Specific Question(s):
I want to own a house, and am trying to plan the best way to get there. What I’m trying to do right now is plan in what order to address financial issues.
Financial Issues to be addressed on the way to a goal of home ownership/down payment savings:
• Student loan payment- do I pay this off fully first?
• Car- current car is old with 6 digit mileage, it’s not imminent but another car is in the future within a few years. How do I plan to pay for this? Dedicated savings for this? In what order relative to other goals?
• Retirement savings- I have no retirement savings vehicles yet. Is it ever a good idea to postpone this? Do I start this now or prioritize other goals for a bit? No employer match/401k available at this time.
• Emergency fund- mostly just trying to decide how much to save liquid vs. putting toward other goals? My real comfort level is a fairly high number and I don’t know if I will put some number in there then move on to other goals, coming back to fill to comfort later.
I don’t know at what point in this process it would be reasonable to put the focus on saving for a down payment.
Or maybe I just do all at the same time splitting the discretionary money equally? This option is not as attractive to me.
I am trying to figure out which goals to prioritize in which order.
- You don't need to pay down all your student loans before buying a house, but you should probably focus on paying down at least the highest interest rate loan.
- Assuming your car is likely to break down, and you're not just going to replace it because of high mileage, put aside money each month specifically for this purchase. You can put it in a separate account if that makes it easier. If you need a new car in 3 years, $200/month is a good place to start.
- Without a match, you're not walking away from "free money" by not using your 401k. I think most people on here would say you should be putting some in, though. You'll never retire early if you don't start saving, and missing out on a few years worth of compounding can be substantial. I would take the $250 you'll save from lowered utilities, at a minimum, and put that in to a retirement account.
- Your emergency fund looks okay (about 4 months of expenses). How much you keep in there depends on a whole lot of things, like how much you would be on the hook for medical, how much you'd spend on a new vehicle if yours died this afternoon, how secure you are in your jobs, etc. You will want to increase your e-fund before you get a house to deal with unexpected expenses like broken appliances, structural damage, etc.
Whether/how much you should put towards retirement, vs. down payment, depends on a lot. What is the cost to rent vs. own in your area, for similar accommodations? Look at the NYT Rent vs Buy calculator, what is your payback period? Also, how much, in $$'s, would it take to fund a 20% down payment, loan costs, moving expenses, etc.?
It's really REALLY hard to take a look at your budget, because there's no amount listed for Misc. However, it looks like you're able to save about $1,000 per month. If you're saving a few hundred per month for a new car, that leaves $800/m for a house downpayment, or about $10,000/yr. In addition to information on your local housing market, can you provide more information about your spending? Even an estimate of how much extra childcare will be, and what you expect other misc. to be would help a lot.
Last comment, are you a two income household? I sort of assumed you are because you list "phones", and obviously nobody is at home all day because you have childcare expenses. I'd be interested to see the income breakdown between you, if that is the case.
