Homeownership vs Retirement: Making the Right Financial Decision

The decision to save for a home or retirement depends on individual goals, financial position, and timeline, requiring careful assessment and planning.

### Should I Save for a Home or Retirement First? It Depends on Your Goals, Financial Position, and Timeline
* 🏠  The decision to save for a home or retirement first depends on **individual goals, financial position, and timeline**.
* 🎯  Start by clarifying your goals: "Make sure that the **goal of homeownership** is actually a goal of yours and not something that society or your environment around you is putting on you."
* 💰  When it comes to buying a home, you must at least be at **step four of the financial order of operations, which includes having emergency reserves**.
* ⏳  Evaluate your timeline: "You have to live in this house long enough to **kind of moderate these extreme things that have just happened**."
* 🏦  For those behind in retirement savings, it's important to prioritize retirement: "**If you're behind, that matters**."
* 📊  Assess where you are in your financial journey: "If you've never assessed where you are, a great tool you can use is at **learn.do.moneyguy.com**."
* 📈  Before you buy the house, you want to make sure that you can be there for at least **5 to 7 years**.
* 📚  Utilize resources like the Money Guy home buying Hub and calculator: "**Take advantage of all that** and hopefully **we'll get you through this**."

[Music] Yeah, so here's one of the first number one things that people are trying to figure out right now: Do I save for a home, or do I save for retirement? Oh, wow, that's a big one. We go right into the deep end. And here's the thing, both of these things are noble, they're good. So how do you know where you should start first? Well, I think the answer to Should I save for a home or should I save for retirement? comes down to, no surprise, it depends. It depends on a number of factors: What are your goals? What's your timeline? What's your current financial position? You have to kind of work through each one of these to determine what makes sense for me because two very similar people can be in a similar situation, and one person might buy a home and that'd be the best move, and one person might not buy a home and save for retirement. So the first thing you have to answer is: What are your goals? What are the things I'm working towards so

look, we know that personal finance is definitely very personal, so I don't like it when we just say, it depends. So, let's actually load them up with the questions to fine-tune these goals so you'll actually know what steps to take next. And you're exactly right, what are your goals? So, why do you want this house? That's the first question you ought to be asking yourself. Yeah, I think so often people think that, okay, I just, I'm going to buy a house because I'm at the age where that's supposed to happen. That may not be the case. You don't have to be a homeowner to be financially successful. You don't even have to be a homeowner to have a family. Make sure that the goal of homeownership is actually a goal of yours and not something that society or your environment around you is putting on you. Here, here's another question to help you out. How long can you live in this house? Because this is, we've had a lot of things happen in the last few years. We had this huge inflation run-up.

housing costs are up as well as interest rates are way up. The only thing that's going to moderate this in a lot of ways is if you can live in this house long enough. It really does kind of level out some of these unique things that happened in the last few years. And then another question you can ask is, what are my retirement goals? Okay, I've established my home goals, but am I someone who maybe wants to retire early? Do I want to travel a lot in retirement? Am I going to live in a high cost of living area? If so, you may need to focus on building up your investment assets so that they can pay for your future expenses. For a lot of people, saving for a house, the first thing that gets put on pause is retirement. It's the thing that gets cut back on. And you need to recognize is the opportunity cost of that decision actually worth it? Well, it begin with the end in mind. If you think you're part of the fire SL fine movement and you're going to be leaving

the workforce. Your peak earning years early. You probably need to make sure that you have started saving earlier to maximize that compounding growth. That's going to definitely weigh into your decision. You have to recognize it's like squeezing a balloon. There are going to be other financial and life goals that are going to be put on hold if you don't focus on saving and buying the house. Then that's a goal that's going to get pushed back if you don't focus on saving and investing for retirement. Then you're likely going to hit your number not as early as you would have otherwise. So you need to understand the opportunity cost of whichever direction you go in. Yeah, everything is going to have an opportunity cost. I mean you got all of financial life is incremental decisions. You're going down this road or this road. So we ought to walk through what is your financial position 'cause it is going to matter. It's going to change your answer depending upon where you are in your journey. So let's look at three

theoretical scenarios. Scenario number one: You're early on in the financial order of operations. Well, we think that when it comes to buying a home, you must at least be at step four before you start considering. Bri, will you hold the thing up? Step four is emergency reserves. If you do not have enough money to make sure that you can keep your life out of the ditch, we would not encourage you to move into homeownership because you may not know when that HVAC unit's going to go out. You may not know when there's going to be a water leak. You may not know when you're going to need to tap into that emergency fund. So, you want to make sure that you've at least made it to step four before you begin considering homeownership. So, emergency reserves are important. How about if you just know where you are on your journey towards retirement? Are you behind? Maybe you because there's a big difference between somebody who's 27 years of age that wants a house and probably has the next three years to kind of figure this out.

