Author Topic: Case Study - Saving for a Mortgage Downpayment  (Read 4010 times)

Snowballer

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Case Study - Saving for a Mortgage Downpayment
« on: November 23, 2014, 12:22:46 AM »
Income:
~$91.5K (combined - before taxes) / 19200 non-taxable (housing stipend)

Current expenses:
30yr Mortgage @ 3.75%: $1056
52mo Car Loan @ 2.75%: $310 (pre-mustachian face punch)
Food: ~$400
Gas: ~$180
Cell: $145
Electric: $150
Water: $120
Insurance: $135
Internet: $50
TV Alternatives: $16
Misc: ~$50
Total Monthly Expenses: $2615

Assets:
Vanguard Roth IRA (combined): 2014 Value = $32000 (100% stocks - 80% US/ 20% Int'l - VTSAX/VGTSX)
                                  (planned) 2015 Value = ~$43000 (70% US/ 30% Int'l)
Paid-Off Vehicle: ~$12.5K
Pre-Mustachian Brokerage Account: $7K (will sell once I'm in the green)
Emergency Fund / F-You Money: $10.5K (roughly 4 months of expenses)               

Liabilities:
30yr Mortgage @ 3.75% = $181K remaining
52mo Car Loan @ 2.75% = $15K remaining

Hey everyone!  Diane C. suggested I post my question in the forum to see what you all thought so thanks for taking the time to look at my case study and provide inputs!  I am a new MMM reader (~1 month) and I used to be an individual stock investor (some may call it speculation).  After much re-education I gave myself a financial makeover and and trying to make things a little more simple in life… I moved both mine (27 - military officer) and my wife’s (26 - event planner) Roth IRA’s from USAA mutual funds over to Vanguard and sold my individual shares of stock that were at a profit in order to pay off my car loan and her student loans.  Now all we have left is our mortgage and a car loan.  My wife unfortunately is not a MMM reader! I'm still working on the brainwashing in order to convert her but at least in the mean time I'm enjoying making most of the financial decisions in the house... One decision I do not get to make is getting ride of her car :-(

I plan on leaving the military in about 3yrs when my commitment is up and at this time both myself and my wife will have to find new jobs. We plan on moving back East and selling the house we currently live in. Neither of us have jobs lined up yet but hopefully that will not be too much of an issue. I have an engineering background and will have completed my MBA (entrepreneurial focus) by then and she is a very seasoned event planner.

So my question… 
I would like to start saving for my next house downpayment for when we move in a few years.  While savings accounts are "safe" I don’t enjoy the idea of my little slaves not working for me and not earning a return or keeping up with inflation.  I have looked into Betterment and like their goal-based investing function with projections, but also I am not against putting my money into Vanguard in one of their other funds. I am open to renting for a short-term option while we house hunt but wouldn't like to do that for very long since that is just burning money to me. What do you deem to be an appropriate AA for saving for a house downpayment or what vehicle do you recommend to help me grow that downpayment faster with the expectation that I’ll be using it in the next 4-5 years? Would you recommend using a Vanguard fund to do this, or Betterment, or play on the safe side an leave it in the bank earning nothing?

I should also mention that the $91.5K income I listed will be after my next rank promotion in January.  That promotion will bring with it ~$12.5K per year than we had this year which I plan on pretending we don't even have.  While I did not calculate exactly how much we lived on in 2014 I know we invested $16.5K so I'd like to bump up that investment to $29K for 2015 ($11K to our Roth IRAs) - call it an investment of $1500 per month going towards this house downpayment.  The downpayment is my number one priority for investing but I'd also like to set up separate accounts for a future car fund (if needed) and wealth growing investment as well.

FYI... I am an aggressive investor and as mentioned earlier I have 100% stocks in my portfolio but I’m not against bonds for near-term investing since it limits my downside.

Thanks for all the help! Ready for the punches!
« Last Edit: November 23, 2014, 12:27:29 AM by dbailey87 »

MDM

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Re: Case Study - Saving for a Mortgage Downpayment
« Reply #1 on: November 23, 2014, 12:48:47 AM »
dbailey87, welcome to the forums.

Will your total gross income be $91,500 + $19,200 = $110,700, or $72,300 + $19,200 = $91,500? 

Do you contribute to a TSP?  wife to a 401k?


Snowballer

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Re: Case Study - Saving for a Mortgage Downpayment
« Reply #2 on: November 23, 2014, 02:44:16 AM »
Thanks!  And sorry for not clarifying!

GI will be $110,700 before taxes.

We do not contribute to either yet... I have just used whatever was left over to invest with my broker and recently got her Roth started.

