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Savings advice from a coworker

August 18, 2009

I went to lunch with a coworker on my new project last week ($8 for sandwiches and fries).  He’s about 10-15 years ahead of me in life, and among other things, he was giving me advice on when to buy a house.  (Is it just me or do home owners always want the rest of us to join them ASAP?)

We talked about how my apartment is rent-controlled, which makes buying a home a harder sell for strictly financial reasons.  He said something like I shouldn’t get sucked into paying so little rent, then had some advice.

“Here’s what I did when I decided I wanted to buy a house.  I started ‘paying the mortgage’ before I had it.  I figured my mortgage would be $3k, and my rent was $1k, so I started putting away $2k a month.  Not right away, I started with $500 and increased it until I was at the right amount.”

Two things went through my mind:

1)  hahahah, do you know who you are talking to?!?  I am 100% aware of how to save money, and if there is a savings trick, I’ve probably already heard (read) about it.  Not that it is not a valid trick, but… there are only a few savings tricks I like.  Personally, I’d just start a “house fund” and save up as much as I could.

2)  Tax deductions or whatever, I still don’t know if the rent vs buy calculation will come out in favor of paying $2k more a month in mortgage.  There are a lot of details missing, but the market in L.A. is still SO high.  I’ll do the math when my life is ready for it.

I verbally agreed with him (why not?), but said it really wasn’t a consideration because we couldn’t afford it right now (probably not 100% true — we could make something work, but we’d be very very  house condo poor) and we weren’t sure our plans beyond the next couple years.

Buying will be on my radar, eventually.  T still has two years left of school, and then we should have a more clear picture of where we will be for awhile.  For now, the only way to convince me that renting is not a good idea is to remind me how we can’t have a dog.  😦

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13 Comments leave one →
  1. August 18, 2009 5:32 am

    I try not to get too outraged when people try to teach me lessons I already know. Its not their fault they don’t know about my little internet hobby, and my OCD spreadsheets. I always have to remind myself that they are well intentioned.

    I’d actually heard that “pretend mortgage” advice years ago, and I like it. I actually based my very first budget on that, and I’ve always had a “mortgage” line item, more or less, even though I’m just now moving out of my parents house for the first time. However, that very method is what finally tipped me over to renting instead of buying….the amount I was comfortable with as a mortgage just wasn’t enough to get me a home I liked. (Of course, the mortgage should’ve never been called a “mortgage”….it should’ve been “mortgage + insurance + HOA fees + taxes”.)

  2. August 18, 2009 6:34 am

    It is a big “duh!” but at the same time seems like good advice. I am probably going to need a car soon so I was going to do a “pretend car payment” to save up for the down and a car emergency fund.

  3. August 18, 2009 6:52 am

    the ‘pretend payment’ is defn. something that can work, but I have done exactly what SP said she would do – I have a ‘house fund’.

    I find it kind of cute when people talk to me about money, or give advise. I agree with quarter… – if only they knew

  4. Bonnie permalink
    August 18, 2009 7:59 am

    I’ve said it before and I’ll say it again: buying is NOT the right choice for everybody. It’s best in the long term. You’re not 100 percent sure you’ll even stay in California, though, right? And if that’s up in the air, I don’t see the rush. You wouldn’t want to say, get a killer opportunity back east/midwest like Paranoid Asteroid and then be stuck with a house that won’t sell.

  5. August 18, 2009 10:18 am

    I hate unsolicited advice! Especially about buying a house. My friend is looking to buy right now, and she keeps trying to tell me that I should think about it as well. Why would I? I hate making permanent moves like that, especially since I don’t see myself living in SoCal for the rest of my life. I don’t need a ball and chain in the form of a house in my life right now either.

    And as for dogs – there are places that allow dogs 🙂 But I just feel bad having a dog cooped up in an apartment.

  6. Andrew Stevens permalink
    August 18, 2009 12:20 pm

    I’m a homeowner and I couldn’t care less if other people own homes. Indeed, I intentionally rented for years because it made financial sense (and it often does, regardless of what many naive, but well-intentioned, homeowners think). It is simply not always the case that buying a home is the best idea for everyone for a variety of reasons. However, if you are in the right place and time for buying a home, I have never seen such a good home buying opportunity in my lifetime as there is right now. Property values have returned to sanity in most markets (or even over-corrected, in my fallible opinion), interest rates are still near historical lows, and an $8000 tax credit for “first time” home buyers. All of this adds up to the perfect storm. This isn’t to say that there won’t be an even better opportunity a couple of years down the road; that’s always possible. But right now is just a fabulous time to buy a home.

