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I have been saving at least 25% of my after-tax income every year since college ended. Some of my friends and acquaintances spend a lot, judging by my facebook newsfeed. We are talking about:
- International travel
- Fine dining
- Electronic gadgets
- Domestic travel to resorts like Las Vegas or Cancun
I spend very little on these things and hope my discipline will pay off long-term when it comes to home ownership. I am not a doctor or lawyer and never desired to be either one, so my income is not going to be in the top 5%. A typical house in SF is 700K and I really want to stay here. Anybody in my shoes who are well along in years want to comment?
It is individual choice on who spends what. Worry about what you spend and what suits you not what other people spend. You are being silly and petty. Your spending habits are not always correct.
Why do you want to own a home? If you pay $1,800/month in rent compared to paying 20% down on a $700k home with a 30 year mortgage with an APR of 4%, assuming for 2% inflation rate, 1.69% property tax and 0.8% annual maintenance/renovation costs, the 30 year cost of renting vs buying breaks down like this:
Renting: $642,321
Buying: $785,795
If you take into account the hidden fees of buying a home (maintenance, insurance, taxes, etc.), renting is over $100k cheaper for San Francisco, speaking simply in terms of average prices. Are you sure the most frugal option is to buy?
You seem to be forgetting one big thing in your calculation. After 30 years, buyers own that $700k house which they can sell. What do renters have after those 30 years?
You seem to be forgetting one big thing in your calculation. After 30 years, buyers own that $700k house which they can sell. What do renters have after those 30 years?
Well, they would have that 20% down payment, which may have now also have seen significant growth.
Since San Francisco has rent control, I think there's one other point here that I didn't think about earlier: comparing current housing prices to current rental prices is also a bit misleading when running the numbers for a purchase down the road. If you're in a current apartment, rent control keeps the rent from increasing more than a small percentage each year. So if you're paying, say, $3,000 on an apartment now, you're not going to be paying that much more in five years (or however long it take to save up the kind of massive down payment needed for a SF home.). Meanwhile, what will home purchase prices look like? There's really no way to know. If they've gone up a lot, renting at a locked-in rate (which could potentially be a lot lower than the new market rate) could make more sense, assuming one banks the difference and saves for the future.
If someone is considering whether to buy or rent in San Francisco and already has the money in hand, it makes it a lot easier to run more accurate numbers. And of course there's also the personal preference factor; if the OP prefers to own a house and has the means to do it, and is planning on staying in the city long-term, then yes, it makes sense for him/her to own. But renting, especially in cities like San Francisco, can also sometimes be a smart financial decision.
Except the savings from buying is much greater than 400,000. Try doing the math with 4,000 rent and 2% annual increases. Rent goes past 5,000 monthly in year 11. Live for instant gratification or become financially sustainable by middle age. That's the choice.
How about another choice: downside your housing to the minimum and use the rest of your money to take enjoyable vacations? One of my grad school friends couldn't find a job after getting an MBA so he opted to live in a shared house (with his own room) in the Sunset District for about $600/mo. Since he didn't need a car in SF, he also saved on that and just bought a monthly bus pass. Granted, this isn't an ideal lifestyle but you can easily live on $1000 a month in SF.. and take numerous vacations with the money remaining.
Do most people start saving for down payments on homes right after college? I think many people in their 20's aren't settled enough in life to even think about sinking a big hunk of money into a house. They're often single, switching jobs and growing their careers, possibly going to grad school and they're more focused on going out/having fun/dating/traveling than they are on setting deep roots...
I'm not saying that there is anything *wrong* with starting to save while you are young. In fact, there is a lot of wisdom in saving early and often. But just realize that not everyone has those same priorities right out of college. And that's o.k. too.
Do most people start saving for down payments on homes right after college? I think many people in their 20's aren't settled enough in life to even think about sinking a big hunk of money into a house. They're often single, switching jobs and growing their careers, possibly going to grad school and they're more focused on going out/having fun/dating/traveling than they are on setting deep roots...
I'm not saying that there is anything *wrong* with starting to save while you are young. In fact, there is a lot of wisdom in saving early and often. But just realize that not everyone has those same priorities right out of college. And that's o.k. too.
There are people who save for down payments right after college- like the couple who gets married right after college and wants to start family. I am not saying that it is my way or the highway. You certainly will have more fun travelling abroad. I am asking what benefits there are of making saving a habit.
The #1 benefit is freedom to cover unexpected expenses.
I have been saving at least 25% of my after-tax income every year since college ended. Some of my friends and acquaintances spend a lot, judging by my facebook newsfeed. We are talking about:
- International travel
- Fine dining
- Electronic gadgets
- Domestic travel to resorts like Las Vegas or Cancun
I spend very little on these things and hope my discipline will pay off long-term when it comes to home ownership. I am not a doctor or lawyer and never desired to be either one, so my income is not going to be in the top 5%. A typical house in SF is 700K and I really want to stay here. Anybody in my shoes who are well along in years want to comment?
Travel and 'fine' dining (not like most restaurants out there) and not a waste of money in my book.
I thought you were going to talk about the latest iphone or new clothes every five seconds or those fancypants shoes everyone keeps buying...
There are people who save for down payments right after college- like the couple who gets married right after college and wants to start family. I am not saying that it is my way or the highway. You certainly will have more fun travelling abroad. I am asking what benefits there are of making saving a habit.
The #1 benefit is freedom to cover unexpected expenses.
Well, the benefits to saving a lot early on would be many. For one thing, you would have something to fall back on in the event of a job loss or when unexpected expenses arise (like a major car repair). Also, your money would have more time to grow and you would be able to reap the rewards of compound interest/home appreciation if buying. And, since you do have savings to fall back on, you would be less likely to be overwhelmed by a mountain of debt later on.
That said, there is also something to be said for enjoying life while you're young, healthy and responsible (mainly) for just yourself. I'm not saying that you should blow big bucks on travel and casinos, living it up like a rock star without any regards for your future or any plan to pay for it. But you are young only once. And if you're ever going to do anything a little wild and crazy - the time is now.
You can definitely be fiscally responsible now and still have a lot of fun. No need to choose one or the other when you can do both, IMO.
Last edited by springfieldva; 12-21-2012 at 05:20 AM..
Except the savings from buying is much greater than 400,000. Try doing the math with 4,000 rent and 2% annual increases. Rent goes past 5,000 monthly in year 11. Live for instant gratification or become financially sustainable by middle age. That's the choice.
You are right, I was just giving the counterpoint regardless of the numbers. If you have enough saved up to retire forgetting about the house (and a home should not be your primary source of income in retirement anyway), why not spend some money and actually have fun during your life?
Quote:
Originally Posted by kcatheart
You seem to be forgetting one big thing in your calculation. After 30 years, buyers own that $700k house which they can sell. What do renters have after those 30 years?
30 years of travel, dining out, having fun, and actually living their lives instead of skimping just to own a house and have money when they are old and potentially unable to do much with it? You enter the world without a penny to your name and leave the same way, why not spend some money to enjoy yourself along the way?
30 years of travel, dining out, having fun, and actually living their lives instead of skimping just to own a house and have money when they are old and potentially unable to do much with it? You enter the world without a penny to your name and leave the same way, why not spend some money to enjoy yourself along the way?
You're assuming that the person can't really afford the home. But if you can afford the home, it's most certainly a better option financially. Owning a home doesn't take away from traveling, dining out, etc.
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