versus somebody who's 40 years of age, prioritizing a house, who has zero assets in their retirement account, you need to pay attention to where you are in your retirement journey. If you're behind, that matters. The other thing that you can assess too is, maybe I'm not behind, maybe I've been doing all the stuff that I was supposed to be doing, maybe I'm actually that financial mutant that's a little bit ahead of the curve. If that's the case, then it might be okay for you to take a pause, focus on building up assets to be able to buy the home, but you won't know that unless you've done an assessment. If you've never assessed where you are, a great tool you can use is it learn do money guy.com. If you've never actually done a net worth statement to see where you stand today, we would highly encourage you start that process so you can at least have a foundation of this is where I'm at today, am I head behind or on the curve and how.

should I make my decisions moving forward Bo? Earlier, I said that we just came through a unique period where, because of inflation, housing prices are way up. The government, to fight inflation, has raised interest rates. Timeline has become so important because you have to live in this house long enough to kind of moderate these extreme things that have just happened. So let's talk about what do we need to know when we're considering timeline, to even fine-tune this even more. Yeah, one of the things you have to think about is when do you need a home? I mean, I'll share my personal experience. My wife and I, we sold a house in Atlanta, we moved up here, we were going to do like the rent thing for a while, kind of get lay of the land. Well then we found out that we were pregnant and we said, Holy cow, we're starting a family, we need to make sure that we have funds appropriately saved up to be able to go purchase a house. And so for us, in that season, it made sense to focus all of our efforts and

attention on saving up for that down payment to be able to get into a house quickly. If that describes you, then that's going to affect how aggressively you ought to attack this. Now wait a minute, wait a minute, we don't need to skip some steps because I think it's a pretty extreme thing to say you're going to go 100% into saving for a house. Say 100%. I didn't say 100. We know, first of all, you obviously had your emergency reserves covered. We said you can't even consider the house without the emergency reserves. Second thing I know about you, Bo, is that yes, for a season, you were now focusing on getting the family into this house. But wouldn't you say you were kind of ahead of the curve with all the other saving and investments? You owned your time a little bit sooner to where yes, this was not going to derail your long-term financial life because you made this choice. And in full disclosure, I didn't shut everything down. What I did is I shifted my priority where my

priority was saving for retirement and putting money in Investments. I shifted to where I had a larger portion going towards the house than going towards Investments. It was not 100 to zero, 0 to 100, and I think that you have to assess where you are to figure out which strategy most closely matches the time, and we're not giving you permission to just skip your financial life. You still have to know where you are in the journey and kind of know what this puts you behind on so that you can actually get yourself back on track. We understand that life creates complexity naturally, and sometimes you have to veer off the track of what the financial order of operations does, but I need you to always feel that pressure to know what am I going to have to do, what sacrifice, what incremental decision am I doing to get this back on track and to catch up. But now if you're someone who doesn't need it right now, maybe you need it five to seven years in the future, the beauty is that gives you time to plan. You should.

go ahead and begin thinking. Okay, I just got out of college. I know I'm maybe going to get engaged, and then maybe we want to buy a house at some point, want to start a family. If you can backtrack and you can sort of reverse engineer, you can figure out, okay, how much should I be saving towards a down payment versus how much should I be saving for the future and investing. It's not in either or if you have time, there's a really good chance you could likely do both. But again, you have to assess that for your unique and your specific timeline. The reality is, when we get it buying a house is really hard right now. We're in a tough patch right now for home ownership because of those two things I mentioned earlier: big run-up in prices, big run-up interest rates to battle that inflation. So I definitely think that this is a moment in time where it's a measure twice, cut once. Don't feel like you have to force the decision because I just don't think real estate is going to

