Last year I made a big deal of getting debt free. Paying off my student loans was one of the biggest financial achievements of my life.
My next financial goal is to save up 6 months of expenses as emergency savings. I only have 4 months currently, but it won’t take me much longer to save up the last 2 months of expenses. Once I have my emergency savings where I want it, I will be formally working towards homeownership, something I wish to obtain by the time I’m 40 (within the next 7 years).
A couple of jobs ago I did some housing counseling. This was during the housing market crash and was eye-opening. I couldn’t tell you how many people I met with that were entirely upside down in their house. On top of that, most of them also had thousands of dollars of credit card and other debts and were often unemployed or underemployed.
That experience makes me very cautious about buying a house. It doesn’t scare me off entirely, but I am aiming to have a 20% downpayment. I can’t protect myself from all financial uncertainty, but I can wisely choose to make preparations now that will put me in the best possible place when adversity happens.
In addtion to a sizable downpayment, I want to have two other funds in place before buying a home. The first is I am calling my “Big Bad Wolf” fund.
My “Big Bad Wolf” fund will be a separate emergency savings account (my bank allows me to create up to 25 different savings accounts, and name them) with the intent to cover expenses like a new hot water heater or roof. These types of expenses will come, but it’s just a matter of when. (This is essentially an extension of my freedom fund.) I’ve set a seed amount for this fund to be $5,000, with the intent of continually paying into it monthly so it stays funded at this level.
Finally, (and this is the fun one!) I want to have a house upgrade fund. This will be the money that I can use for planned upgrades. Because I know that whatever house I will get will not fully meet my wishes, I want to start out with $1,000 in this fund. I imagine most of that will be going into the garden and some new furnishings. This fund can be depleted, but I’ll allow myself to put money in it each money to continue to make the improvements that I would like. Once I have my place, I’ll estimate the types of upgrades that I would like to do and on what time schedule and balance that against my desire to have my mortgage paid off in 15 years or less.
Will I have all this money in hand when I make my house purchase? Probably not. These are personal goals, not requirements. When I have some of it in hand, I will start to look for mortgage assistance programs that I may qualify for. The market itself will also dictate when I may buy, as right now I’m paying in rent about the same amount as I would pay for a mortgage for a house twice the size of my apartment.
How are you working towards your long-term goals?
Photo by Kevin Saff