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401(k): Not eligible yet? Open an IRA.

401(k) eligibility doesn't kick in for 11 months. Open a Roth IRA in the meantime. See question No. 6 in the reader mailbag.

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Q7: Basic home buying finances
My husband and I are a young and married within the last year (we’re 25). We’ve been renting in an area outside a major city for the last 3 years. I worked for a while, but recently went back to graduate school. My wonderful husband has been employed the whole time we’ve lived together. We’ve done what I consider is quite well for ourselves – we have a minor car loan (at 0% interest), and student loans (more on that later). We have no credit card debt, 5-6 months emergency fund, and have both made healthy contributions to our respective retirement funds. We estimate having about $120,000 in student loans, both from undergrad and grad school, when I graduate law school in 2013. We’ve done everything we could to minimize students loans – state school, aren’t taking out cost of living loans, and when I was working I payed down a huge chunk of my undergrad loans.

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My question is really this. We’ve started saving for a house, and when I graduate law school we want to move into “the city”. However, houses in the city, even small ones, are really expensive and we want to make a 20% down payment when we do buy (for all the reasons that that is a good thing). For a (modest in the area) $400,000 house, that would be $80,000. We’ve been saving as much as we can while I’m in school, which has us at about $8000 from the last year. We really want to “start our lives” when I graduate law school, by buying a house and having kids before we’re 30. I’ll be 27 when I graduate.

Is there any way to speed up the rate we’re saving? We can’t really save any more money – we already have ditched our cable, don’t eat out, make our own cleaning solutions, and all those regular frugal things.

Are there any circumstances under which buying a house without a 20% down payment is financially wise? We don’t want to purchase a “starter home” and “upgrade” and that doesn’t make a lot of sense for us anyway because what we want is really pretty modest (2 or 3 bedroom, not too fancy, no lawn at all because that’s how the city works).
- Robin

Robin, your story is exactly why I often state that young people today have a harder time getting a foothold in the world than people did thirty or forty years ago. You’re dealing both with a housing market with costs that have grown faster than inflation, education costs that have grown faster than inflation, and real wages that have notgrown as fast as inflation. Simply put, you’re trying to pull off something – getting an education, getting a job, and getting into a house – that’s much more difficult today than it once was.

Now, as to your question. Buying a home with less than 20% down usually means that you’re going to be saddled with a higher interest rate (either on the amount over 80% or on the whole amount) and also with PMI. Simply put, it’s going to be far more expensive per month than it would be if you simply waited until you have the 20% down payment. Your impatience will cost you – a lot.

If I were you, I wouldn’t do it, particularly considering the large amount of student loans you’ll also have. It is generally a bad idea to get into debt that adds up to more than twice your household income, and if you finance an entire $400,000 house on top of $120,000 in student loans, you’re going to have to be making a mint to make that viable. If you were to lose a job, your house of cards would collapse very quickly.

Q8: Obsessing over finances
I’ve been working on resolving my financial issues for several months now. I’ve suffered a few setbacks in my employment, with some contracts ending prematurely, and was forced temporarily to return to menial labour to pay the bills until I could find a new job. I’m finally back on track with a decently paying job and I’ve formulated a plan for getting on top of my finances. My primary goals are to be debt-free within 1 year and to have saved enough for a house within 5 years.

The problem is that I can’t help obsessing over my finances. I spend a lot of time reviewing my options, tweaking my spreadsheet calculations, reading blogs and books for further tips etc. I’ve already adopted a number of the techniques I’ve read about on your site and others, and believe that I have a solid plan and have taken the necessary steps to implement it, but I find that I’m constantly thinking about it and trying to come up with other options.

At what point do you sit back and just let things run their course, confident that you’ve made the right decisions ? How do you avoid that niggle of self-doubt that makes you question your plan and feel the need to refine and perfect it ? How do you get comfortable in the long wait between starting on your path and seeing visible progress ?
- Tim

I think this is more of a psychological issue than anything.

There was a time when I did the same thing. I was neurotic about every dime. I was constantly looking at spreadsheets and evaluating plans.

Eventually, over a long period of time, I stopped doing that so much. What changed? I think I finally grew confident that I was making good choices for the first time in my adult life.

I don’t think anything you’ve described is necessarily bad. It mostly sounds like someone who is trying to make sure he’s on the right path. The longer you walk that path, the easier it’ll get.

Q9: Learning board games
I am trying to adopt board games hobby for my free time as you suggest. I bought Pandemic and couldn’t understand how to play it. In one of your post, you stated that you can go for game store for demo. Which store are you referring to? In NYC, we have ToyRus and I have never seen demo for board game. Or any web site? Thanks and hope to hear from you soon.
- Fred

Shops like Toys R’ Us and Target don’t do board game demos. If you want to learn how to play this type of game, you need to go to a hobby store.

I’m not familiar with board game shops in New York City, but I gave Googling “board game shops New York City” a shot and found a lot of results. The Compleat Strategist seems to be a highly regarded choice.

I would try stopping in there (or at another shop on that list) and asking about how to play Pandemic. You might find, for example, that Forbidden Island is a similar game that might fit you better. You might also find thatPandemic isn’t as complex as you thought.

Q10: Book for younger beginner
My son is turning 18 and is now interested in investing and personal finance as our school district skips these important subjects.

Do you have any book recommendations for the beginner? I’m looking for a very good personal finance book, then a good investing book.
- Bud

My favorite book for someone in that situation is Please Send Money by Dara Duguay (see my review). It does a good job of addressing personal finance in terms relatable to a high school senior or college freshman.

Depending on the person, though, a more thoughtful book like Your Money or Your Life might be appropriate. This works really well for very self-aware late teenagers and twentysomethings. It certainly woke me up.

Both of these would make great graduation presents!

Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag (which, by way of full disclosure, may also get re-posted on other websites that pick up my blog). However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.

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SEE ALSO: How bankruptcy-proof are you? Find your color.


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