Should I buy a house or save for retirement?
I'll be eligible for the company 401(k) plan soon. I want to make the maximum allowable contribution and start a Roth IRA which I also plan to fund fully. I have 10k in my bank account and I'm adding about 2k to that each month, but my retirement plans will negatively impact my savings rate. I moved out of my first house last year which I'm renting out for a small profit, and I'm currently residing in an area colloquially known as "Da Hood". My rent is $500 / month and set to increase by 3% at the end of my lease in March. If I buy a home in a respectable neighborhood, my living expenses would increase substantially. Should I wait and save more money or go house hunting? I have zero retirement savings and I'll be 30 in just a few short years. I don't see the purpose of renting in a better neighborhood. Right now, my living expenses are very low and my biggest inconvenience is driving across town to do my grocery shopping.
Public Comments
- There is not really a right answer as to whether you should move out of your current neighborhood right now or not. If the company you are working for is making any matching contributions to your 401k, make sure you fund it up to at least that percentage, fully fund your ROTH, and if there is any more money left to save, fund your 401k up to the maximum allowable percentage. As far as buying a house, I think everyone should own a house. Not only is it an investment, but it is one of the few investments out there that you can use on a daily basis while it appreciates. Don't be thrown by the subprime crisis. Yes, housing prices have dropped a bit (which can be good if you are in the market to buy), but will eventually increase more than likely. It would be very, very unlikely that the market will stay like this forever. Sounds like you are heading in the right direction and doing the right things. Most people (typically the type of people who live in "da hood" spend all of their money on items that depreciate in value (cars) and it is good to see that you are not doing that. It is good to see that you have a rental house too. Those are not typically cash cows and can sometimes be a burden from the standpoint of mainenance, but can really be worth it in the future.
- If you plan to be in the same location for a while, I say buy a house. A house is an investment, unlike an apartment, where you will never EVER see that money again. I don't know what market you are in, but it seems that you have the means to save for the future and own a home. I don't have nearly that much in my bank account, but I still bought a house because it is financially smarter in the long run. Good luck.
- Tough question. It depends on how young you are (years to save for retirement), how bad the Da Hood is, and how much you need/want a house. You consider contributing enough to the 401k to get any employer match, renting in a better neighborhood, If I was young I would try for a better house or rental neighborhood. Then each raise I would add to my retirement savings. If I were closer I would rent in a nicer neighborhood and then try to max out my 401k and IRA.
