In case you missed it, we finished paying off our six figures of student loan debt! In the end, we paid $144,046 in principal and interest for the JD/MBA that my husband finished in 2012.
We’re so glad to have that behind us and move on to other goals. As much as we love living in my in-laws’ unfinished basement, saving for a house is our next big goal. We are immensely grateful for all that they have done for us by letting us live rent-free for the past four years, but we are really (really!) eager to get our own place!
However, before we run straight for the next major goal, there are a couple of smaller goals we want to tackle first. During our laser-focused effort to pay off our debt, there are a few things we have neglected.
It’s been eight years since we’ve contributed to our IRAs in a meaningful way. We want to max them out from here on out. That means putting in $11,000 between now and April 15th. We started saving at the beginning of our marriage (which unfortunately was when prices were high) and our accounts still aren’t back to what they were at the peak (sad face). Still, it’s a start.
For more on our retirement investments, check out this post.
Our goal is to save $11,000.
I know this will be a relief to many of you who followed our van saga (part 1, part 2, part 3). Right now we are both driving 19-year-old vehicles. It’s only a matter of time before one of them goes. When it does, we want to be prepared to buy something that will last longer and be more reliable. We will keep driving the cars we’ve got for as long as possible (and hopefully retire them through the vehicle retirement program.)
Our goal is to save $10,000.
Those first two goals take care of the areas we’ve neglected during our debt payment marathon. Our third pre-house goal is of a more preventative nature.
If you’ve kept up with our monthly financial reports, you’ve noticed that our income is up higher than it has ever been. We’ve already earned more money in the first half of 2016 than we made in all twelve months of 2015. This is great, of course, but it also means taxes are going to hit harder than ever before.
We are hoping to implement one savings strategy our tax advisor suggested. Earlier this year, Mr. SixFiguresUnder wrote a detailed post about timing our charitable contributions (He’s smart and a good writer. I bet you’ll enjoy it).
In the past we’ve always taken the standard deduction, but this year it will be better for us to itemize. We faithfully pay a ten percent tithe on our income, which is tax deductible, but we’ve never had enough deductions to merit itemizing. In addition to deducting our 2016 charitable contributions, we plan to prepay our 2017 tithing before the end of this year. That will reduce our taxable income and hopefully result in a significant tax savings. In 2017 we will have no tithing to deduct and hopefully few enough other deductible items (mortgage interest, state taxes, etc.) that we can take the standard deduction instead.
I won’t go through all the details here, but you can get a thorough and easy-to-follow explanation in his post.
Our goal is to save $12,000.
What about the house?
Ahh yes, the house!
Our three pre-house goals– retirement, car fund, and pre-paying tithing for tax savings– puts us at $33,000. That is a hefty sum to save before starting to save for a house.
We started mentally setting these goals during the last few months of debt repayment. We initially set the end of this year as our deadline for the $33,000 (another stretch goal), so that we could start in on saving for a house in January.
We’ve been peeking at houses on the market in the past weeks and it sure has us feeling antsy. We even met with a mortgage broker to get an idea of what we’re shooting for.
When we bought our first house (our law school house), we put 20% down and had a 15-year mortgage. We felt great about that and it turned out well, as we were blessed to have it sell in its first month on the market after finishing school.
The housing market in the Midwest is very different than what we’ve got in California now (well, ever). A 20% down payment for most of the houses we are looking at now is right around the purchase price of our law school house! That is insane to me.
Our original plan was to save a 20% down payment for our next home (which, like I said is the equivalent of buying a Midwest home with cash). A 15-year mortgage is nearly out of the question.
Income-wise, we are kind of at a pivotal point, which is why we wanted to talk with a lender. Using our 2015 tax return, we could be eligible for the USDA Rural Development Loan program which allows financing of up to 100% of the purchase price at attractive rates. Once our 2016 tax return is filed, our income will probably exceed the limit, so the USDA home loan will no longer be an option. In October, there will be some changes with the USDA loan to make it a really great option, so if we decide to purchase sooner using the USDA program, it would be between October 2016 and April 2017.
On the other hand, if we wait until our 2016 taxes are filed, we’ll qualify for a larger mortgage and never have to pay mortgage insurance (assuming we wait until we have 20% down). We don’t necessarily want to max out on the mortgage we qualify for–we’re super frugal, remember–but it would be nice to have a wider range of options.
Either way, whether we finish our three pre-house goals and then wait to buy until we have a 20% down payment, or find a perfect home we just have to buy sooner than that, we will be living frugally. With the first option, we we’re saving every penny for a down payment. With the second option, we’re putting all our extra toward the mortgage principal to get rid of mortgage insurance as quickly as possible.
So what’s the plan?
Long story short, we’re going to start by saving for (and reporting to you) our three pre-house goals for now. If the right house pops up in the right location for the right price and the timing works out just right, we might just jump on it. In that case we will be redirecting some of our pre-house goal funds, but for now we will enjoy having very measurable goals with concrete finish lines.
No matter which way you slice it, our main focus right now is to earn and save, save, save!
What do you think?
Choosing to focus all of our energy on debt was pretty cut and dry. Now we’ve got a lot of options out on the table.
It’s probably not often that you are invited to chime in on other people’s personal finances, but honestly, I would be happy to hear your thoughts. You are welcome to disagree and throw out other perspectives as long as you do so respectfully using nice-people language (which you seriously always do– I’ve got the best readers).
What would you do in our situation?
Update– Here’s how things worked out with our pre-house goals.