Life Situation: We are a two-female, unmarried couple filing taxes as single. We’ve been together 6 years. She is 53 and I am 48. We have no dependents, save those with fur and paws, and have no plans to leave money to our nieces and nephews. We live on the west coast in a high cost of living area, renting a modest apartment. I have never owned a home before; she has. I drive a 2005 Mini Cooper with 65,000 miles. She owns a 2004 Jeep Liberty with 170,000 miles.
As for history, I have always been frugal and invested as much as possible. I have lived a “rice and beans” existence with the constant goal of FIRE in my mid-40s (long before I knew the term FIRE.) She, on the other hand, has had an up and down life of earning much or earning little, and often living in some very nice homes and spending freely. When we met, she had just bankrupted due to a business deal gone bad (not her fault) and she had no money. She has bounced back tremendously. She is on board the Mustache Train.
Gross Salary/Wages: Her: $95k Me: $0 (I quit work a year and a half ago.)
Pre-tax deductions: Her: 401k - $24,000
Qualified Dividends & Long Term Capital Gains: Everything is reinvested.
Adjusted Gross Income: $71,000
Taxes: I’m in the lowest tax bracket. She’s probably at 20%?
Current expenses:
ITEM TOTAL/MO TOTAL/ANNUAL
Rent ($1,795.00) ($21,540.00)
Water Gas Trash ($55.00) ($660.00)
Electricity - SCE ($55.00) ($660.00)
Car Insurance/AAA ($195.00) ($2,340.00)
Rental Insurance ($11.00) ($132.00)
Umbrella insurance $16.00) ($192.00)
Car Tags ($25.00) ($300.00)
Car Maintenance ($100.00) ($1,200.00)
Car Fuel ($180.00) ($2,160.00)
Car Payment $0.00 $0.00
Food ($300.00) ($3,600.00)
Internet (No cable) ($36.00) ($432.00)
Cell Phone Plan + Phones ($48.00) ($576.00)
Pets ($100.00) ($1,200.00)
Healthcare ($130.00) ($1,560.00)
Discretionary* ($450.00) ($5,400.00)
Christmas ($33.33) ($399.96)
Large purchases/vacations ($200.00) ($2,400.00)
TOTAL EXPENSES ($3,729.33) ($44,751.96)
* Discretionary is for clothes, gifts, eating out, cleaning supplies, toilet paper, etc.
Expected ER expenses: The cost of rent will become the cost of the house. We anticipate needing to replace both cars eventually, but will probably space that out as much as possible. We can’t go down to one car because we treat our cars differently. She’s messy and it makes me crazy.
Assets: We have roughly $1.1M in equities and cash. About half in tax deferred accounts (401ks, IRAs), maybe 15% in tax free (ROTH IRA) and the rest in standard taxable accounts. Allocation is about 5% cash, 95% equity (stock) index funds. Yes, we sleep fine at night and don’t need a more conservative allocation.
Pensions/SS: She has a state pension that will pay out about $20k a year when she turns 62. She has a federal pension that will be worth about $5k when she turns 62. We both are eligible for SS, though hers will be truncated by the Windfall Elimination Provision.
Liabilities: We have zero debt. Nothing.
Specific Question: HOW MUCH SHOULD WE SPEND ON THE HOUSE?
In two years we will be moving from our high cost of living city to a slightly lower cost of living city in a different state, still on the west coast. At that point we will buy a home. For me this is a first, as mentioned above, and the thought of such a purchase is intimidating, though I know it is the best plan for stabilizing our expenses for the remainder of our lives.
She is more accustomed to the nicer things in life and thinks we should be looking at homes in the low $400s. These are nice homes but hardly extravagant. However, I was thinking more in the $275k - $325k range. This comes with sacrificing better windows, and quality kitchen and bathrooms. I don’t mind the idea of redoing these later in our lives. She’s open to that, but thinks we should start from a higher quality position.
FICO: I’m 805, she is 750. (After her bankruptcy, we nursed her credit back by putting her on all my credit cards. The BK will fall off her credit record in five more years.)
Mortgage Payment Calculator
Purchase price $400,000.00 $325,000.00 $275,000.00
Down payment $80,000.00 $65,000.00 $55,000.00
Interest 4.00% 4.00% 4.00%
Payments 360 360 360
Loan Amount $320,000.00 $260,000.00 $220,000.00
Payment ($1,527.73) ($1,241.28) ($1,050.31)
Property Tax (1.5%) ($500.00) ($406.25) ($343.75)
HOA $0.00 $0.00 $0.00
Maintenance (2%) ($666.67) ($541.67) ($458.33)
Electricity ($100.00) ($100.00) ($100.00)
Water ($75.00) ($75.00) ($75.00)
Gas ($25.00) ($25.00) ($25.00)
Trash ($50.00) ($50.00) ($50.00)
Insurance ($55.00) ($55.00) ($55.00)
TOTAL MONTH ($2,999.40) ($2,494.20) ($2,157.40)
TOTAL ANNUAL ($35,992.75) ($29,930.36) ($25,888.76)
Jobs: She can’t sit still, so I anticipate her getting a job after we move, though at times she thinks the retired life wouldn’t be half bad. I never want to work another day. If I can sit in the garden with the dog and strum my guitar, I’d be happy as a clam.
Inheritances: I know this is blasphemy in the MMM world, as nothing is certain, but it is at least possible she will inherit half a home that would be worth about $400k in the next five years. (Her sister gets the other half. The house will be sold.) It is also extremely likely I will inherit >$500k in equities within the next 10 years. My inheritance is far more likely, but feel free to ignore both if it goes against your philosophy.
Conflict: I certainly don’t mind her having the nice home she envisions for herself, but I don’t want to lose sleep over it, nor do I want to go back into the nine to five grind to pay for it. It seems foolish to buy something fancy only so no one can ever be home to enjoy it. Plus I’ve got some medical issues, and I’d rather be put out to pasture at this point in my life. Moo.
Extra bits:
⁃ We aren’t interested in a lower cost of living area.
⁃ We are two women in their 50s, which means high-earning employment is questionable despite our education and experience. She makes good money now as a professor, but I’m not sure a lucrative option will be available for her through to retirement.
⁃ We buy new cars and drive the wheels off of them. We don’t do cheap clunkers.
So Mustachians, how much would you spend on the house if you were us?
