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Don't be so quick to upgrade the "stuff" you have - cars, phones, computers, etc. You don't realize it and won't admit it but you're playing the "keeping up wit

Don't be so quick to upgrade the "stuff" you have - cars, phones, computers, etc. You don't realize it and won't admit it but you're playing the "keeping up with the Joneses" game. Your pay increases are better suited to be dumped into entire stock market index funds (VTSAX for example) and left alone. You might just end up in your 40's as financially independent or at least be looking at not needing employment by your 50's. Occasional upgrades are fine and necessary sometimes but try to outright purchase them, especially cars - start small with what you can fully purchase and save until you can fully purchase the next one. When you consider buying a house realize you likely need to own that home for 7 years before you reach a break-even point (first years are lot of interest payments). Home ownership has many additional costs people neglect to think through when buying - all the mechanical systems are yours to maintain, the appliances, the upkeep like lawn, paint, pests, HOA dues, property taxes, etc. At least in the last 6-7 years the amount of mortgage interest + taxes hasn't broken the US Standard Deduction for my household so the advantage of lowering your federal income taxes may not be there either.

mattmanser 3y ago
That 7 years figure is absolute nonsense. Even in more "normal" interest rate periods (pre-2008) the advice was 2-3 years (mainly because of property taxes). For example a three bed house might be £1200 to rent, but even at a 4% mortgage a £250k house costs roughly the same in mortgage payments and only roughly £400 will be interest payment each month. In 7 years that's £67,200 in equity the home owner has accrued while the renter has nothing. Even taking off fees of a few thousand shows your sums are very, very, very wrong. Worse still, if you're talking about the LAST 7 years you've made an even bigger mistake. Because interest rates were so low you'd have been paying much less in interest and had you been overpaying your mortgage as if you'd been paying the rent for the same property you could probably have accrued £80k in equity. Plus all the house value increases, probably add on another £50k. So if you listened to this person 7 years ago it would have cost you £130,000. Not just a little bit wrong in their advice, but staggeringly, stupendously, wrong. And I say this as someone who made this mistake 20 years ago and cost myself probably £150k+. Always overpay your mortgage when the interest rate is low!
- houseaccount 3y ago
  It would be best to use a rent vs buy calculator. You have to make some assumptions when figuring out the optimal number of years like how much the value of the home will go up, how much rent will go up, etc.
- mattbrewsbytes 3y ago
  Here in the US mortgages are typically 30 years, so taking your $250k @ 4% example over 30 years is $1200/month. After 7 years you'd have paid $35k in Principle and $66k in Interest [0] leaving a balance of $214k. The $1200 mortgage payment doesn't include property/school taxes per the jurisdiction, estimate $300/month, it doesn't include PMI (mortgage insurance for putting down less than 20%), it doesn't include HOA fees either which we'll estimate PMI+HOA at $100/month. So the total cost per month is $1600 which is $134,400 over 7 years. Property taxes and HOA fees could be a lot higher depending on location and they also typically increase every couple years, I'll keep it simple and skip those facts. After 7 years of owning that $250k home you will have paid $134k in total costs for it and property taxes, PMI and HOA, not including any maintenance costs (see my comment about maintenance/mechanical systems). So your $250k home will have to have appreciated over 50% in 7 years and be worth $384k for you to cover the costs of property taxes, PMI and HOA fees plus the mortgage principle+interest. If its less than $384k you are not breaking even (I'm not adding in all the extra stuff that happens with owning a home either). Real estate advice is also generic and location matters a lot. These past few years property values have soared, which is unusual. They haven't soared everywhere though. Inflation has also soared along with interest rates so yes on paper a house may have inflated value (like +50%) but the numbers of buyers and sellers has gone down dramatically, values will also fall from their highs. [0] https://www.bankrate.com/mortgages/amortization-calculator/ https://www.bankrate.com/mortgages/amortization-calculator/
  - mattmanser 3y ago
    It's not $134k to break even, it's is that $134k less than $[YOUR RENT OVER 7 YEARS]. Unless your suggestion is we should all go homeless. But your landlord also has to pay property/school taxes. Your landlord has to pay HOA fees. And landlord fees, business taxes, administration fees, accountancy fees, or whatever delights the US tax systems have conjured compared to the UK one. And they have to make money. Otherwise they'd just sell the house and put the money in a tracker fund. So they have to make 5% per year on $250k. Which comes out at... $1250. Oh, how odd! It's the same as the 4% mortgage payment (smart readers will notice that's today's mortgage payment, not the low mortgage rates over the last 10 years!). Or they put 20% down on the house and pay a mortgage. For a higher amount than a home owner. With no tax breaks. So they have a base price, $1250 + taxes + HOA, etc. ANything less than that and they should just stop being a landlord. A quick google brings this up about the US rental market: The amount of rent you charge your tenants should be a percentage of your home's market value. Typically, the rents that landlords charge fall between 0.8% and 1.1% of the home's value. For example, for a home valued at $250,000, a landlord could charge between $2,000 and $2,750 each month So the advice for minimum rent on a $250k house in the US is $2000, minimum. 7 * 12 * 2000 = 168,000. So the question is, do you want to spend a minimum of $168,000 on rent. Maybe up to $231,000. That's what you will lose on rent. There's no "break even", you don't benefit from house price rises. That's dead money you're never going to see it again. Or do you want to spend $134k on home ownership? And have $35k in equity (which you conveniently left out of your calculation). Probably much more equity than that because of inflation and house price rises, unless you bought when houses were at a peak. What you've got wrong is that the "cost" of buying vs renting is actually the one-off fees you pay each time you buy a house. The lawyers fees, the mortgage arrangement fees, the legal searches, etc. The cost of selling your home (the estate agent fee, realtor in America I guess). In the UK we have a tax too, stamp duty, when you by a home. And if you move in 2 years you have to pay all that again. That's why it sometimes make sense to rent vs buying. But long-term, buying is always better, because landlords have to make money and have the same costs as a home owner. It's basic economics. And over 7 years? No contest. Buy.

