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Beth Mollie Fink is trying to get her house in order. Literally.
Recently married, the 30-year-old public interest lawyer and her husband currently rent an apartment in Brooklyn and enjoy the best of big city life. They dine out frequently and never think twice about taking cabs or grabbing a couple hundred dollars from the ATM for an evening out with friends.
Yet Fink says she can’t help thinking that the time has come to take that next big plunge: buying a home.
Together, Fink and her husband, who works for an Internet-based advertising and marketing company, earn a good income. And they’ve accumulated enough for a down payment on a home, thanks to their savings and some generous wedding gifts.
But they also live in New York City, where wallets are tempted at every turn and nothing is cheap—especially housing. Based on their preliminary research, Fink and her husband believe they will have to spend around $400,000 to buy a one-bedroom condominium in Brooklyn.
While Fink really wants to own, she does not want to find herself in dire financial straits because of a mortgage that is too large. She also knows that, while she and her husband have enough assets to allow them to consider such a significant step, they’re not without debt. Specifically, Fink points to a growing credit card balance and substantial student loan debt.
“We would like to be able to have a down payment and budget so that we are not totally strapped with a mortgage,” Fink says. “We just generally live a high lifestyle that is not conducive to saving money.”
Fink knows that they should start budgeting their money, especially if they want to buy a home in one of the country’s most expensive housing markets and then have children—both in the next couple of years. She also knows that they should do something with their wedding money and savings besides letting the cash sit in a bank account earning little interest, but she admits to having little tolerance for investment risks, despite a potential for higher returns.
Beating the ‘Gen X’ Affliction
Life Audit financial expert Thomas haunty says Fink, like other Gen Xers, is afflicted with the “I want it all now” syndrome when it comes to finances. Because she lives in an expensive city, Fink and her husband need to ask some tough questions and make some tough calls when it comes to how they spend their money, he says. If they want it all, Haunty says bluntly, they “need to stop spending it all.”
And when it comes to the housing market, Haunty says Fink needs to apply the same tough decision-making skills in deciding whether buying is right for her at this time. Currently, Fink’s rent is $1,900 per month. If they secure a $400,000, 30-year mortgage at 6 percent interest, plus property tax and homeowners insurance, their cash flow could be cramped, even after the mortgage interest tax deduction.
Yet, just because they can “afford” to purchase a home doesn’t mean they should, Haunty cautions: “I am one of the few people who talks about the negatives of owning a home.” That’s because the monthly costs of owning a home are only part of the financial picture. Haunty says Fink and her husband need to think about furnishing their home, maintenance, repairs and other costs, like insurance and emergencies.
And therein lies the problem for them. Because they would likely deplete all of their savings for a down payment to make the ensuing mortgage affordable, they would have no reserves left to pay for the inevitable expenses associated with owning a home.
Haunty suggests that Fink and her husband consider putting off buying that house, at least for now. The longer they rent, he says, the longer they will be able to enjoy a fixed housing cost, giving them the opportunity to solidify their financial house first. The first thing Fink needs to do is make a habit of saving money, Haunty says. She and her husband both admit to a rather financially carefree lifestyle at the moment, but he wants them to start finding ways to curtail their spending.
Treat your future like an investment, he says. Spend less. Be frugal. Create a livable budget.
Next, the pair should address the money that sits in a local bank savings account. Neither Fink nor her husband are experienced investors. They also have low risk tolerance. Haunty says they are the kind of people who can benefit from consulting with a good financial planner, and he suggests hiring one with appropriate experience.
Haunty says they need to keep some of their savings liquid for emergencies, but he also wants them to diversify another portion of their wedding money and their savings into mid-range and long-range investments, which can provide more growth potential.
No investment in the future is complete without addressing current debt. Fink needs to pay off her credit card balance as soon as possible, Haunty says, and she should start by either taking out a sum from their savings to pay off the bill or by making double or triple her minimum payments each month. Once the bill is paid in full, he wants her to continue to save the amount of the credit card payment each month. Additionally, if she has a high rate of interest on her student loans, Haunty suggests trying to consolidate them at a lower rate.
Once they have accomplished these steps, Haunty believes, Fink and her husband will have enough of a financial foundation to start thinking about owning real estate. “The house you can afford,” he says, “is the one that still allows you to save and invest.”
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VITAL STATISTICS
Beth Mollie Fink
Position Lawyer, Mental Hygiene Legal Service of the New York state court system
Age 30
Goal To purchase a house in the New York City metropolitan area and improve her money management skills
OUR EXPERT
Thomas A. Haunty, CFP, RHU, REBC, ChFC, is a senior partner with North Star Resource Group in Madison, Wis. He has provided financial assistance to lawyers and their clients since 1982.
Game Plan
Here’s how a younger couple can get their financial house in order:
Continue renting: Financial advantages include a predictable monthly cost.
Cut spending: Be frugal now to have luxuries later.
Reduce debt: Pay off high-interest-rate credit card bills and student loans.
Boost savings: Immediately bank savings realized from cost-cutting.
Start investing: Hire a qualified financial planner.
Life Audit Hot Tip: Choosing a Financial Planner
Your brother in law’s cousin just got certified as a financial planner. Should you use him? It’s hard to know who to choose for such a sensitive task, but think hard before hiring the relative, Haunty says. Aside from the fact that he might not always be distant family, the cousin in law may not be qualified. Look for a financial planner who has worked with people in your situation, such as professional couples, the self employed or state employees. Always ask for qualifications and credentials. When it comes to finances, blood is never thicker than experience.
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