Author Topic: Reader Case Study Should I use money for a house or investments/savings?  (Read 4379 times)

T-Rex

  • Bristles
  • ***
  • Posts: 414
  • Location: NV
  • ♀ military vet
I am currently deployed and newlywed in a military-military marriage. My current goal is to pay off my car loan, and save at least 11k (my half) toward a down payment when we buy a house. I would like to live the way of the mustachian. Here is my plan for spending untaxed pay during a year long deployment.

Current Income: $4627.17 /month ($55.5k annually) for duration of 6-12 month deployment
Income when I return: $4052.17/month ($48.6k annually)

Current optional monthly expenses:
SGLI: $7.50 (life insurance, Im married and in a combat zone)
Federal tax: $25 withheld (starting to withhold at married rate in January)
State Tax: $25 withheld (also starting to withhold at married rate in January)
Savings Deposit Program: $1665 (earns 10% interest, shooting for $10k max contribution in 6 months)
Roth TSP contribution: $150 (Plan to increase to $1867/mo in 6 months, when I am done maxing out Savings Deposit Program)
Car loan (5.99%): $830 (Have $4688 left, trying to pay it off in 6 months)
Entertainment/Food/Gifts/Everything else: <$250
Total optional monthly expenses: $2952.50

Required monthly expenses:
Social security $142.90
Medicare: $33.42
Federal Tax: $0 during deployment
State tax: $52.41
Armed Forces Retirement Home: $0.50
Rent: $400
Car Storage: $10 (went the cheap route)
Car insurance: $0 (non op / already paid off minimum required for the whole year)
Cell phone: $0 (suspended)
Internet: $0 (using free internet only)
Total required monthly expenses: $639.23

Money left over each month: $1035.44

Assets:
U.S. treasury bonds: $200 (bought them a while back, not knowing too much about them)
Roth TSP: $6,293 (70% Lifecycle 2040, 20% C fund, 5% S Fund, 5% I Fund)
Savings: $2989 (I have been living hand to mouth until recently. I don't have a real emergency fund, but have a couple thousand on hand and interest free loans available to me and my spouse.)

Liabilities: $0 balance on an $8000 Credit Card

Specific Question(s):
1. Is $11K a good amount to save toward a down payment (my spouse plans to contribute 10k as well)?
2. I plan to use the GI Bill for college in Massachusetts 2 years from now. Is saving up for a down payment on a house a good goal to have at this point in my life?
3. Should I be saving or investing now/later/simultaneously?
4. Would it be more advantageous to leave Roth TSP (can withdraw at age 59 ) and go with Roth IRA, an Index fund, or something else?
5. What should I do with the "leftover" money? Invest? Make an emergency fund?
6. What would you adjust about my situation?

I will continue to add any relevant information I can think of.
« Last Edit: December 16, 2013, 10:08:03 PM by Taffy Davenport »

Cooperd0g

  • 5 O'Clock Shadow
  • *
  • Posts: 67
Re: Reader Case Study Should I use money for a house or investments/savings?
« Reply #1 on: December 15, 2013, 12:43:54 PM »
Hi Taffy, I have 19 years in service myself right now. Overall your finances look good so at this point it is all about learning how to invest properly.

Paying off the car loan is a good idea, especially at 5.99%. I recommending saving/investing, but I'm not so sure buying a house while going through school is a good idea. School is short term and you may not find a job very close to where the school is located so the buying/selling of the house can eat up a lot of money in transaction costs on both sides (closing costs on the front and commission on the back). Also, a typical down payment for a house is 20% so $11,000 only gets you a $55,000 mortgage, which won't get you anything worthwhile - don't buy a piece of crap just to be a homeowner. You could get a VA loan with $0 down, but then you'll have an origination fee (additional closing cost) and a higher interest rate so I'm not a huge fan of those.

I grew up in MA, but the military has shown me so many other states. I can honestly say that MA sucks balls compared to a bunch of other states on the taxes, regulations, weather, recreation, etc. What school are you planning to go to? If you have the Post 9/11 GI Bill then only go to a state school or a Yellow Ribbon school, that will dramatically cut down on your school costs.

The TSP is the single best investment vehicle available to anyone. Many people outside the military would love to have access to it. Your mix of funds is odd though. If you are in a Lifecycle fund you already have C, S, I and G funds in there so I would recommend putting all of your TSP money into the Lifecycle fund of your choice and not even bothering with the individual funds until you get more educated on investing (and then you'll probably still leave it in a Lifecycle). When you are out of the military then you should invest in a Roth IRA, preferable with Vanguard. While you are in the military stick with the TSP until you reach the current max of $17,500 then go with an IRA on top of that if you want more retirement investment options.

Saving in general is a good thing. If you are saving for a house down payment you might want something less risky, generally less stock heavy, because it is a shorter term goal compared to retirement, which is further out so you may want a more risky, more stock heavy, portfolio there.

