt, and we want to buy a house soon.I am 27, have $9500 in a 401k, and no IRA, married and have a 2 year old son. My wife stays home with our son, and I make about 80k a year gross income.I'll have about 4k in savings by April 15th. But really that's the start of the 8k emergency fund I am trying to build in case of job loss mostly (I am a computer programmer).I was considering taking some money and funding a 2002 Roth IRA. But the other problem is we really want to get into a house within a year, while rates are still low, so I hate to take away from money available for a down payment.Do you wise Fools see an option that is obviously the best choice for me? Things get a lot more complicated when you get out of Credit card debt, haha.thanks,Vegas
Out of CC debt is such a good thing.Either way I would say keep the money you want to put toward a house safe (Suze Orman would agree). You can contribute to a Roth and put it in a MM fund then if you really need it you can take it out. Or you can put it in an ING savings acct. (2+%) or short term CD and have it ready to go when house time rolls around. Either option is OK...no one clear winner.I am in a similar situation and I am opting for the ING acct. but after taxes there is really little gain...but 2% is better than 1%.Keep working for that emer. fund...a layoff in a new house would be a really bad thing.Best of luck,DC--Wishing and hoping and thinking and praying about someday affording a home to call my own.
Thanks for that advice.. Putting it in a Roth and then taking that money back out hadn't occured to me.Currently I have about 2k in an ING DIRECT account, which I'm using for my emergency fund.I guess there wouldn't be much drawback to putting money in a Roth since I can always take the contributions part of it back out at any time right?-Vegas
Greetings Vegas:I guess there wouldn't be much drawback to putting money in a Roth since I can always take the contributions part of it back out at any time right?Here's one that came to mind. When you withdraw the contributions, you'll leave nothing but earnings in the account. And if the money was in a MMF, the earnings prolly won't amount to much. As a result, the institution where your Roth is held may have a policy in place where they'd want this account closed relating to certain account minimums. Then you'd have taxes and penalties to worry about. I'd make sure this wouldn't be a problem with the institution where you plan to open the Roth.JMHO, I'm not a big fan of loosing opportunities to further one's retirement goals by contributing to a retirement account when it's not really meant to be use for its purpose. When you contribute to an IRA for a particular year, you cannot get that year back if that contribution is removed from the account. You're also limited on how much you can put in this house fund with the Roth's limits. With a MMF at a fund company, the sky's the limit. Again this is JMO.I agree the house fund is most important as well. But maybe you can contribute to both that fund and a Roth.HTHBookm
Congrats on getting out of debt. Marriage with a non-working spouse is soooo nice from a tax standpoint. Personally, I think your savings is a little low to be considering a house in the next year. Focus on increasing your savings rate. If you make 80K, live on 40K, pay 12K in taxes, and save 38K in the next 12 months. You can do it. Then you'll be in a far better position to put a down payment on a house without losing 100% of your savings. Mortgage rates may be low, but you won't live in your first starter house forever. When you have to move, you'll get a new mortgage at the going rate. I wouldn't base the decision solely on current interest rates. People said rates were at "historic lows" a year ago. Now they're even lower. And houses have plenty of costs as well as benefits. If you have a home, it's far harder to move if you, say, lose your job.Regarding the Roth, I'd max it out and invest it fully in securities, even if in means waiting on the house for a few more weeks. They're just too good a long term savings vehicle to pass up.Nick
If you make 80K, live on 40K, pay 12K in taxes, and save 38K in the next 12 monthsHrmm that adds up to 90k not 80k...Anyway I assume you mean live on 40k, pay 12k in taxes and save 28k in the next 12 months. I agree it is possible, although very very tough. I guess it depends on if I have any extra expenses. For one thing, we need a new car. I know I know you think I shouldn't get one, but we don't have a suitable car for our 2 year old ever since he moved to a toddler seat. The darn seat will NOT fit in our car, our Truck we deem "unsafe", and our Van is on its last leg. So we'll probably buy an old station wagon and sell the Truck.-Vegas
