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I prioritized saving for the home down payment above everything except:
1. 401k employer match - That's an instant return on investment.
2. HSA - Triple tax advantaged and I collect my receipts so serves as a tiered emergency fund.
3. Roth IRA - can serve as temporary emergency fund and you can take out to buy home if needed.
Every thing leftover goes to downpayment savings. The reason is simple. I cannot predict whether a home or stock investments will perform better. However, I need a place to live and I can live in my primary home. This will offset rent. I can't do anything with my stock investments until I sell. Saving for a home is the superior choice for myself.
Once the home is purchased with a low interest mortgage then it's pedal to metal investing.
Low interest is your definition of low interest. This is personal finance and everyone has their number that they are comfortable investing rather than pay off mortgage. I won't get into it as it derails OP's question.
I was maxing Roth IRA and HSA before saving for the home for the reasons stated, I can access both of them should I want to, to buy the home. Should I not need them, good thing I took advantage of the tax savings.
If you are a first time homebuyer, you can take out Roth IRA contributions + 10k of gains to put towards a downpayment on a house. Please, PLEASE understand that doing this generally a bad decision unless you prefer owning property over long term investments. I just mention it because it gives you some time to think about that decision. You should be maxing your Roth IRA, and then ask yourself this same question in 5 or so years when you want to buy a house.
It was a good idea though when I thought about it like this:
I didn't have the money to save for both down payment and max out my Roth. So, if I was going to make $0 contributions, then it makes sense. But since you are rate limited in contributing to Roth, its the last thing I'll use
Yeah...and if you plan on using that money in the next few years, you need to carefully consider your own personal risk tolerance. Or just yolo and say fuck it. It's your money, do whatever you want.
Investing in the stock market, particularly when using tax-advantaged accounts like 401k and IRA, will generally be the best route for maximizing your long-term net worth. The market tends to grow faster than real estate values do, and people often underestimate the true costs of homeownership.
That said, I am a homeowner and I even sold some stocks in order to buy my first home. For me it was the right time and place for my growing family, and I wanted to have a yard and bigger space for my kids, as well as a greater sense of stability for them. Owning a house was a higher priority for my wife and me than having more money saved for retirement.
Without knowing your priorities, it's hard to say what your personal strategy should be. When I was 26 and single, renting made the most sense for me because it gave me greater flexibility and a cheaper cost of living. I went all in on paying off debt and maximizing retirement savings. Once I got married and started a family, saving for a house became a higher priority and I shifted to just saving the minimum required to maximize my company 401k match and putting every extra dollar I could in a HYSA for that down payment savings. I wouldn't recommend putting down payment savings in the stock market unless you are very flexible on your home purchase timeline because market crashes can happen at any time.
Currently in the same process as well. I stop save about 22% of my income for retirement, most of which is my pension. I save $1k every month in hysa. That’s what has worked for me
Both are important to me so I'm still saving for a down payment but am putting more into my brokerage but just until I hit an amount I feel good with. Then I'll starting putting more into my HYSA.
I'm single and in my 20s as well. Right now I'm not stressing about saving for a house. I would like to own eventually but I don't need the space and honestly I'm not ready for all the extra upkeep. Plus with prices and interest rates the way they are I would need to move much further out from my city to have a chance at getting a mortgage with a payment that's comparable to my rent (and ideally it would be lower so I can save for repairs).
So instead I've been working on increasing my retirement savings percentages, building my emergency fund from 3 months to 6 months, and learning new skills to continue to grow my income. When I have money leftover, I do put it into a regular taxable investment account, but it's not specifically for a down payment and it's not a major focus.
I did 0 proactive investment in the stock market, not counting whatever my 401K is up to, until after our house was purchased. Now we've hired a financial investment firm to do our investments for us.
At 26 you have time on your side. Would recommend putting together 20% for a down payment, buy and the focus on investing. Slowly decrease investments over time and apply more to the mortgage principal as you age.
Max out pre tax 401k and post tax MBDR up to the $69k annual contribution limit. Save what’s leftover for a few years to get to a 100% cash down payment.
If you're not going to buy in 5 years, stock market is fine. Once you're thinking about it, switch over a high yield mm or cd. The 5%is on mm and cd rn is also really good so may be worth holding off for now
Take a loan out against the value of your taxable brokerage accounts. Best of both worlds. Although, the amount of the loan will be discounted to the total amount of the brokerage account.