Here is your assigned reading for the next few hours/days ;) (I would read as much of the Bogleheads wiki as you can, but at least start with these):
http://www.bogleheads.org/wiki/Getting_Started
http://www.bogleheads.org/wiki/Bogleheads_Investment_Philosophy

T-Rex

  • Bristles
  • ***
  • Posts: 414
  • Location: NV
  • ♀ military vet
Re: Reader Case Study Should I use money for a house or investments/savings?
« Reply #2 on: December 15, 2013, 10:35:44 PM »
Hi Cooperd0g, thanks for your reply. I should have mentioned that my spouse intends to contribute $10k toward the down payment as well. I was thinking that buying would be better than renting during school, since I will be collecting E-5 w/ dependents BAH with the GI Bill. Also have the option of staying with family. Would a small property makes sense to buy to rent out if I leave the immediate area?

Never thought about doing the max TSP until right now, since my expenses/income were not so good. When my SDP is done maxing out, I'll use my 2nd half of the deployment to max the TSP.

I am from the Bay Area in California, so pretty much everywhere looks comparatively affordable to me (even if the weather seems extreme.) I love the trees and U.S. history in MA. I was looking at Yellow Ribbon and state schools because I think my money would go further there. Are you retiring soon, or planning to use/have used the GI Bill? Would love more insight, but that may be for another thread.

I will study those links you provided.

desrever

  • 5 O'Clock Shadow
  • *
  • Posts: 74
Re: Reader Case Study Tax Free! Should I get a house or investments/savings?
« Reply #3 on: December 16, 2013, 10:37:45 AM »
If you want to buy a place in a college town, having to mind to rent it out after you finish school, a duplex or triplex might be a good idea. This would give you experience dealing with tenants and being a landlord while you are living there.

Having said that, I would caution you to really run the numbers on rent vs. own assuming no appreciation with a four year turn occupancy. The typical six percent commission on the sale of a house can come to be a dominating factor when you do not have a long term horizon.

Cooperd0g

  • 5 O'Clock Shadow
  • *
  • Posts: 67
Re: Reader Case Study Tax Free! Should I get a house or investments/savings?
« Reply #4 on: December 16, 2013, 05:08:29 PM »
If frequent moves are in order, renting is always better than buying. Only buy if you really expect to stay in that area after finishing school. Ideally staying with family and paying them a small rent while banking the rest of the BAH would be awesome.

I'll send you a PM with more details on my career.

stashing_it

  • Stubble
  • **
  • Posts: 151
Re: Reader Case Study Tax Free! Should I get a house or investments/savings?
« Reply #5 on: December 16, 2013, 06:10:24 PM »
This may be not directly on topic, but have you considered selling the car to pay off the loan ?    You can get a new car when you get back from deployment in 6-12 months, but you might not need one, since a lot of universities have things pretty close to the campus.

Right now you are paying interest and storage (admittedly not much) for a car that you are not using.

Cooperd0g

  • 5 O'Clock Shadow
  • *
  • Posts: 67
Re: Reader Case Study Tax Free! Should I get a house or investments/savings?
« Reply #6 on: December 16, 2013, 06:18:44 PM »
Really hard to sell something absentee like that.

T-Rex

  • Bristles
  • ***
  • Posts: 414
  • Location: NV
  • ♀ military vet
Re: Reader Case Study Should I use money for a house or investments/savings?
« Reply #7 on: December 22, 2013, 08:23:17 AM »
This probably isn't the most mustachian answer, but I have a basass old Mustang. My spouse is an auto body mechanic and a good all around mechanic and plans to make a project of the car. I think if I were to sell it one day, I'd want it look and perform its best first. My EAOS should be about 6 months (more or less) after I return, so I still need a car. When I use my car, I use it for short drives during the work week, or maybe carpool and do a longer drive on the weekend. I keep it as hobby and sort of investment if need be.

 I will probably need to get a cheap, practical car for a snowy weather in MA. I want to stay there when I get out of the military.

I guess I have it in mind to always buy a house. My grandmother always told me to buy properties and rent them out, because she made money that way (condos located in the same building). I am not sure how risky or profitable that is now.

Thanks for the suggestion about duplex/triplex desrever.

_JT

  • Stubble
  • **
  • Posts: 229
Re: Reader Case Study Should I use money for a house or investments/savings?
« Reply #8 on: December 22, 2013, 08:35:23 AM »
Do you qualify for a VA housing loan?

T-Rex

  • Bristles
  • ***
  • Posts: 414
  • Location: NV
  • ♀ military vet
Re: Reader Case Study Should I use money for a house or investments/savings?
« Reply #9 on: December 22, 2013, 08:40:55 PM »
_JT, yes I do. What do you think of the VA loan?

Hugh H

  • 5 O'Clock Shadow
  • *
  • Posts: 75
Re: Reader Case Study Should I use money for a house or investments/savings?
« Reply #10 on: December 23, 2013, 06:03:44 AM »
I did the VA loan; 0 money down and have a renter paying my mortgage and more.

VA loan is absolutely the way to go; huge benefit for military folks.