Monday, March 23, 2009

Tell me what to do

Not that I'm actually going to take financial advice from strangers on the Internet, but I have a really good question for you today.

The ear doctor and I have been AGONIZING over this. Well, actually, the ear doctor is very cool, collected and normal about this while I am o-b-s-e-s-s-i-n-g.

Should we continue our fully 401k contribution or save up every penny to try to buy a house this year.

On the one hand, shares have never been cheaper to pick up. In my (probably faulty) reasoning, if we get these babies cheap now they should be worth a lot in the future, right? Also, I always hear that every dollar contributed before the age of 30 is worth like 10 dollars contributed after 30 (or something like that).

On the other, Pres Obama is dangling a $8,000 dollar carrot out in front of my outstretched grubby little fingertips. I mean, how can I not at least TRY to buy a house when he's offering to throw that kind of cash into the pot?!?!?

How on earth is a normal person supposed to make this kind of decision?!?!?


Jessica said...

First- Without getting all up in your personal business, would suspending your contributions allow you to save enough to acquire the money you'd need within the time limits on the new tax credit?

Second- Are you funding your 401Ks beyond any employer matches?

Third- Do you usually owe taxes? If the answer is yes how would not having a retirement deduction affect things?

I don't know your specific scenario, so this might not work, but I would reduce 401K contributions to just enough to get your employer match and shift any excess into house savings.

{erica} said...

I could go into a lot of detail....but I won't. Here's what I think...

Buy a house this year, get the tax credit ($8000)...also if you buy a newly built home there is a $10000 tax benefit spread out over 3 years. Get the house while the market is totally a buyers market, then use the tax credits every year from the $10K to invest back into 401K's or ROTH IRA's along with the $8000 credit.

Or you could just call Suze Oreman and see if you're APPROVED or DENIED :)

k said...

Without knowing the details of your finanical situations, I would split the money between the 401K and the house savings. Maybe it would be wise to meet with a financial advisor once for some insight.

Maggie said...

I'm with k on this one and say meet with a financial advisor once for some insight. That's pretty much the only way I would be able to stop obsessing about the situation.

Anonymous said...

Look into the federal first-time home buyer tax credit that is being offer in 2009 and see if you can qualify. Also a lot of states are giving tax credits to first-time home buyers this year. Once you know the facts about the first-time home buyer tax credits, it can help you make your decision about what to put in your 401k . :)

Stephanie said...

I was in the same position a year ago. We are now in escrow. For us it wasn't just the decision to stop putting so much for retirement for a year, but it also had to do with the housing market.

What's it like in you area? Is it still pretty inflated? Are things getting affordable?

For us it makes sense finally to buy. The house we're buying has a mortgage much less than the rent on our apartment.

Good luck on your decision. :-)

lisa said...

I would totally buy if the housing market in your area sucks like it does everywhere else. Why keep throwing money away on rent?

dad said...

K is Kool. Listen to her and buy a new built home with the $10K.

Purhaps your father who is a licensed Insurance Agent who sells financial instruments can shed some light on this subject.

Anonymous said...

Look into taking a loan from your 401k. Most plans allow you to borrow up to 1/2 the balance of your account.

When you begin to repay your loan, the interest on the loan is paid into your 401k.

You borrow from yourself, and pay yourself interest.

Repayment terms are generally 30 years.

In my opinion, the best thing to do - sock away AS MUCH as you possibly can into your 401k, knowing that 1/2 of it is really your savings to put towards the house.

This way you also participate in any short term stock market upswings.

MSmith said...

Get the house cause it's more FUN!
Aunti M

Tyler said...

If you have good credit and can put about 20% down maybe even 15% go for the house. Don't take anything out of the 401k to buy the house, if it's absolutely necessary, do it.

If the credit score is good and you put some money down, the interest rate is going to be lower. The more money you put down and the better the credit score the lower the interest rate. With the tax rebates from Obama it's a pretty good deal.

Courtney said...

you and the ear doctor both work - are you sure you qualify for the tax credit? There's an income limit, so double check that.

That said - I'm a pretty big fan of the 401K in general - especially if you get an employer match. So I'd probably still put enough money in to get the employer match and then try to save for a house on top of that.

Kyle and I are hoping to buy a house soon - it's exciting to think about, huh?

Kori said...

I am in the banking industry myself and would have to agree with K. Putting all your eggs in one basket is never a good idea. You may as well put your money into your own pocket (A home) instead of giving it to someone else (rent).
The housing market in Canada has taken a dive as well (not as extreme as USA) but we are starting to see many sold stickers around and I think it won't be long before supply & demand start sending prices up again. Get in while prices are good!
In 3 years we made $100K on our house... which is more than I can say for our RRSP's! (401K)

Reb said...

We did, and we bought a house, closing at the end of April.

Everybody's doing it, c'mon. Peer pressure is mounting.

Love your blog, and I don't know when you changed the look, but very cute!