We want to buy a house in 5 years — are we saving enough?

If you wanted to buy a house in the next 5 years, how would you plan for it? Can't view this email properly? [View in Browser]() [Podcast Newsletter Header Final.png]() {NAME}, If you wanted to buy a house in the next 5 years, how would you plan for it? Today I want to show you the real spending — and saving — of a REAL couple who is asking that exact question. Is their spending plan set up for their goal? Let’s see what we can find out below… --------------------------------------------------------------- Who needs a financial advisor — and who doesn’t? You often hear me talk about financial advisors, but do you actually need one? You don’t need a financial advisor if: - You have a simple financial situation, like 1-2 earners with 401(k)’s - You have less than $50,000 invested - You enjoy doing it yourself and you’re competent in personal finance You might need a financial advisor if: - You want a second set of eyes on your investments - You’ve started a family and want help planning for childcare, schools, college, etc. - You have a complex situation and want help modeling out different financial scenarios, tax decisions, social security, and investment scenarios If you’re in any of these situations, I recommend you speak to this newsletter’s sponsor, Facet, a service that offers affordable financial planning through a flat fee membership. You can book a [free introductory call with them through my link](). Tell them your situation and they can help you decide if hiring an advisor is right for you. --------------------------------------------------------------- Check out this couple’s spending Now let’s get to another real couple who sent in their [Conscious Spending Plan](). A few details about them: - Age: Early 40s - City: Seattle - Want to buy a house in 5 years They also shared with me: “We were planning to buy a house last spring, and had saved up the down payment, but we did not get an offer accepted — the competition is really fierce here! We decided that we don't mind renting for at least another few (5?) years, so we put that down payment money into index funds for the time being, with the hopes that it will at least keep up with inflation.” What do you notice? NET WORTH $ Assets (current value of car, home, property, business) $14,000 Investments (stocks and index funds) $226,968 Investments (401k) $78,360 Liquid funds $230,115 Debts (student loans, credit card debt, mortgage) $0 TOTAL NET WORTH $549,443 INCOME Gross monthly income (all income before taxes added up) $14,758 Net monthly income (how much you take home after taxes) $11,913 FIXED COSTS (50-60% of take home) 40% Rent / Mortgage $2,800 Utilities (gas, water, electric, internet, cable, etc.) $55 Insurance (medical, auto, home / renters, etc.) $153 Car Payment / Transportation $245 Donations $200 Groceries $500 Clothes $100 Phone $50 Subscriptions (Netflix, Amazon, HarvardBusinessReview, Ncarb, NYS License) $53 Miscellaneous (automatically adds 15% for things you forgot) $623 FIXED COSTS TOTAL $4,779 INVESTMENTS (10% of take home) 32% Pre-Tax Retirement Savings + employer contribution $1,771 Stocks (Index Funds) $2,000 INVESTMENTS TOTAL $3,771 SAVINGS GOALS (5-10% of take home) 17% Vacations $250 Gifts $55 Down Payment ($120k, fully funded) $0 Long Term Emergency Fund ($80k, fully funded) $0 New Car ($47k) $1,750 SAVINGS TOTAL $2,055 GUILT-FREE SPENDING (20-35% of take home) 11% GUILT-FREE SPENDING TOTAL (Dining out, movies, anything you want!) $1,308 My thoughts: - OK, this is interesting. Here we have a couple who’s obviously financially savvy, which you can tell by their ability to save up for a down payment, and then their willingness to wait for years to buy. That kind of patience and vision is extremely rare. I will say, among people who live a truly Rich Life, they’ve almost always developed an ability to think long-term and be patient — far longer than most people. - Looking at their net worth, I notice they have few assets (not a surprise, my NW looks similar) and they have a lot of money in liquid savings. They said they decided to put the money into index funds, so I’m guessing they’re DCA’ing (dollar-cost averaging, or slowly investing over time) that money into the market. Research indicates that investing a large lump sum is a better strategy 2/3 of the time, but in the grand scheme of things, it doesn’t make much of a difference. ([Learn more about some of the most fascinating findings around investing in my book]().) - Fixed costs are low at 40%. This is what you can achieve with a high income and low housing costs. Housing costs are about 19% of gross, which is letting them save/invest much more than the average person (of course, their high household income helps a lot, too). - [Research shows]() that it’s far more expensive to own than to rent in Seattle (that’s from 2023 and it’s likely gotten even more pronounced). I don’t know their neighborhood, but as an estimation, if they’re currently paying $2,855, they might pay around $5,710 to own the equivalent place that they’re renting. Instead, this couple is wisely taking that extra ~$3,000/month and investing it. - I have no other comments on Fixed Costs except 40% is a bit low. If you want to spend more on some nice tortilla chips, feel free. Go ahead and splurge on a new shirt. Uncle Ramit says it’s OK. (In all seriousness, be sure to build the skill of spending even as you save/invest aggressively.) - Investments are, as expected, very high. Makes sense. They’re doing what a lot of people living in VHCOL/HCOL areas do: rent, invest the difference between renting and owning, and when they eventually decide to buy, they can afford to spend a huge amount — even if the numbers show that buying doesn’t make sense. One day when my wife and I buy a house, it will be the same for us. - Savings: I love that this couple is saving for a car. They currently have a $245 car payment while making $177,000/year. Are you guys getting it?? People who make a lot of money and understand how it works are extremely savvy with deciding what to spend extravagantly on...and what to cut costs mercilessly on. - If I look at the money set aside for vacations AND their guilt-free spending, I see a very small number — too small. This couple needs to work on identifying what their Rich Life is and building the skills of spending it. For example, I’d challenge them to give away $3,000 this year. Could be donations or tips. How would you do it? - They already identified they want to buy a house. Fine! They put a system in place and it will take 5+ years to get it. Great, they’re on their way. In the meantime, they can still live their Rich Life. Identify what it is and start putting time and money behind it. Spending an extra $300-$500/month won’t materially change your financial outcome...but it will help you live an amazing life right now. - Overall, great work. I love to see the depth of thinking and discipline here. If you want more specific help with your financial situation, [I highly recommend my Money Coaching program](). What were your biggest takeaways from this Conscious Spending Plan? [Signature] P.S. New podcast: [“I maxed out my credit cards on our $45k wedding. Are we broke?”]() If you enjoy the show, please do me a favor and [follow us on Apple Podcasts]() and leave us a review. It really helps me and my team help even more couples and have better conversations about money! 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