Max out your retirement accounts into index funds.
Play a team sport.
Take care of your health and fitness. Build some muscle.
Dont waste time living or workin in a place you dont want to be.
Yes to all of this, but most importantly don’t defer things you really want to do “for later” or “for retirement” as the knees might not hold out and the people you want to do it with might be gone. Somehow, save for the future and live for the present as you never know what will happen.
Don't be so quick to upgrade the "stuff" you have - cars, phones, computers, etc. You don't realize it and won't admit it but you're playing the "keeping up with the Joneses" game. Your pay increases are better suited to be dumped into entire stock market index funds (VTSAX for example) and left alone. You might just end up in your 40's as financially independent or at least be looking at not needing employment by your 50's.
Occasional upgrades are fine and necessary sometimes but try to outright purchase them, especially cars - start small with what you can fully purchase and save until you can fully purchase the next one.
When you consider buying a house realize you likely need to own that home for 7 years before you reach a break-even point (first years are lot of interest payments). Home ownership has many additional costs people neglect to think through when buying - all the mechanical systems are yours to maintain, the appliances, the upkeep like lawn, paint, pests, HOA dues, property taxes, etc. At least in the last 6-7 years the amount of mortgage interest + taxes hasn't broken the US Standard Deduction for my household so the advantage of lowering your federal income taxes may not be there either.
That 7 years figure is absolute nonsense. Even in more "normal" interest rate periods (pre-2008) the advice was 2-3 years (mainly because of property taxes).
For example a three bed house might be £1200 to rent, but even at a 4% mortgage a £250k house costs roughly the same in mortgage payments and only roughly £400 will be interest payment each month.
In 7 years that's £67,200 in equity the home owner has accrued while the renter has nothing. Even taking off fees of a few thousand shows your sums are very, very, very wrong.
Worse still, if you're talking about the LAST 7 years you've made an even bigger mistake. Because interest rates were so low you'd have been paying much less in interest and had you been overpaying your mortgage as if you'd been paying the rent for the same property you could probably have accrued £80k in equity. Plus all the house value increases, probably add on another £50k.
So if you listened to this person 7 years ago it would have cost you £130,000. Not just a little bit wrong in their advice, but staggeringly, stupendously, wrong.
And I say this as someone who made this mistake 20 years ago and cost myself probably £150k+.
Always overpay your mortgage when the interest rate is low!
It would be best to use a rent vs buy calculator. You have to make some assumptions when figuring out the optimal number of years like how much the value of the home will go up, how much rent will go up, etc.
Here in the US mortgages are typically 30 years, so taking your $250k @ 4% example over 30 years is $1200/month. After 7 years you'd have paid $35k in Principle and $66k in Interest [0] leaving a balance of $214k. The $1200 mortgage payment doesn't include property/school taxes per the jurisdiction, estimate $300/month, it doesn't include PMI (mortgage insurance for putting down less than 20%), it doesn't include HOA fees either which we'll estimate PMI+HOA at $100/month. So the total cost per month is $1600 which is $134,400 over 7 years. Property taxes and HOA fees could be a lot higher depending on location and they also typically increase every couple years, I'll keep it simple and skip those facts.
After 7 years of owning that $250k home you will have paid $134k in total costs for it and property taxes, PMI and HOA, not including any maintenance costs (see my comment about maintenance/mechanical systems). So your $250k home will have to have appreciated over 50% in 7 years and be worth $384k for you to cover the costs of property taxes, PMI and HOA fees plus the mortgage principle+interest. If its less than $384k you are not breaking even (I'm not adding in all the extra stuff that happens with owning a home either).
Real estate advice is also generic and location matters a lot. These past few years property values have soared, which is unusual. They haven't soared everywhere though. Inflation has also soared along with interest rates so yes on paper a house may have inflated value (like +50%) but the numbers of buyers and sellers has gone down dramatically, values will also fall from their highs.
It's not $134k to break even, it's is that $134k less than $[YOUR RENT OVER 7 YEARS]. Unless your suggestion is we should all go homeless.
But your landlord also has to pay property/school taxes. Your landlord has to pay HOA fees. And landlord fees, business taxes, administration fees, accountancy fees, or whatever delights the US tax systems have conjured compared to the UK one.
And they have to make money. Otherwise they'd just sell the house and put the money in a tracker fund. So they have to make 5% per year on $250k. Which comes out at...
$1250. Oh, how odd! It's the same as the 4% mortgage payment (smart readers will notice that's today's mortgage payment, not the low mortgage rates over the last 10 years!). Or they put 20% down on the house and pay a mortgage. For a higher amount than a home owner. With no tax breaks.
