Where to put $$? Taxable investment account or home downpayment?

[homeymomma]

Thanks to the incredible inspiration levels achieved by reading MMM for a few months, my husband an I have paid off about 20,000 in student loans and the remaining $8,000 on our car! We will be debt free next month after we pay off a final small medical bill. HOORAY! Celebratory hula!!

Anyway. Our awesomely aggressive debt destruction was made possible in part by spending cuts but more because we moved into a family home (otherwise unoccupied) for a few years. We have a great situation here for another 2 (possibly 3) years. At the moment we get not only free rent, but family also pays our utilities. (We're seeing this as getting our inheritance in advance. lol.)

On top of paying off all the debt, we also maxed out both of our Roth IRAs this year. We plan to do the same next year, and we'll have about 1,500/mo additional that we are saving.

If we save that 1,500 in a savings account for a down payment, we'll have just about 40K after two years. This would make a big dent in our goal of saving for a down payment on a house or condo. (We live in the DC area where COL is high - a 40K down payment may not actually be able to buy anything in two years. arg) - The 40K would also be considered our emergency savings, and potentially dipped into when our current junker car dies.

The alternative would be to put that money in an investment account that would be taxable, because my husband does not have a 401K at work.

In my head, saving for a down payment is the right choice because rental rates are SO high here. Also we have no emergency savings now so we'd have to save that first, plus a car fund which needs to be liquid.

However, if we only max out our Roths for retirement, we won't have a huge income when my husband hits 65, much less not being able to retire early.

Sorry about the complicated train of thought. Question basically is: invest in the plan of having a paid off house in retirement, or use the time value of money to invest in the market and make the most of the extra money we are able to save in this temporary situation?

I am 26 and a stay at home mom to a 1 year old. Husband is 29 and makes 66000/year, with no benefits (meaning we pay health ins out of pocket, ack!)

Here our budget:
Monthly take home: 4300
Food: 450
Health ins: 423 (losing our plan at the end of the year! eek!)
Gas: 200
Shopping/misc/netflix/toilet paper/oil changes:150-200
Baby: 50
Life ins (husband): 33
Non-monthly: 400 (things like dentist visits, car insurance, water bill, etc)

Out of the remaining $2540, $916 will go to max the Roths. $1628 is the final, unspoken-for savings.

We have no assets to speak of, except for 12K in the Roths, a 2012 Hyundai Elantra (paid off) and 2K in cash. My husband uses an old crapola family car as his commuter car while we live here.

We hope to have 1, 2, or even 3 more kids eventually, so our expenses will only grow over our lifetime.

As you can probably tell, I'm a little conflicted! Any and all help would be so very appreciated! If you made it this far, thank you SO much just for reading all my rambling! :)

[Kira]

First, congratulations!!!!!!! That is a great accomplishment and I applaud your efforts.

Being able to live rent free is a huge boost and I would milk that sucka as long as you can ;)

Few questions:

Are you planning to return to work or does your husband expect to be making more money in three years when you have to leave the family home? To be honest, if you are planning to add up to 3 additional children to your family within the next several years and your husband has to buy his own health insurance, I would be concerned that you do not make enough money to live in this area on one income. I am not sure how much down payment you are counting on 40K to be - if that's 20%, a back of the envelope calculation says your payment would probably be $1000-$1300 which doesn't seem too bad (though there would not be a ton left over) but if that's 10%, it would be over $2,300 a month which is pretty much all the available cash you have, not counting any additional expenses for utilities, additional children, or your potential increased healthcare costs.

Are you absolutely certain you want to live in this area and no other, and your husband is absolutely certain he wants to stay in this job and not look for others? DC is very high COL and if your husband does not get health insurance or a 401k from his job, if I were in his position I would not be planning to stay a long time. Being in the family home and getting free rent is awesome for right now but what happens when you have to leave? Perhaps it would make more sense to move someplace that has a lower COL? There are a LOT of places in the US where $40k would buy you the whole dang house, and plenty more where that would be a 20% downpayment or more.

As for what to do with the money, if you're definitely planning to withdraw it to pay for the home anyway in a few years, the time value of the money is probably not worth the heart attacks you will have if you put it into something high risk. The highest I would go with it is a reasonably safe bond fund or similar. You don't want to gamble with your home purchase money - while in theory you could wait out a market dip by renting for a while, I would not want to do so with a small child, or multiple small children! Moving more than once could theoretically wipe out any gains you got from putting that money in the market.

I hear you on worrying about missing out on those years - but you must decide whether stability or financial independence is your goal here. If you want to retire early (and it doesn't sound like you think that's on the table) then investing the money would be the way to go, since you might come out ahead financially having had that money in the market. But if what you want is to have the ability to buy a home for your family with minimal drama, on the timetable you choose (not the market!) then I would keep it somewhere safe. Overall though I think the bigger question, which yes I realize you didn't ask :), is whether you can afford to buy a home in DC and pay its mortgage on one salary with multiple children.

[homeymomma]

Kira, you hit the nail on the head. I showed my husband your post and he just rolled his eyes. Whether we can afford to stay here and live the life we want is a constant question I ask myself. I personally don't want to stay here. I would much rather move somewhere with less traffic and a lower COL. Problem is, husband is the only breadwinner so we stay where his job is. At the moment he not only really enjoys his very unique, niche market job, he also gets paid pretty well considering his degrees are bfa in photojournalism and an mfa in photopraphy. He always promises to look for other jobs but never does because he doesn't really want to leave and there is nowhere obvious where the specialized skills he's learned in this job are transferable (except overseas gov't contracts in hostile nations, according to him).
I am a registered nurse but have never worked (had our baby right after graduation). I also have another bachelors in neuroscience (I'm slightly overeducated. lol). I'm seeing myself a stay at home mom at least until baby is in school, at which point I would either find something small part time or get pregnant again (probably the latter). I am considering letting my license expire because of new regulations making it much more difficult and expensive to keep it active.
As for the house - we would be looking at places around 200K, ideally with 20% down. However, if there is even a whiff of husband leaving this job we would hold off buying.
Only other info is that husband gets a 4-5% raise annually and there is no option to add benefits because he is the only employee.
Thank you so much for all of your thoughts!

[Kira]

It sounds like you have a bigger problem than whether to put your money in an investment account or not.... Just because your husband has the paying job doesn't mean he should be dictating all decisions for the family.

I would absolutely not let your license lapse! It will likely be far more difficult to get it anew than to keep it from expiring now. That is a valuable certification and unless you are planning on never working again, I would definitely keep that active, and even try to get a job where you could work a weekend now and again to keep your skills up.