keep running up. I don't think there's going to be a collapse. Don't mishear me, but I just don't think that you're going to see this huge run-up in housing that we just came through. There's going to be a cycle, but I want to make sure you were being honest with yourself, and that's why we've actually created a great checklist that people can use to figure out, Hey, how do I do this well? Yeah, when it comes to buying a house, we have some rules we want you to follow. Number one, before you buy the house, you want to make sure that you can be there for at least 5 to 7 years. Number two, if you're buying your first home, 20% is not a requirement. You may only have to come up with 3 to 5% for your first home down payment. Now, when you're upgrading or changing homes, then you have to do the 20%, but for first homes, you get a little bit of leeway. However, even if you're

only going to do 3 to 5% down. You have to make sure that your total housing costs do not exceed 25% of your gross income. If you get into a situation where your housing is costing more than that, you are putting yourself in a risky situation when it comes to your financial well-being. And that's why and look, the data shows that a lot of Americans are putting themselves in this hard H situation because 20% of Americans are spending more than 40% on their housing. They're meaning they're they're Houser life poor. Because think about this, these same people likely have student loan debt, they have car debt, and where are you going to have margin to save an invest to have margin to live your life. Be careful. I know it's a very noble cause to have a house, but don't let it ruin your financial situation. Here's the bottom line. There are multiple paths to wealth, and if you're doing everything right, buying a home or not buying a home is likely not going to

derail your financial future, but for most folks, this is the single largest thing that you will ever spend money on. So you want to make sure that you measure two, three, four, five times before you make this decision. But good news, we have a plethora of resources available to you. If you go out to moneyguy.com, you can check out our home buying Hub and home buying calculator that'll walk you through how much house can I afford, what are the things I need to think about, what's the checklist I need to work through so that you can make sure you're making this decision as informed as you can so that you set your future Financial self up for Success. Please take advantage of these free resources moneyguy.com resources. We have loaded you up because we know this is difficult. So we've tried to give you everything in the world so that you have a tool to actually calculate and play with the numbers, guidelines, and checklist. Take advantage of all that and hopefully we'll get you through this.

Saving for a Home vs. Retirement: Which Should You Prioritize?

Bring confidence to your wealth building with simplified strategies from The Money Guy. Learn how to apply financial tactics that go beyond common sense and help you reach your money goals faster. Make your assets do the heavy lifting so you can quit worrying and start living a more fulfilled life.

Subscribe today to stay up to date with our latest episodes, livestreams, and highlight videos: https://www.youtube.com/c/MoneyGuyShow?sub_confirmation=1

Are you ready to go beyond common sense when it comes to your money? Check out all the free resources The Money Guy Show provides: https://moneyguy.com/resources/



The Money Guy Show

Determining whether to save for a home or for retirement depends on your individual goals, timeline, and financial situation.

It's important to carefully consider your reasons for wanting to buy a house and how long you plan to live in it, especially in the current economic climate.

Additionally, you need to evaluate your retirement goals and consider the opportunity cost of prioritizing a home over saving for retirement.

Considerations for Buying a Home and Saving for Retirement

Starting to save early is crucial for maximizing compounding growth and reaching financial goals.

It's important to understand the opportunity cost of buying a home versus investing for retirement.

Before considering homeownership, ensure you have emergency reserves and assess your position in the journey towards retirement.

It's essential to know whether you're behind or ahead in your retirement savings and to do a thorough assessment of your financial position.

Considerations for Timelines in Home Purchases

The recent inflation and increased housing prices have made the timeline for purchasing a home crucial, especially with rising interest rates.

Personal circumstances, such as starting a family, can significantly impact the timeline for saving up for a down payment.

It's important to assess individual financial situations and make strategic decisions to stay on track for long-term goals, especially when deviating from the traditional financial order of operations.

It's important to save for both a down payment and for future investments, considering the current challenges in the housing market.

The real estate market is experiencing a significant increase in prices and interest rates, making it a tough time for homebuyers.

There are specific rules to follow when buying a house, including the recommendation to plan to stay for 5 to 7 years and the flexibility of a lower down payment for first-time homebuyers.

Managing Housing Costs for Financial Well-being

Limit your total housing costs to 25% of your gross income to avoid financial risk.

Despite this, 20% of Americans are spending over 40% on housing, impacting their financial stability.

Whether buying a home or not, it's crucial to carefully assess the financial implications and take advantage of available resources and tools to make an informed decision.