Woah! Two Two Cents posts in a month? Surprise! I’ve gotten a lot of great responses for this series, so I’m going to increase to two a month for a little while just so I can get all this content out faster. Today’s take is very different than all the ones we’ve had to date; it’s insight into a home-buying process for the young millennial. Let me know if there are any specific Two Cents contributors you’d like to see a follow-up from. Otherwise, enjoy this post!
Hello! I’m Kate and I’m a 26-year-old Assistant Project Manager for a large General Contractor in the Construction Industry. I’ve been moving pretty quick these last couple years through life – my husband and I got married, moved to Texas, and bought a house, all in less than 12 months. This is typical for me though as I’ve always been a run-and-gun type of person. With money, I operate at both extremes – I intensely save and then I also take great risks.
How would you describe your current financial situation?
Currently, I’m feeling overspent. My husband and I just bought a house and, since it is our first house, we have had to purchase all kinds of things for the lawn, patio, pool maintenance, etc. We also bought a couple new furniture items like a large rug, a grill, and a TV stand. Now it’s time to pay for car insurance again. Bills keep coming in. Then our water heater broke! So that was $800 we were not expecting. But we were ready for the expense of the water heater because we budget all the other daily expenses. We were ready to buy a house because we saved up. Now I am working on building back up that “Emergency Fund”. Right now I can’t say I have 6 months of expenses (rent, gas, insurance, food) saved up. Now more than ever I try to employ some cost vs. benefit analysis to everything I do. Sometimes I tend to apply more benefit to an item and then accept the cost. My husband is much better at analyzing pros and cons of a purchase but he will support my ideas and also somehow figure out how to get the same thing for less. We pay for car and home insurance all at once instead of month-to-month. You can save anywhere from $50 to $300 each premium by doing that. There are also other ways we save. We cook most of our meals instead of going out. We plan our meals weekly which saves at the grocery store because we only get what we need. Plus, we have fun since we usually try to cook something new every week or two that we haven’t tried to cook before. It doesn’t always turn out as expected though…
Do you consider yourself to be money-savvy?
I would say I’m more money crafty rather than money savvy. I’m no expert yet. Our current situation works because we have been planning and saving practically all our lives. “Saving” was ingrained in any money talk I ever had with my parents whenever I became old enough to babysit, go to the mall with friends on my own, or started working after school at 14 (with a work permit) at a local craft store. Also, fortunately, I have managed to stay debt free which I can partially thank my parents for since they worked hard to put me through college without loans. I saved practically my whole paycheck until I started living on my own even though I wasn’t really sure what I was saving for. Now I know. I’ve saved for this. This part of my life where there are big purchases like a house and unexpected potential costs. Unlike apartment living, if the air conditioner unit breaks, that is at least a couple thousand dollars from our own pockets to fix. With a home, there is more chance of the unexpected happening but you get insurance and you save so that you’re ready for it.
On the other hand, though, I take more of a risk with my money when it comes to 401k savings, mutual funds, IRAs, and stocks. For example, I started out putting in 10% of my paycheck to my 401k. This is more than T. Rowe Price initially recommends. I plan to increase my contribution once spending has settled down with the house. With my Roth IRA accounts, I put the maximum $5,500 yearly into the account. So far, this all may seem pretty normal and not really that risky to many people out there. After buying a house though, making that choice to invest in my Roth IRA and 401k for retirement versus having more cash on hand is actually a choice. But this just means that I don’t spend as much money on certain other things like clothes, going out, or hobbies.
My greatest risk is investing in stocks. I research daily by reading the Business section of the newspaper as well as following social and political trends. I will buy new stock monthly or more frequently after all this daily research. I go through Schwab Investing as they have a few plans where you don’t pay any fees to buy or sell stock. I have purchased shares in ETFs lumping many high performing companies into one portfolio and also specific stock in companies. I have found it better to invest in companies you are more or less familiar with or work closely with. This is not necessarily the big hitters like Apple or Google but could be anything from Rolls Royce, who doesn’t just make cars, to a specific airline, chemical company, or food processing company. I’ve found that stock in companies that produce goods versus provide services are steady and usually increase in value at a slow and safe rate. Sometimes the need for these goods increases depending on the geopolitical climate but mostly they are steady. Companies that provide services area almost always more risky as often another better service is born or the service goes out of style. This doesn’t mean I shy away from them though. I usually buy 4 shares of anything at a time. I buy stock with the expectation of keeping it for a 1 to 5 year range. This is short-term in the stock world but definitely feels long-term to me. Even with so much research, you have to take the risk to actually purchase the stock knowing that anything can change. Right now the market is volatile and that is because of recent geopolitical tensions. This is no reason to be nervous though. The main thing to remember is to stick to your long-term goals which should be a diversified portfolio and to also remember that tensions do lead to resolution and ultimately that resolution is going to be based on the desire for global wealth.
What financial advice would you have wished to hear when you started working?
If you are buying a house for the first time, ask for money off of closing costs, and not off the total house price when negotiating. You don’t always get to negotiate but often you will be able to pick out at least one thing from the home inspection that you can ask for money off to fix yourself after they have moved out. If you get $5,000 off the total house price, over a 30-year mortgage, this is only approximately $18/month in savings. If you get $5,000 off the closing cost, that money can help with initial purchases or can earn more interest in a high-yield checking account. This will also help with your cash on hand and those unexpected expenses that come as a first time home owner.
What financial achievement are you most proud of?
Buying a house!! I’m proud of our house and we made it happen because that was important to us.
So far in the last 22 months, I’ve seen 10% gains from what I’ve put into my stock accounts. This gain is over 15% more than what I would have earned through interest in a high-yield checking or savings account during the same time period. The highest checking or savings account interest rate from a bank right now is around 1%, but most high-yield checking or savings accounts float around .08% interest per year. I’m also proud of that.
What expense can you not live without?
Gas. Driving is the only way to get anywhere in Texas. Also, toll road expenses are very necessary too. If I need to be somewhere quick for work, the toll road is the way to go since it cuts the time in half!
What expenses could you cut down on?
Food and beverages. But I love to snack so that would be hard.
What are your long-term financial goals?
I went to school for an architecture degree and at some point, I’d love to go back to design. I might want to get my masters and then design a bunch of houses and sell the plans to a big home builder. Then with that profit, I’d want to open my own studio…or maybe a petting zoo (same thing right?).
What are your short-term financial goals?
Save up 6 months of expenses as an emergency fund. Then after that, travel to adventurous places while we are still young. Sailing, hiking, swimming, or anything super active I’d want to experience while we have the time and energy.
Save, Save, Save! It may seem difficult but a little bit saved eventually turns into a lot saved. Then with a lot saved, you can start making larger purchases like a house/big trip/new car or taking bigger risks in the stock market.
To sum up, though, gains are exciting but with stock, it could easily go the other way while interest from a bank is small but steady. I’ve been fortunate enough to be able to set aside funds to take these risks but also try to play it smart.