So they have a base price, $1250 + taxes + HOA, etc. ANything less than that and they should just stop being a landlord. A quick google brings this up about the US rental market:
The amount of rent you charge your tenants should be a percentage of your home's market value. Typically, the rents that landlords charge fall between 0.8% and 1.1% of the home's value. For example, for a home valued at $250,000, a landlord could charge between $2,000 and $2,750 each month
So the advice for minimum rent on a $250k house in the US is $2000, minimum.
7 * 12 * 2000 = 168,000.
So the question is, do you want to spend a minimum of $168,000 on rent. Maybe up to $231,000. That's what you will lose on rent. There's no "break even", you don't benefit from house price rises. That's dead money you're never going to see it again.
Or do you want to spend $134k on home ownership? And have $35k in equity (which you conveniently left out of your calculation). Probably much more equity than that because of inflation and house price rises, unless you bought when houses were at a peak.
What you've got wrong is that the "cost" of buying vs renting is actually the one-off fees you pay each time you buy a house. The lawyers fees, the mortgage arrangement fees, the legal searches, etc. The cost of selling your home (the estate agent fee, realtor in America I guess). In the UK we have a tax too, stamp duty, when you by a home.
And if you move in 2 years you have to pay all that again.
That's why it sometimes make sense to rent vs buying.
But long-term, buying is always better, because landlords have to make money and have the same costs as a home owner. It's basic economics.
You're assuming that all landlords are rational. Many either see it as a leveraged investment where rent is just one factor to offset their cost, hoping that appreciation will make it profitable. Or the home had strong appreciation so that their cost relative to the current value is low. Or they have some sentimental attachment to the property and rather rent it out at a loss than sell it. In California especially, they might have locked in a low property tax rate which is a fraction of what you would pay when you buy the home today. For example, my in-laws pay $700/month in property tax. If I bought their house at market price today, my property tax bill would be $3,000/month.
For example I rent a home that's currently worth $1.3 million for $3,500/month. The landlord bought it in 2004 for $570,000. Would it make sense for the landlord to sell it instead of renting it out? Maybe, but based on their original investment they're getting a good return. If I were to buy that home off of them, my monthly payment would be more than double the rent. So this works for both of us I guess.
It doesn't change the facts, most people will not get amazing rental deals, your advice is wrong and it doesn't matter how many alt accounts you use Matt.
You're very badly wrong.
The irony here is that your landlord gained $3,300 a month in property value while you lost the same amount on rent. So the 7 year homeowner is absolutely destroying the renter.
So this demonstrates perfectly how, over a longer term of 7 years, you are always better off buying.
I don't know who Matt is, but I now know that you lack even basic financial knowledge. According to your logic, if I can rent a house for $1, then I'm still losing $1 and my landlord is "gaining $1 in property value". Looks like it was a bad idea to insert myself into this conversation in the first place.
Picking the wrong spouse will destroy your life in every way, financially, emotionally, logistically. Pick someone you’re confident you can go to war with.
True, the wrong spouse takes more years off your life than living under the Heathrow flight path.
But my point was spend time with your kids if you want. Kids are awesome. But if you still give a shit about your career, don't feel guilty about missing junior's bar mitzvah. If his genetic stock isn't marred by a poor spousal choice, the only long-term damage is the memoir chapter he'll write about the absentee dad who didn't witness his building Amazon.com, or winning several NBA championships.
I celebrated my 20th this year. Best decision I ever made. I had no idea I was picking my future best friend when I first met her. Jobs (and even careers) may come go, but a good marriage is eternal.
Keep a habit of journaling important stuffs that happened in your day to day life. When you want to look back at how you ended up where you are your journals give you a great glimpse.
Also it improves your writing, attention span and helps you free your mind.
22 comments
[ 2.6 ms ] story [ 58.5 ms ] threadCheck out his speech here: https://www.youtube.com/watch?v=wD2cVhC-63I
Occasional upgrades are fine and necessary sometimes but try to outright purchase them, especially cars - start small with what you can fully purchase and save until you can fully purchase the next one.
When you consider buying a house realize you likely need to own that home for 7 years before you reach a break-even point (first years are lot of interest payments). Home ownership has many additional costs people neglect to think through when buying - all the mechanical systems are yours to maintain, the appliances, the upkeep like lawn, paint, pests, HOA dues, property taxes, etc. At least in the last 6-7 years the amount of mortgage interest + taxes hasn't broken the US Standard Deduction for my household so the advantage of lowering your federal income taxes may not be there either.
For example a three bed house might be £1200 to rent, but even at a 4% mortgage a £250k house costs roughly the same in mortgage payments and only roughly £400 will be interest payment each month.
In 7 years that's £67,200 in equity the home owner has accrued while the renter has nothing. Even taking off fees of a few thousand shows your sums are very, very, very wrong.
