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First Year Attending: Getting Antsy with Cash

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  • Avatar ChristopherMD20 
    Participant
    Status: Physician
    Posts: 140
    Joined: 10/31/2017

    Synopsis of issue: We plan to look for a house in the winter of 2019. For now, we have money in savings (Ally 2.25%). I am not a big fan of having so much cash “not working for us,” but I understand there is a possibility we will buy a property.

    Financial Summary

    Household Income: ~$400k

    Pre-tax contributions: Maxing out 403b x2, 457 x1, HSA

    Post-tax contributions: Roth IRA x2

    Debt: Only a Mortgage ~$113k (condo).

    Monthly Expenses: $3000-5500/month depending on vacation plans this year.

    Monthly Take-Home Pay: $17,600/month

    Current Cash Reserve (Ally Savings): ~$80k

    Anticipate Cash Reserve for Nov 2019 when “in market” for home based on current savings rate: $155k

     

    Debate with Spouse: She wants to move to be in a more affluent and culturally diverse area if she gets pregnant. She is all-board the low-cost of living and high savings now that it is just the 2 of us + 5lbs. dog especially when we take nice vacations. We do not even use a lot of our condo (office and 2nd bedroom are glorified closets). We are basing a lot of our future planning on whether she gets pregnant in a short period of time. If she does not get pregnant, then that is a lot of money and time not in the market! We have ~$65k equity in the condo, but we are strongly considering holding onto it as a rental property.

    My Idea: Put $50k right now into Vangaurd taxable account Index Fund. We should still be able to replenish our savings back to $100k by winter.

    Wife’s Idea: Keep piling in cash into savings until we buy a home. The best compromise she has agreed to is cutting off at $130k cash mark then I can start putting money into a taxable account.

    Anticipated House-Buying Budget: $400-600k

    Any constructive feedback or thoughts on a reasonable compromise would be helpful. I appreciate your time.

    #205801 Reply
    Lordosis Lordosis 
    Participant
    Status: Physician
    Posts: 619
    Joined: 02/11/2019

    Your a little shy of saving 20% towards retirement. You can put enough into taxable to make that happen.
    That is the cost of cash. But a few months or even a year do not matter too much in the grand scheme of things.
    I think a cap on what you would likely need is a good idea.

    “Never let your sense of morals prevent you from doing what is right.”

    #205802 Reply
    Avatar hightower 
    Participant
    Status: Physician
    Posts: 1347
    Joined: 12/07/2016

    Here’s how I would think of it…you’re starting out in an amazing position (no debt other than a trivial mortgage!) and a great salary.  Your monthly expenses are quite low which means saving will be very easy for you.  I wouldn’t sweat it right now. You’re maxing your tax advantaged accounts just fine.  You will NEED a lot of cash if you buy a house so you definitely don’t want to be putting any of that into the market right now.

    Even though this is going to be knocked as “market timing talk,” I think it’s reasonable to say that the market isn’t doing much at the moment and a lot of people fear we’re due for a bear market soon.  So, I wouldn’t be too anxious to put all your hard earned cash in a brokerage account right now anyway.

    I would go ahead and save up the cash you need for a down payment, plus a little extra for moving expenses, furnishings, baby stuff, etc.  Sounds like your wife really wants to get pregnant and move, so chances are IT’S GONNA HAPPEN SOON;)  You guys will get to have a very fun and relaxing home buying experience if you actually have the cash on hand you need when you start shopping.

    My advice to you now: Travel a lot and enjoy your life before kids!  I’m super glad my wife and I traveled a lot before our daughter was born.  It’s not easy traveling now and I don’t see us doing it as much anymore.

    Oh and in regards to the condo as a rental…I wouldn’t do it if I were you.  It’s often a headache and the returns aren’t that great.  You could sell your condo after you buy a house and take the proceeds and put them all into your taxable account.