  7. El Cheapo permalink
    August 18, 2009 9:53 pm

    The only worse than savings advice from a co-worker is real estate advice.

    Btw, including the price of the lunch was stellar. For some reason, I chuckled at its inclusion.

  8. August 18, 2009 10:02 pm

    @QL – i mean, it is slightly insulting to be told how to save money, but many people really struggle, so I realize he’s just being helpful. The trick isn’t a bad one, but I just don’t like tricks much

    @jessie – i hope when T is working, between the two of us, we’ll be able to save up MORE than a mortgage payment each month (well, including rent as part of it). But saying that would just sound like bragging!

    @highclass low income – I just have a car fund, but sadly it is not getting much love lately. 🙂

    @bonnie – exactly, I’m not even 75% sure I’ll stay. I really just don’t know.

    @andrew stevens – yes, I think that now is a great time for a lot of people. I don’t see the market in L.A. getting much lower, but I still don’t know if I’d call it “sane”. I’d certainly have to pick a new neighborhood. I know we’re giving up the $8k and such, but we just aren’t ready yet. I see his point though.

    @el cheapo – 🙂 I don’t take advice well in general, I guess I think I know best, which is true in some cases, but immature in others. I’m glad to provide a chuckle!

  9. August 19, 2009 9:57 am

    I always feel sort of like saying, “Don’t you know who I am?” when people try to give me savings advice.

    A new coworker just bought a house, and when I lamented my current inability to buy (because we only have 1 income), someone pointed to the Starbuck’s cup in my hand and told me to give up my latte. I cooly said, “I brew this at my hotel for free, they just give us Starbucks cups.”

  10. Christine permalink
    August 19, 2009 11:04 am

    It annoys me when people bring up the tax savings as if it’s money in the bank. You already get a standard deduction of $5k or $10k if you’re married, so the tax savings doesn’t even materialize until it exceeds those amounts. Even then, it’s still an incremental and probably insignificant increase considering how much money you’re losing in interest payments.

  11. SP permalink*
    August 19, 2009 3:01 pm

    @paranoid asteroid – people are lame sometimes. The Latte Factor is real, but such a cliche. I mean, how much coffee would you have to be drinking to come up with a mortgage payment or down payment

    @Christine – very true. but i don’t even think it is worth it to try to tell a homeowner that.

  12. Andrew Stevens permalink
    August 20, 2009 11:50 pm

    It annoys me when people bring up the tax savings as if it’s money in the bank. You already get a standard deduction of $5k or $10k if you’re married, so the tax savings doesn’t even materialize until it exceeds those amounts. Even then, it’s still an incremental and probably insignificant increase considering how much money you’re losing in interest payments.

    Actually, that very much depends on how much you’re paying in state taxes, the other big line item in tax deductibility. It’s not at all uncommon to be close to or over the standard deduction just in state income taxes if you live in a state with a tax rate high enough and if your income is large enough. (The state income tax I pay on my personal income is high enough by itself for me to itemize, so the mortgage interest and property tax deductions are gravy.) But, of course, the tax deductibility of mortgage interest and property taxes merely reduces the interest rate of the loan and the amount of property taxes paid, by kicking it back out of taxes. It can never be “money in the bank” since payment toward principal isn’t deductible. Still, this shouldn’t be discounted. Mortgage payments only a bit larger than rent will almost certainly end up being smaller than you think once you take into account the deductions. Can this put a dent in a mortgage payment that is three times the rent you’re paying? Of course not. But it can make a significant difference, especially if your marginal tax rate is high enough.

  13. August 23, 2009 6:24 pm

    I heart bad unsolicited advice. The last time that happened, I was 22 years old, working and colleging full time, and had two uncles in law trying to tell me how important it was for me to do well in high school so that I could get a college scholarship.

    Ye-up.

    I pretty much walk away from any conversation that bodes to be THAT patronizing now.

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