Spondulix

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Re: Case Study - Saving for a Mortgage Downpayment
« Reply #3 on: November 23, 2014, 02:58:41 AM »
The only reasons I'd suggest Betterment over Vanguard is if you want the tax loss harvesting, auto rebalancing or just a hands-off approach. Since you have trading experience, you might find Betterment to be confining. I moved an IRA to Betterment (earlier this year) only to find that I didn't agree with how they were diversifying within my allocation (You can choose % stocks vs bonds, but you have no say as to how they allocate to the funds within.) A lot of Betterment's funds are Vanguard ETFs, so you really are paying a higher commission just for the automation.

Edit: just saw the "B" word come up in your response... Are you still working with a broker? (Enter fist here... Preparing for face punch)

Snowballer

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Re: Case Study - Saving for a Mortgage Downpayment
« Reply #4 on: November 23, 2014, 03:51:13 AM »
No!  I meant online broker!  I used Sharebuilder in a previous life.

MDM

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Re: Case Study - Saving for a Mortgage Downpayment
« Reply #5 on: November 23, 2014, 04:04:09 AM »
Appears you folks are doing quite well (despite cell phone costs...) - if you have accounted for all your expenses...?

Below is your projected cash flow if you maximized (2014 limits) your TSP/401k/Roth IRA contributions (assuming numbers from your post were entered correctly).  You still have >$1,500/mo to invest (or accumulate for a down payment) even so.

Probably best if you enter your own numbers in the Reader Case Study spreadsheet to see if you see the same.  I know you plan to change course in a few years, but at least you can have some idea of the possibilities.  Good luck!


CategoryMonthly amt.CommentsAnnual
Salary/Wages$9,225$110,700
Housing allowance$1,600Non-taxable housing allowance$19,200
FICA base salary/wages$7,625$91,500
401(k) / 403(b) / 457(b) / TSP /etc.$2,917At maximum$35,000
Federal Adj. Gross Inc.$4,708$56,500
Federal tax$3772014 rates, stand. ded., 2 exemptions$4,523
State/City tax$259Guess, using 5.50% * Fed. AGI$3,108
Soc. Sec.$473Assumes 2 earners paying$5,673
Medicare$111$1,327
Total income taxes$1,219$14,628
Add Housing allowance$1,600$19,200
Income before other expenses  $5,089$61,072
Monthly Expenses:
Mortgage$857Guess at orig. P$10,281
Property Tax$120Guess to make$1,440
Home/Rent Insurance$79total PITI = $1056$948
Car Insurance$135Unspecified insurance$1,620
Electricity$150$1,800
Entertainment$16$192
Fuel/Public Transport$180$2,160
Groceries$400$4,800
Internet$50$600
Miscellaneous$50$600
Phone (cell)$145$1,740
Water/Sewer$120$1,440
Non-mortgage total$1,445$17,340
Loans:
Car Loan$310$3,720
Roth IRA$917$11,000
Total Expense$3,528$42,341
Total to invest$1,561$18,731
Summary:
"Gross" income$9,225$110,700
Income taxes$1,219$14,628
After-tax income$8,006$96,072
IRA+401k+ESPP+529/other$3,833$46,000
Living expenses$2,302$27,621
Non-mortgage loans$310$3,720
After-tax investable$1,561$18,731
Time to FIRE?:
Time to FIRE7years
Safe Withdrawal Rate4.00%percent
Real return on tax-deferred investments5.00%percent
Real, after tax, return on taxable investments3.75%percent
Expected retirement total tax rate20.00%
Current Savings
Taxable$7,000
Roth$32,000
Projected Savings at Retirement
Taxable$155,881
Tax-deferred (e.g. trad. IRA/401k)$284,970
Roth$134,589
Total projected stash$575,441
Projected Expenses in Retirement
Non-loan, non-work expenses$17,340
Income taxes$4,335
Total$21,675
Stash for retirement expenses @4.0% SWR$541,875needed
Have $33,566 extra.$

Spondulix

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Re: Case Study - Saving for a Mortgage Downpayment
« Reply #6 on: November 23, 2014, 05:31:45 PM »
No!  I meant online broker!  I used Sharebuilder in a previous life.
Changing that fist to a high five ;)

Spondulix

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Re: Case Study - Saving for a Mortgage Downpayment
« Reply #7 on: November 23, 2014, 05:34:45 PM »
MDM - how are you getting FIRE calculations? Spreadsheet/website? (My apologies if you've answered this a hundred times before)

MDM

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Re: Case Study - Saving for a Mortgage Downpayment
« Reply #8 on: November 23, 2014, 06:14:17 PM »
MDM - how are you getting FIRE calculations? Spreadsheet/website? (My apologies if you've answered this a hundred times before)
Spondulix, it's the spreadsheet referenced in http://forum.mrmoneymustache.com/ask-a-mustachian/how-to-write-a-'case-study'-topic/msg274228/#msg274228.

It originally had current year cash flow calculations only.  Lately I added the FIRE calculations "under the radar" as it were.  You are one of the first to ask.  If you would like to give it a try and comment (suggest improvements, confirm that it matches your own calcs, etc.) that would be great.