    #205803 Reply
    Liked by Tim
    MPMD MPMD 
    Participant
    Status: Physician
    Posts: 2060
    Joined: 05/01/2017

    in your position i would personally put as much down on a house as humanly possible, which means i would keep saving cash and not worry about missed returns.

    i would not totally base a decision like this just on pregnancy, you’re going to sit on a big pile of cash and then purchase only if she is pregnant? you’re right that this could cause all kinds of weird situations esp if pregnancy doesn’t happen right away.

    is there a third option like just buying now? i mean if you can drop $100k down on a $500k home you aren’t exactly going to be living above your means. you’re saving well and doing well. another option if you aren’t using your second bedroom is to try to get a year in the apartment with the kid (see below you’ll make a better purchase decision I guarantee you).

    a word to the wise, if you are shopping for a family home you plan to have kids in talk to some friends about things they like/don’t like about a home w/ young kids. there are beautiful homes that don’t live that well with a baby. for example master on ground and bedrooms upstairs can kind of suck if that means you’re having to climb stairs every time your baby squawks. deal-breaking? maybe not but the kind of thing you don’t consider when you are DINK+dog. we looked at an amazing 3rd floor walkup when we were DINKs, I mean this thing was awesome. realtor asked if we were having kids soon and asked us to think about hauling a baby up and down those stairs 4x/day.

    #205807 Reply
    Liked by Lordosis
    Avatar JBME 
    Participant
    Status: Spouse
    Posts: 377
    Joined: 03/26/2018

    I’d go with the compromise your wife agreed to. You’re in a great position overall….at least you’re getting a decent rate at Ally. When we were homebuying I had the DP money in our local savings account for a year earning .01% interest back in 2012. Didn’t know about Ally. Yet here we are 7 years later doing fine.

    Doing the compromise will keep your wife happy, which is very important long term for you too

    #205811 Reply
    q-school q-school 
    Participant
    Status: Physician
    Posts: 2291
    Joined: 05/07/2017

    keep wife happy

    the amounts you are stressed over are piddling in the scheme of things and you will never have perfect information.

     

    #205814 Reply
    Avatar ChristopherMD20 
    Participant
    Status: Physician
    Posts: 140
    Joined: 10/31/2017
    Your a little shy of saving 20% towards retirement. You can put enough into taxable to make that happen.

    Click to expand…

    Yes, this is the reason for me being antsy. We have a decent savings rate, but it is not going to the retirement plan! Some of the points in posts below yours do alleviate some of that fear/stress though.

    My advice to you now: Travel a lot and enjoy your life before kids!

    Click to expand…

    We have been to Italy (Rome, Florence, Venice, Siena), Spain (Barcelona), Hawaii (Oahu), Mexico (Cancun) in the past 9 months– Life is good right now as a DINK :).

    Oh and in regards to the condo as a rental…I wouldn’t do it if I were you.

    Click to expand…

    The numbers estimate it will be $500/month cash flow positive. I personally do not want to deal with the headache, but my wife wants to give it a try at least for one set of renters. I think she may have a different perspective when she is pregnant. It is nice that we have options. Even if we buy in the winter, we would likely hold the property and list it in the spring/summer if we decide to sell.

    third option like just buying now? i mean if you can drop $100k down on a $500k home you aren’t exactly going to be living above your means.

    Click to expand…

    The area we want to buy is a very hot market in the Spring/Summer time, so that is why we are trying to wait until winter time. There is not a specific reason not to buy now beside preventing ourselves from becoming emotionally attached to a place and getting into a bidding war. I also don’t like the idea so much wasted space and higher utilities etc. I am cheap.

    if you aren’t using your second bedroom is to try to get a year in the apartment with the kid

    Click to expand…

    I suggested 3 years since the condo is more than enough for us + an infant/toddler. My in-laws are currently an hour away, they will be 30 minutes away at the desire location. My wife is an only child so my mother-in-law is going to want to be around…. a lot… That will be a big help to us and we also want our children immersed in my wife’s native tongue (Mandarin). That will be helped by being in a more multicultural area and closer to the in-laws.

    Doing the compromise will keep your wife happy,

    Click to expand…

    Wise words.

    #205815 Reply
    ACN ACN 
    Moderator
    Status: Physician
    Posts: 527
    Joined: 01/08/2016

    My wife and I are in a very similar situation with nearly the same income.  This is what we’re doing, so I’ll suggest the same:

    -Contribute $2k/month to Vanguard Total Stock in a taxable account to get to the 20% savings for retirement

    -Rest of the money goes to Ally or Vanguard MM for down payment for your future house.  Once you have 20% down, then you can start contributing more to the taxable account and slow down the down payment fund.

    If you're ever having a bad day, just remember in 1976 Ronald Wayne sold his 10% stake in Apple for $2,300.

