Saving for a home build in 5-7 years

[Bikesy]

Hey Team,

I had a quick question about Ms. Bikesy’s and my situation.  We are both 30 years old and currently live 70 miles from “home” to be close to my job (we’ll call home PleasantVille).  Both of us were born and raised in PleasentVille and I would say there’s a 95% chance that we will return and settle there either via FIRE or a job move for me.  I would consider myself moderately to highly overpaid for the work I do and a lateral move to a different company would more than likely result in a 20-40% pay cut.  My current company has no business presence in PleasentVille so an internal transfer at this point isn’t possible. We are 5-7 years from FIRE with my current job and happy with our situation.  I work 4 days per week which allows us to spend 3 day weekends back home whenever we want.

My question revolves around saving to buy a home.  We would like to build a home in PleasentVille at some point in the future, but I’m unsure of the best course of action to save the money.  Right now we have the ability to save approx. 50-70k per year on top of maxing our retirement accounts (401k, 2 tIRAs, HSA).  I would like to have around 100k available to purchase a lot and start the building process.  The following are the options I’ve thought about thus far:

A: Save everything above retirement in our savings account for 1.5 - 2 years.  Then return to status quo (filling taxable brokerage account at current AA).

B: Save slowly. 25k per year into savings, the rest to brokerage.

C: Continue to fill taxable account @ AA of 80/20.  Currently at 30k, would be over 100k in a year or so and conservatively at 300k in 5 years.  Just use funds from here for house regardless of market performance.

D: Start an additional house fund @ brokerage and run a very conservative portfolio (30/70?) to try to capture some market returns.

E: Some grand mustachian plan I haven’t thought of.

Not sure if it matters but we currently have around $200k saved (160k retirement, 30k taxable, 10k savings/checking) and no debt.


Thanks for the help!

[mskyle]

It's all the same money - your "house money" doesn't know that it's in a separate brokerage account with 30/70 allocation. If you're 80/20 overall, it doesn't matter if 80% of it is in an account with 90/10 allocation and 20% is in a an account with 40/60 allocation. If you want to go more conservative with your allocation, do it, but putting the money in different accounts doesn't make much difference except psychologically.

If you can really save $140K a year, it seems very silly to just park $100K in cash now - if the market is down 5 years from now you save up $100K in 18 months-2 years. So don't do A.

B is slightly less bad than A, for the same reasons.

C and D are basically the same thing because, as I say above, your money doesn't know it's in a different account! If it makes you feel better psychologically to have the house money in a different account, sure, why not. But think about your asset allocation as a whole.

I'm also saving for a home and what I do is put my non-retirement savings (the savings for the house) in 100% bonds (VBLTX). I'm pretty close to 80/20 overall, but my retirement accounts are overweight in equities and my taxable account is overweight in bonds. Obviously that's not ideal for tax optimization, and it's actually a different asset allocation than I would use if I weren't saving for a down payment (I was more like 90/10 before we started talking about a house), but it makes sense for me right now, because I'm probably going to buy a home in the next couple of years but I'm 8-10 years out from retirement.