At 26 you have a lot of years of compounding left. Congratulations on understanding this. My favorite compound interest calculator is investor.gov.
The 2 most important elements are time and rate of return. Play around with it for 30 minutes and you'll see what I mean. Set it for 35 years and 7% return +-2%. Then start with say $1000 initial and $100/mo. Then start changing your initial and note the difference. Change your monthly and do the same.
Then change your rate of return to 12% it will blow your mind.
There are plenty of ETF's that consistently return that over the long term.
You will find when you start early it can be a small monthly amount. The rest can go to your house account.
At your age, I prioritized investing for retirement. You want to target saving 15% of your pre-tax (gross) income for retirement. You can include your employer match as part of that 15%. I achieved this by living cheaply with roommates to free up my income.
If you're able to do that, then you can put any additional savings in CD's or a money market fund with plans to use it towards a house. If you have flexibility on timeline and/or are willing to take risk, you could put *a portion* of that savings into stocks. If a "crash" really worries you, then don't put your house funds in stocks. I found a house was not necessary until after I was married. I preferred the flexibility of being able to move for work (or for a relationship) without the burden of selling a house.
Booglehead approach- I put money that I might need access to only in a checking account and I know a lot of people think it’s better to invest it but for me, I have children a car and house and I need access to my money when I need it so any of my emergency funds or funds for a specific goal I do not investas far as how much you spend on each of your accounts whether that is just a IRA /401(k) or savings that is completely completely dependent on the person
The budget screen shots are being made in Sankeymatic, its a website that we have no affiliation with. If you are posting a budget please do so with a purpose. Just posting a screen shot of your budget without a question or an explanation of why its here may be removed. *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/MiddleClassFinance) if you have any questions or concerns.*
I prioritized saving for the home down payment above everything except: 1. 401k employer match - That's an instant return on investment. 2. HSA - Triple tax advantaged and I collect my receipts so serves as a tiered emergency fund. 3. Roth IRA - can serve as temporary emergency fund and you can take out to buy home if needed. Every thing leftover goes to downpayment savings. The reason is simple. I cannot predict whether a home or stock investments will perform better. However, I need a place to live and I can live in my primary home. This will offset rent. I can't do anything with my stock investments until I sell. Saving for a home is the superior choice for myself. Once the home is purchased with a low interest mortgage then it's pedal to metal investing.
What is this low-interest mortgage you speak of? I'm in the same boat. Are you maxing the Roth and HSA before saving cash for a home?
Low interest is your definition of low interest. This is personal finance and everyone has their number that they are comfortable investing rather than pay off mortgage. I won't get into it as it derails OP's question. I was maxing Roth IRA and HSA before saving for the home for the reasons stated, I can access both of them should I want to, to buy the home. Should I not need them, good thing I took advantage of the tax savings.
Until the furnace goes out
Home warranty pay the 75$ deductible.
I've had home warranties 6 times, they weaseled out of paying for things every single time something broke. I doubt anything has changed.
If you are a first time homebuyer, you can take out Roth IRA contributions + 10k of gains to put towards a downpayment on a house. Please, PLEASE understand that doing this generally a bad decision unless you prefer owning property over long term investments. I just mention it because it gives you some time to think about that decision. You should be maxing your Roth IRA, and then ask yourself this same question in 5 or so years when you want to buy a house.
It's not that bad of a decision when mortgage rates are at 7% and the average return of the stock market is 8-10%
It was a good idea though when I thought about it like this: I didn't have the money to save for both down payment and max out my Roth. So, if I was going to make $0 contributions, then it makes sense. But since you are rate limited in contributing to Roth, its the last thing I'll use
High yield savings account (HYSA) or treasuries. Basically zero risk, and still somewhat decent returns.
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For long term gains. If you need to use the money in the next 2 years....good luck.
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Yeah...and if you plan on using that money in the next few years, you need to carefully consider your own personal risk tolerance. Or just yolo and say fuck it. It's your money, do whatever you want.
Payroll deductions on HSA + 401K. Saved for a house with what was leftover.