    #205816 Reply
    Avatar Tim 
    Participant
    Status: Accountant
    Posts: 1822
    Joined: 09/18/2018

    Pile more into Ally. Looks like that currently has your reserve fund as well. $5,500 x6 = $33,000

    Whats your “new” reserve fund? You will need cushion to handle the move, closing costs, and “absolutely required” furnishings for your new digs.

    Because of the uncertainty, you need more cash. That will give you the flexibility.  The more downpayment, the lower the monthly expenses. Nothing wrong with 30-50% down on the new house.  The house and the child addition will up your cost of living quite a bit. You will be glad for the cashflow.

    #205818 Reply
    Liked by IlliniGopher
    Avatar ChristopherMD20 
    Participant
    Status: Physician
    Posts: 140
    Joined: 10/31/2017
    Whats your “new” reserve fund?

    Click to expand…

    That is a great point that was an oversight on my part. We do not need a lot in terms of an emergency fund with the condo and no kid. I have about $3k in unclaimed HSA expenses that I use as my current emergency fund. I should probably set aside an additional $30k for car plus other emergency stuff. So, my wife’s $130k is pretty spot on….

    #205825 Reply
    IlliniGopher IlliniGopher 
    Participant
    Status: Physician
    Posts: 75
    Joined: 05/03/2017

    Here is the thing.  I have a two year old, almost 5 years into my staff job.  You don’t need a house for your first kid until they are at least 1.  I say stay and invest more.

    "Comparison is the thief of joy." - Teddy Roosevelt

    #205830 Reply
    Liked by Tim
    q-school q-school 
    Participant
    Status: Physician
    Posts: 2291
    Joined: 05/07/2017
    Your a little shy of saving 20% towards retirement. You can put enough into taxable to make that happen. 

    Click to expand…

    Yes, this is the reason for me being antsy. We have a decent savings rate, but it is not going to the retirement plan! Some of the points in posts below yours do alleviate some of that fear/stress though.

    My advice to you now: Travel a lot and enjoy your life before kids! 

    Click to expand…

    We have been to Italy (Rome, Florence, Venice, Siena), Spain (Barcelona), Hawaii (Oahu), Mexico (Cancun) in the past 9 months– Life is good right now as a DINK :).

    Oh and in regards to the condo as a rental…I wouldn’t do it if I were you. 

    Click to expand…

    The numbers estimate it will be $500/month cash flow positive. I personally do not want to deal with the headache, but my wife wants to give it a try at least for one set of renters. I think she may have a different perspective when she is pregnant. It is nice that we have options. Even if we buy in the winter, we would likely hold the property and list it in the spring/summer if we decide to sell.

    third option like just buying now? i mean if you can drop $100k down on a $500k home you aren’t exactly going to be living above your means. 

    Click to expand…

    The area we want to buy is a very hot market in the Spring/Summer time, so that is why we are trying to wait until winter time. There is not a specific reason not to buy now beside preventing ourselves from becoming emotionally attached to a place and getting into a bidding war. I also don’t like the idea so much wasted space and higher utilities etc. I am cheap.

    if you aren’t using your second bedroom is to try to get a year in the apartment with the kid 

    Click to expand…

    I suggested 3 years since the condo is more than enough for us + an infant/toddler. My in-laws are currently an hour away, they will be 30 minutes away at the desire location. My wife is an only child so my mother-in-law is going to want to be around…. a lot… That will be a big help to us and we also want our children immersed in my wife’s native tongue (Mandarin). That will be helped by being in a more multicultural area and closer to the in-laws.

    Doing the compromise will keep your wife happy, 

    Click to expand…

    Wise words.

    Click to expand…

    shortly you are going to want a bigger house since your in laws will be living with you once you have the baby.

    ha ha

    🙂

    #205831 Reply
    Avatar Dont_know_mind 
    Participant
    Status: Physician
    Posts: 792
    Joined: 11/21/2017

    The pregnosis is unclear.

    What if houses in your area appreciate while you are ‘investing’. Run the numbers. Investing in an unlevered index fund will not protect you from a housing boom if your house Loan:value is 80%. Say houses appreciate 20% that means your 500k house is now 600k, which wipes out whatever you saved. Housing booms are often 50% in 4years. Not saying one will occur in your area in your timeframe (have no idea what your area is). But if it does, it will give you a headache.

    You are short one house, long one condo. Good luck.

    #205956 Reply
    Liked by q-school

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