Worse still, if you're talking about the LAST 7 years you've made an even bigger mistake. Because interest rates were so low you'd have been paying much less in interest and had you been overpaying your mortgage as if you'd been paying the rent for the same property you could probably have accrued £80k in equity. Plus all the house value increases, probably add on another £50k.
So if you listened to this person 7 years ago it would have cost you £130,000. Not just a little bit wrong in their advice, but staggeringly, stupendously, wrong.
And I say this as someone who made this mistake 20 years ago and cost myself probably £150k+.
Always overpay your mortgage when the interest rate is low!
After 7 years of owning that $250k home you will have paid $134k in total costs for it and property taxes, PMI and HOA, not including any maintenance costs (see my comment about maintenance/mechanical systems). So your $250k home will have to have appreciated over 50% in 7 years and be worth $384k for you to cover the costs of property taxes, PMI and HOA fees plus the mortgage principle+interest. If its less than $384k you are not breaking even (I'm not adding in all the extra stuff that happens with owning a home either).
Real estate advice is also generic and location matters a lot. These past few years property values have soared, which is unusual. They haven't soared everywhere though. Inflation has also soared along with interest rates so yes on paper a house may have inflated value (like +50%) but the numbers of buyers and sellers has gone down dramatically, values will also fall from their highs.
[0] https://www.bankrate.com/mortgages/amortization-calculator/
But your landlord also has to pay property/school taxes. Your landlord has to pay HOA fees. And landlord fees, business taxes, administration fees, accountancy fees, or whatever delights the US tax systems have conjured compared to the UK one.
And they have to make money. Otherwise they'd just sell the house and put the money in a tracker fund. So they have to make 5% per year on $250k. Which comes out at...
$1250. Oh, how odd! It's the same as the 4% mortgage payment (smart readers will notice that's today's mortgage payment, not the low mortgage rates over the last 10 years!). Or they put 20% down on the house and pay a mortgage. For a higher amount than a home owner. With no tax breaks.
So they have a base price, $1250 + taxes + HOA, etc. ANything less than that and they should just stop being a landlord. A quick google brings this up about the US rental market:
The amount of rent you charge your tenants should be a percentage of your home's market value. Typically, the rents that landlords charge fall between 0.8% and 1.1% of the home's value. For example, for a home valued at $250,000, a landlord could charge between $2,000 and $2,750 each month
So the advice for minimum rent on a $250k house in the US is $2000, minimum.
7 * 12 * 2000 = 168,000.
So the question is, do you want to spend a minimum of $168,000 on rent. Maybe up to $231,000. That's what you will lose on rent. There's no "break even", you don't benefit from house price rises. That's dead money you're never going to see it again.
Or do you want to spend $134k on home ownership? And have $35k in equity (which you conveniently left out of your calculation). Probably much more equity than that because of inflation and house price rises, unless you bought when houses were at a peak.
What you've got wrong is that the "cost" of buying vs renting is actually the one-off fees you pay each time you buy a house. The lawyers fees, the mortgage arrangement fees, the legal searches, etc. The cost of selling your home (the estate agent fee, realtor in America I guess). In the UK we have a tax too, stamp duty, when you by a home.
And if you move in 2 years you have to pay all that again.
That's why it sometimes make sense to rent vs buying.
But long-term, buying is always better, because landlords have to make money and have the same costs as a home owner. It's basic economics.
And over 7 years? No contest. Buy.
For example I rent a home that's currently worth $1.3 million for $3,500/month. The landlord bought it in 2004 for $570,000. Would it make sense for the landlord to sell it instead of renting it out? Maybe, but based on their original investment they're getting a good return. If I were to buy that home off of them, my monthly payment would be more than double the rent. So this works for both of us I guess.
It doesn't change the facts, most people will not get amazing rental deals, your advice is wrong and it doesn't matter how many alt accounts you use Matt.
You're very badly wrong.
The irony here is that your landlord gained $3,300 a month in property value while you lost the same amount on rent. So the 7 year homeowner is absolutely destroying the renter.
So this demonstrates perfectly how, over a longer term of 7 years, you are always better off buying.
The better advice would be, your spousal choice deserves more time and thought than most people give it.
(married 15 years, together 20, got lucky)
But my point was spend time with your kids if you want. Kids are awesome. But if you still give a shit about your career, don't feel guilty about missing junior's bar mitzvah. If his genetic stock isn't marred by a poor spousal choice, the only long-term damage is the memoir chapter he'll write about the absentee dad who didn't witness his building Amazon.com, or winning several NBA championships.
And buy Bitcoin when it's cheap.
"Your 40, time to start buying loto tickets I guess."
Also it improves your writing, attention span and helps you free your mind.