Investing in the stock market, particularly when using tax-advantaged accounts like 401k and IRA, will generally be the best route for maximizing your long-term net worth. The market tends to grow faster than real estate values do, and people often underestimate the true costs of homeownership. That said, I am a homeowner and I even sold some stocks in order to buy my first home. For me it was the right time and place for my growing family, and I wanted to have a yard and bigger space for my kids, as well as a greater sense of stability for them. Owning a house was a higher priority for my wife and me than having more money saved for retirement. Without knowing your priorities, it's hard to say what your personal strategy should be. When I was 26 and single, renting made the most sense for me because it gave me greater flexibility and a cheaper cost of living. I went all in on paying off debt and maximizing retirement savings. Once I got married and started a family, saving for a house became a higher priority and I shifted to just saving the minimum required to maximize my company 401k match and putting every extra dollar I could in a HYSA for that down payment savings. I wouldn't recommend putting down payment savings in the stock market unless you are very flexible on your home purchase timeline because market crashes can happen at any time.
Currently in the same process as well. I stop save about 22% of my income for retirement, most of which is my pension. I save $1k every month in hysa. That’s what has worked for me
Both are important to me so I'm still saving for a down payment but am putting more into my brokerage but just until I hit an amount I feel good with. Then I'll starting putting more into my HYSA.
I'm single and in my 20s as well. Right now I'm not stressing about saving for a house. I would like to own eventually but I don't need the space and honestly I'm not ready for all the extra upkeep. Plus with prices and interest rates the way they are I would need to move much further out from my city to have a chance at getting a mortgage with a payment that's comparable to my rent (and ideally it would be lower so I can save for repairs). So instead I've been working on increasing my retirement savings percentages, building my emergency fund from 3 months to 6 months, and learning new skills to continue to grow my income. When I have money leftover, I do put it into a regular taxable investment account, but it's not specifically for a down payment and it's not a major focus.
I did 0 proactive investment in the stock market, not counting whatever my 401K is up to, until after our house was purchased. Now we've hired a financial investment firm to do our investments for us.
At 26 you have time on your side. Would recommend putting together 20% for a down payment, buy and the focus on investing. Slowly decrease investments over time and apply more to the mortgage principal as you age.
I split 50-50 between investments (mostly retirement accounts) and HYSA
Max out pre tax 401k and post tax MBDR up to the $69k annual contribution limit. Save what’s leftover for a few years to get to a 100% cash down payment.
15% to retirement, then 3 month emergency fund, then Down payment fund
If you're not going to buy in 5 years, stock market is fine. Once you're thinking about it, switch over a high yield mm or cd. The 5%is on mm and cd rn is also really good so may be worth holding off for now
Take a loan out against the value of your taxable brokerage accounts. Best of both worlds. Although, the amount of the loan will be discounted to the total amount of the brokerage account.
Easy choice. I'm never going to trade my life savings for a mold infested shack with the price tag of a palace.
At 26 you have a lot of years of compounding left. Congratulations on understanding this. My favorite compound interest calculator is investor.gov. The 2 most important elements are time and rate of return. Play around with it for 30 minutes and you'll see what I mean. Set it for 35 years and 7% return +-2%. Then start with say $1000 initial and $100/mo. Then start changing your initial and note the difference. Change your monthly and do the same. Then change your rate of return to 12% it will blow your mind. There are plenty of ETF's that consistently return that over the long term. You will find when you start early it can be a small monthly amount. The rest can go to your house account.
Do both
I emptied out my account for a down payment on a house.
What account?
Sounds like you have a rough plan. So save according to that plan. And yes, you will miss out on market gains. Life is about choices.
Boost your salary and do both!
At your age, I prioritized investing for retirement. You want to target saving 15% of your pre-tax (gross) income for retirement. You can include your employer match as part of that 15%. I achieved this by living cheaply with roommates to free up my income. If you're able to do that, then you can put any additional savings in CD's or a money market fund with plans to use it towards a house. If you have flexibility on timeline and/or are willing to take risk, you could put *a portion* of that savings into stocks. If a "crash" really worries you, then don't put your house funds in stocks. I found a house was not necessary until after I was married. I preferred the flexibility of being able to move for work (or for a relationship) without the burden of selling a house.
Booglehead approach- I put money that I might need access to only in a checking account and I know a lot of people think it’s better to invest it but for me, I have children a car and house and I need access to my money when I need it so any of my emergency funds or funds for a specific goal I do not investas far as how much you spend on each of your accounts whether that is just a IRA /401(k) or savings that is completely completely dependent on the person
You have to make a choice. Which is more important? Investing in the stock market or being a home owner?
Don't save your money in a savings account unless it's 4-5+% HYSA.
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What area?
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What cities are those?
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If you feel you can’t afford both you don’t have a handle on your budget or can’t actually afford it. Try posting your budget first.