After reading through the thread, I'll add my $0.02.You make 80k, so I'd aim for about 20k as an ER fund (Three months of pay checks). I'd also try to fund the Roth IRA along the way, for both yourself and your spouse. IIRC, the rules changed where a non-working spouse can make a full contribution. Once the ER fund is established, this could help pay for the car. I go for new but I keep them until they just can't be fixed anymore. In my life I've been involved with 4 cars that have gone 100k+. The last thing I'd worry about is the house. Yes, it's nice. But until you get on a little more sound financial footing you could wind up in trouble. Biting off more than you could chew if something were to happen. Sign for the mortgage and next month lose your job.JLC
You make 80k, so I'd aim for about 20k as an ER fund (Three months of pay checks). I'd also try to fund the Roth IRA along the way, for both yourself and your spouse. IIRC, the rules changed where a non-working spouse can make a full contribution. Once the ER fund is established, this could help pay for the car. I go for new but I keep them until they just can't be fixed anymore. In my life I've been involved with 4 cars that have gone 100k+. The last thing I'd worry about is the house. Yes, it's nice. But until you get on a little more sound financial footing you could wind up in trouble. Biting off more than you could chew if something were to happen. Sign for the mortgage and next month lose your job.Well 3 months for us is more like 12k. I think you were using gross income not net, in your calculation to get 20k. We were planning on having just an 8k E-fund, since I figured unemployment could make up the other 4k, to give me a 3 months living expenses total.The thing about the house is we can buy a pretty nice one here in Indiana for a paltry 120k. Practically everyone here owns a house because they are so cheap. I want to save at least 10% for a down payment but am tempted to just put down 5%. Most people I know put down 3% or less... A house would be "barely" more expensive than renting, so its hard not to buy one. I do worry about job stability though.-Vegas
I guess there wouldn't be much drawback to putting money in a Roth since I can always take the contributions part of it back out at any time right?This is true. Today you can link your Roth acct to your ING acct and then when (or if) you need the money you can transfer it directly.DC--The internet really does help save money.
This is my first post, and please pardon me for jumping right in, but child passenger safety is a passion of mine. Vegas, there may be a less expensive alternative to replacing the car that your toddler seat won't fit in! Different seats fit differently in the same vehicle. You could spend $60-$100 to replace your current seat. Or, you could visit a certified Child Passenger Safety technician (http://www.seatcheck.net/) for free assistance with installing your current seat. Many times, there are little "tricks of the trade" you that a CPS tech will know that will get a seat in the vehicle rock solid, even if it seemed in possible before.Also, if you do decide to go with a new vehicle, don't just assume that a station wagon will get you more space than a sedan. I made that mistake 3 years ago. Our Saturn SW2 actually has less room than a Toyota Camry! http://www.car-safety.org has some good info about selecting a good family vehicle (and also about correctly installing child safety seats).--Ulrike
Ulrike,Welcome to the Fool Message Boards! Nice to have you along.Take a look at the vast selection of boards. I thought there were only one or two that I wanted to follow. I've since found about 10 more. Good info! Thanks for taking the leap.billyturtle
>>Hmm that adds up to 90k not 80k...Sorry, I must have been brain dead when I wrote that. Yeah, save 28K not 38K.>>we don't have a suitable car for our 2 year old...Of course in that case it's time to buy a car. Child safety is far more important than anything you'll read on the Fool discussion boards! Personally I'd buy a 3-4 year old Honda if I were looking for something economical, durable and safe. My neighbor's '91 Civic has 261,000 miles on it and runs perfectly. Nick
I'd try for more like 4 to 6 months of expenses as the emergency fund. Jobs are hard to come by. And be careful when you say a house is "barely" more expensive than renting. Remember, you're going to spend several thousand dollars a year just doing maintenance and improvements to the house (unless it's brand new). And property tax, and homeowners insurance, and yard maintenance, yada yada yada.