After so many of you worried that I would have to change the blog’s name after we paid off six figures of student loan debt, we are right back to being six figures under again.
Only this time we’re excited about it!
If you haven’t guessed it yet, we bought a house! Surprise!
January was not only crazy because I was icky sicky, but also because we were in the crazy process of buying a house.
Let me backtrack a little. We didn’t intend to buy a house quite yet. We really did hope to use all of our pre-house goals money for, well, our pre-house goals, but when the right house came along and things fell into place we couldn’t deny that it was right for us.
There was a little scrambling financially to make it all work while still accomplishing some of our pre-house goals, namely the ones that will help us out on the tax front. I’ll go through the details and numbers below.
You might think that we’re crazy to dive into a mortgage this soon (and maybe we are!) but we feel good about it.
We will be playing a lot of catch-up with finances during 2017, as you’ll see in our goals below, but by the end of the year we hope to be on top of everything.
Original Pre-House Savings Plan
Now you’ll remember that our plan was a little fluid. I said from the beginning that if the right house popped up in the meantime, that we might just scrap these other goals and go for it. Well, we did. Kind of.
Here’s a look at our original pre-house goals:
$10,000— New vehicle fund We planned to set aside money for new (used) vehicles for both my husband and me.
$11,000—Maxing out our IRAs. We haven’t made any major contributions since before law school. Now that we’re done with all that law school debt, we want to get back into the retirement contribution groove.
$12,000—Pre-pay tithing. We wanted to try a tax strategy involving the timing of our charitable contributions in 2016 because it’s the first year we will be itemizing our tax deductions (instead of taking the standard deduction) and because we made a lot more money in 2016 than in years past (and likely more than we’ll make in 2017, as my husband will be scaling back at his law firm). You can read about our strategy here.
Obviously we didn’t stick with our complete plan since we were able to squeeze in buying a house. Here’s what we did:
$10,000— New vehicle fund We bought a van ($5,390), but did not save anything for my husband’s next car which he’ll need later this year. $11,000—Maxing out our IRAs Ha! We were a mere $10,000 off on the IRA contribution. We only contributed $1,000. $12,000—Pre-pay tithing We pre-paid $8,000 of 2017’s tithing, $4,000 less than planned.
So we did a little something in each area, but didn’t complete any of our original goals.
And we’re okay with it.
Oh, and we did get a house (and a mortgage to go with it!)!
A Peek at the Numbers
In total, we saved just over $41,000 for our pre-house goals (see the January 2017 budget update). Here’s where that money went. Keep in mind that some of it was spent months ago.
$5,390 white van—New-to-us van that we bought in November
$1,000 retirement— Roth IRA contribution in 2016
$8,000 prepay tithing— At the end of December. This move will shave $3,200 off of the taxes that we owe in April. We are keeping track of the tithing we owe (would normally pay) each month so we know when we reach the $8,000 mark. Then we’ll start paying monthly again.
$29,600 house— This includes our down payment and closing costs.
You’ll notice that this adds up to more than the $41 K we had saved. We also had to borrow $3,000 from our emergency fund in order to close on the house. As you’ll see below, paying that back is a priority!
2017 Financial Goals (…and beyond)
We have quite a line up of financial goals for 2017 (and beyond). The first three are in a specific order. The other goals that follow will be done somewhat simultaneously, though not all of them will be completed during 2017.
1—Pay back emergency fund ($3,000)
We will start by paying back the $3,000 we borrowed from our emergency fund. Eventually we will be building up a more robust emergency fund (now that we have a mortgage!), but first we want to get it back to the $5,000 we had it at.
Fun fact, we kept our emergency fund around $4,000-5,000 during the entire time we were paying off debt and only had to borrow from it once (and then paid it back quickly).
2—Save for our tax bill ($16,500)
We paid estimated quarterly taxes in 2016 based on the safe harbor amount (according to our tax liability in 2015). We knew that we would make much more in 2016 and that we would end up with a big tax bill. We could have saved as we went along, but we were more eager to pay off our debt, so we just planned to save up the tax bill money in the beginning of 2017 once we had an idea of how much it would be.
We’re looking at somewhere around $13,000 owed in taxes (pre-paying tithing brought that down from $16,000), plus our first quarter’s estimated quarterlies which will be around $3,500. So that’s something like $16,500 that we need to save. Yikes! That’s a lot and there’s not much time to do it.
In case you’re wondering, it does have me slightly freaking out. I’m facing the idea that we might have to borrow money to deal with this (and then pay it back pronto). Ugh. But we’re still going to work like that’s not a possibility. Mr. SixFiguresUnder is confident we’ll be able to pay the tax bill in cash by April 15. We’ll see.
3—Save for a new (used) car ($5,000)
After we’ve met the tax goal (or paid back any money that we may have to borrow to pay the tax bill), we will save for a vehicle replacement fund for my husband. He is going to need a new car soon. We bought his 1997 Camry four and half years ago for $3,200 with 125,000 miles on it. It currently has over 260,000 miles on it, so replacing it will be a necessity in the near future. It has served us well!
Remaining goals to be done somewhat simultaneously. By this I mean that we will set aside a certain amount toward each goal during the month (once goals 1 through 3 are completed). We don’t plan to complete all of these during 2017 (hopefully that’s pretty obvious), but they are what we’ll be working on!
Beef up our emergency fund ($25,000)
While we were content with a $5,000 emergency fund while we were paying off debt and living rent-free in my in-laws’ basement, it’s a different ball game with a house. Not only do we have a substantial mortgage payment to make each month, we also have a home to maintain which, as any homeowner knows, can be expensive!
Home improvement projects
While our home is very much livable as it is (not a fixer-upper), we still have some home improvement projects on the horizon. Some are ones we’ll take on ourselves (and by “we” I mostly mean my husband), but others we’ll happily hire out.
We have a list of projects, but haven’t started researching the costs, so I won’t put a number on it yet.
Max out IRAs ($11,000)
In 2016 we contributed a total of $1,000 to our IRAs. In addition to our personal retirement efforts, my husband’s employer (the state of California) automatically contributes 9% of his paycheck to retirement. So in 2016, he contributed nearly $7,000 by default.
Still, we want to do more to take responsibility for our own retirement savings. Before law school, we would max out our IRA contributions. We plan on getting back to that.
Set aside 2017 taxes
We are paying estimated quarterly taxes based on the safe harbor amount calculated from our 2016 tax liability. Because we don’t expect to make a lot more in 2017 than 2016, our 2017 tax return shouldn’t include any significant extra cash. We had a big shock with our 2016 taxes because in 2016 we had a lot more self-employment income than in 2015. Since we will be paying estimated taxes every quarter, this will be an ongoing goal.
Get 20% of mortgage paid
Just to be clear, this isn’t a goal we expect to finish in 2017. This is an enormous stretch goal that will likely take several years.
Right now we pay private mortgage insurance (PMI), but once we have paid off enough of our house, we can get that removed (though I think we have to pay it for a minimum of 3 years).
Thankfully our PMI is only $126 per month. The PMI for other loan types was 2-3 times that amount! So while I know it adds up, I’m grateful that it’s not as draining as it could be.
As you can see, we’ve got a lot to work on! As always, we will keep you updated as we go along.
It won’t surprise you that we’ll still be living frugally (those habits run deep). You can still count on seeing lots of frugal and money-saving ideas here.
In fact, having a mortgage will make our budget more relatable for many of you! I know some of you have been waiting for this day for a while now!
I hope you’ll keep following along our Six Figures Under journey! If you don’t already get my email newsletter, you can sign up here!
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