Keeping an Emergency Fund for Mortgage Payments vs. Using it to Prepay it all. (paying, rates)
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Well, you can't be sure (just like you can't be sure you won't be struck by lightning or a car tomorrow), but it shouldn't be that tough to go 6 months on $30,000 without an income (actually longer if you include unemployment benefits). And this assumes no change to lifestyle. I would assume a prudent homeowner would at least take in tenants/roommates and limit takeout food and driving until the next job comes along.
Health insurance premiums, unemployment if they qualify is hardly helpful since if you are lucky you get 1/4th of your take home pay, maybe, bills, etc. Maybe you have cheep rent but as you get older those things change. $5000/month just doesn't go very far to pay bills for most families... Do you have room to take in tenants/roommates in your apartment/house? Does your apartment/neighborhood allow that? You can only cut out so much....
Sorry, it's not prudent to plan for 6 months of unemployment....12-18 months is the standard these days. Besides, what is wrong with saving more??
Health insurance premiums, unemployment if they qualify is hardly helpful since if you are lucky you get 1/4th of your take home pay, maybe, bills, etc. Maybe you have cheep rent but as you get older those things change. $5000/month just doesn't go very far to pay bills for most families... Do you have room to take in tenants/roommates in your apartment/house? Does your apartment/neighborhood allow that? You can only cut out so much....
Sorry, it's not prudent to plan for 6 months of unemployment....12-18 months is the standard these days. Besides, what is wrong with saving more??
Health insurance premiums, unemployment if they qualify is hardly helpful since if you are lucky you get 1/4th of your take home pay, maybe, bills, etc. Maybe you have cheep rent but as you get older those things change. $5000/month just doesn't go very far to pay bills for most families... Do you have room to take in tenants/roommates in your apartment/house? Does your apartment/neighborhood allow that? You can only cut out so much....
Sorry, it's not prudent to plan for 6 months of unemployment....12-18 months is the standard these days. Besides, what is wrong with saving more??
The sky is falling, everyone will be jobless for ages
At least that's how you're coming across. And plenty of households make it on $5000/month post tax. Even with kids if there is no job at least you don't have to pay for daycare.
As to what's wrong with that, very simple: you're wasting money on mortgage interest.
A friend of a friend wanted to buy a house.. he has no savings or emergency fund.
frankly, your friend is not ready to buy a house. Someone who has no savings is someone who doesn't appear to be responsible...or showing his ability to go twds the path of actually being responsible yet.
He shouldn't buy a house yet & his parents should keep the 200k aside for him.
The sky is falling, everyone will be jobless for ages
At least that's how you're coming across. And plenty of households make it on $5000/month post tax. Even with kids if there is no job at least you don't have to pay for daycare.
As to what's wrong with that, very simple: you're wasting money on mortgage interest.
Well, no---when my interest rate is 4% and my investments are getting 10%...it would be a waste to put those funds into a mortgage and lose money...
The sky is not falling---it's just called being a responsible adult....
If I was in that situation, I would have put as little as possible toward the house, put some aside as an emergency fund (recommend 6 months depending on their situation), and then I would have invested the rest.
We only keep a 6 month emergency fund based on our actual "living" expenses. We both work and we only live on 1 income. So, we would both have to be laid off and both not be able to find work for 6 full months in order for that emergency fund to not be adequate - pretty extreme situation. In addition, we have a lot of taxable investments (not tied to retirement accounts) that we could also pull from if needed. I only refer to the money in our money market account as our "emergency" fund. All of this is a factor when determining what someone really needs for a "emergency" account.
Also, over the past 5 years, my investment accounts have grown in multiples compared to the small interest rate on my mortgage (which we also get to write off). Absolutely do not regret tying up as little money as possible in our mortgage right now.
Last edited by Sunbather; 03-28-2014 at 08:33 AM..
If I was in that situation, I would have put as little as possible toward the house, put some aside as an emergency fund (recommend 6 months depending on their situation), and then I would have invested the rest.
We only keep a 6 month emergency fund based on our actual "living" expenses. We both work and we only live on 1 income. So, we would both have to be laid off and both not be able to find work for 6 full months in order for that emergency fund to not be adequate - pretty extreme situation. In addition, we have a lot of taxable investments (not tied to retirement accounts) that we could also pull from if needed. I only refer to the money in our money market account as our "emergency" fund. All of this is a factor when determining what someone really needs for a "retirement" account.
Also, over the past 5 years, my investment accounts have grown in multiples compared to the small interest rate on my mortgage (which we also get to write off). Absolutely do not regret tying up as little money as possible in our mortgage right now.
I think that is where some people get hung up. If you want to be technical, we have 2 months in our "emergency fund" if you define it that way--but having liquid assets for 12-18 months is prudent. I'd never stick an emergency fund of more than a couple months in a 'savings' account . Point is, don't tie up all of your money in accounts that have penalties for withdrawing funds.
I think that is where some people get hung up. If you want to be technical, we have 2 months in our "emergency fund" if you define it that way--but having liquid assets for 12-18 months is prudent. I'd never stick an emergency fund of more than a couple months in a 'savings' account . Point is, don't tie up all of your money in accounts that have penalties for withdrawing funds.
If I was in that situation, I would have put as little as possible toward the house, put some aside as an emergency fund (recommend 6 months depending on their situation), and then I would have invested the rest.
We only keep a 6 month emergency fund based on our actual "living" expenses. We both work and we only live on 1 income. So, we would both have to be laid off and both not be able to find work for 6 full months in order for that emergency fund to not be adequate - pretty extreme situation. In addition, we have a lot of taxable investments (not tied to retirement accounts) that we could also pull from if needed. I only refer to the money in our money market account as our "emergency" fund. All of this is a factor when determining what someone really needs for a "emergency" account.
Also, over the past 5 years, my investment accounts have grown in multiples compared to the small interest rate on my mortgage (which we also get to write off). Absolutely do not regret tying up as little money as possible in our mortgage right now.
If you inherited a paid for home, would you take a loan on it to invest in the stock market?
If you inherited a paid for car, would you take a loan on it to invest in the stock market?
If you had a low interest (5.5%) unsecured credit line, would you max it out to invest in the stock market?
If his parents expected him to use the funds towards a $400K home, or otherwise wouldn't have given it to him, or given him less for a cheaper home, then he needs to use it towards the home purchase. Also, for someone who has parents giving him $200K for a new home, it seems that his "emergency fund" will also come from his parents.
However, if the funds were just given as a gift (and after all taxes are paid), I personally would use only enough to avoid PMI and/or higher interest rates (think 20% down, $80K) and invest the leftover in various assets (stocks, bonds, CDs, and a little cash in online savings account). If an emergency arises, I can always liquidate some of these assets.
Having the funds tied up into a house does nothing for you. Once you have a house paid off, it no longer makes/saves you money, until you sell it. But then again, if you sell, you will end up buying another home anyways. And we all know "buying down" works good in theory, but rarely do people have the willpower to buy down after getting so much cash from selling their current home.
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. Point is, don't tie up all of your money in accounts that have penalties for withdrawing funds.