mattmanser 3y ago

That 7 years figure is absolute nonsense. Even in more "normal" interest rate periods (pre-2008) the advice was 2-3 years (mainly because of property taxes). For example a three bed house might be £1200 to rent, but even at a 4% mortgage a £250k house costs roughly the same in mortgage payments and only roughly £400 will be interest payment each month. In 7 years that's £67,200 in equity the home owner has accrued while the renter has nothing. Even taking off fees of a few thousand shows your sums are very, very, very wrong. Worse still, if you're talking about the LAST 7 years you've made an even bigger mistake. Because interest rates were so low you'd have been paying much less in interest and had you been overpaying your mortgage as if you'd been paying the rent for the same property you could probably have accrued £80k in equity. Plus all the house value increases, probably add on another £50k. So if you listened to this person 7 years ago it would have cost you £130,000. Not just a little bit wrong in their advice, but staggeringly, stupendously, wrong. And I say this as someone who made this mistake 20 years ago and cost myself probably £150k+. Always overpay your mortgage when the interest rate is low!

houseaccount 3y ago
It would be best to use a rent vs buy calculator. You have to make some assumptions when figuring out the optimal number of years like how much the value of the home will go up, how much rent will go up, etc.
mattbrewsbytes 3y ago
Here in the US mortgages are typically 30 years, so taking your $250k @ 4% example over 30 years is $1200/month. After 7 years you'd have paid $35k in Principle and $66k in Interest [0] leaving a balance of $214k. The $1200 mortgage payment doesn't include property/school taxes per the jurisdiction, estimate $300/month, it doesn't include PMI (mortgage insurance for putting down less than 20%), it doesn't include HOA fees either which we'll estimate PMI+HOA at $100/month. So the total cost per month is $1600 which is $134,400 over 7 years. Property taxes and HOA fees could be a lot higher depending on location and they also typically increase every couple years, I'll keep it simple and skip those facts. After 7 years of owning that $250k home you will have paid $134k in total costs for it and property taxes, PMI and HOA, not including any maintenance costs (see my comment about maintenance/mechanical systems). So your $250k home will have to have appreciated over 50% in 7 years and be worth $384k for you to cover the costs of property taxes, PMI and HOA fees plus the mortgage principle+interest. If its less than $384k you are not breaking even (I'm not adding in all the extra stuff that happens with owning a home either). Real estate advice is also generic and location matters a lot. These past few years property values have soared, which is unusual. They haven't soared everywhere though. Inflation has also soared along with interest rates so yes on paper a house may have inflated value (like +50%) but the numbers of buyers and sellers has gone down dramatically, values will also fall from their highs. [0] https://www.bankrate.com/mortgages/amortization-calculator/ https://www.bankrate.com/mortgages/amortization-calculator/
- mattmanser 3y ago
  It's not $134k to break even, it's is that $134k less than $[YOUR RENT OVER 7 YEARS]. Unless your suggestion is we should all go homeless. But your landlord also has to pay property/school taxes. Your landlord has to pay HOA fees. And landlord fees, business taxes, administration fees, accountancy fees, or whatever delights the US tax systems have conjured compared to the UK one. And they have to make money. Otherwise they'd just sell the house and put the money in a tracker fund. So they have to make 5% per year on $250k. Which comes out at... $1250. Oh, how odd! It's the same as the 4% mortgage payment (smart readers will notice that's today's mortgage payment, not the low mortgage rates over the last 10 years!). Or they put 20% down on the house and pay a mortgage. For a higher amount than a home owner. With no tax breaks. So they have a base price, $1250 + taxes + HOA, etc. ANything less than that and they should just stop being a landlord. A quick google brings this up about the US rental market: The amount of rent you charge your tenants should be a percentage of your home's market value. Typically, the rents that landlords charge fall between 0.8% and 1.1% of the home's value. For example, for a home valued at $250,000, a landlord could charge between $2,000 and $2,750 each month So the advice for minimum rent on a $250k house in the US is $2000, minimum. 7 * 12 * 2000 = 168,000. So the question is, do you want to spend a minimum of $168,000 on rent. Maybe up to $231,000. That's what you will lose on rent. There's no "break even", you don't benefit from house price rises. That's dead money you're never going to see it again. Or do you want to spend $134k on home ownership? And have $35k in equity (which you conveniently left out of your calculation). Probably much more equity than that because of inflation and house price rises, unless you bought when houses were at a peak. What you've got wrong is that the "cost" of buying vs renting is actually the one-off fees you pay each time you buy a house. The lawyers fees, the mortgage arrangement fees, the legal searches, etc. The cost of selling your home (the estate agent fee, realtor in America I guess). In the UK we have a tax too, stamp duty, when you by a home. And if you move in 2 years you have to pay all that again. That's why it sometimes make sense to rent vs buying. But long-term, buying is always better, because landlords have to make money and have the same costs as a home owner. It's basic economics. And over 7 years? No contest. Buy.