Can We Upgrade Our House?

Summary

Podcast Summary: "Can We Upgrade Our House?" – Jill on Money with Jill Schlesinger

Release Date: January 9, 2025

In this episode of "Jill on Money with Jill Schlesinger," host Jill Schlesinger delves into the nuanced financial considerations of upgrading one's residence. The episode centers around a listener's inquiry about purchasing a more expensive home, exploring the balance between current savings, future financial security, and lifestyle aspirations. Throughout the discussion, Jill and her co-host Mark provide insightful analysis, addressing both the emotional and practical facets of such a significant investment.

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Listener Call: Mike's Housing Dilemma ([04:09] - [13:47])

Mike from Wisconsin initiates the conversation, presenting his family's financial profile and their contemplation of purchasing a larger home closer to their preferred lake area.

• Family and Income Overview ([04:09] - [05:00]):

  • Mike: "I'm 42. My wife's 40. We've got three great kids and we've done pretty well thus far and built up a pretty good nest egg."
  • The couple earns approximately $325,000 annually, with potential peaks up to $400,000 due to Mike's sales role.

• Current Savings and Investments ([05:23] - [06:19]):

  • Mike: "In my 401k, there's about $965,000. In my wife's, about $465,000."
  • Additional savings include a $100,000 traditional IRA, $265,000 in Roth IRAs, and a $7.5 million brokerage account.
  • Their primary residence is valued at $700,000, with a remaining mortgage of $200,000 at a 2.75% interest rate.
  • They co-own a family cabin in Wisconsin, valued at $200,000, fully paid off.

• Housing Upgrade Plan ([07:17] - [08:04]):

  • Mike: "I'd like to live on the lake around where we live right now. On the low end, probably $1.5 to $1.8 million."
  • The plan involves selling their primary home, utilizing proceeds to purchase the new lake house while maintaining ownership of the cabin.

• Financial Strategy and Considerations ([08:04] - [10:37]):

  • Mike: "We're thinking of taking $500k from the sale of our primary home and $500k from the brokerage account to put down $1 million, then finance the remaining $800,000."
  • They anticipate continuing to save $120,000 to $130,000 annually, projecting substantial growth in their brokerage account over the next 13-15 years.
  • They've diligently saved for their children's education, accumulating $150,000 in 529 accounts.

• Insurance and Estate Planning ([10:37] - [11:08]):

  • The family holds 20-year term life insurance policies with 15 years remaining and has updated their estate documents within the last 5-6 years.

• Final Considerations and Advice ([11:08] - [13:47]):

  • Mike: "Is it totally unreasonable to make this outlandish purchase?"
  • Jill Schlesinger: "I truly believe that you can do this."
  • Mark: "That's what it's for. And they're still going to continue to save $120k a year. They're going to replenish this thing within five years."
  • Jill emphasizes the couple's strong financial foundation, consistent savings habits, and their ongoing income streams as key factors supporting the feasibility of their plan.
  • Jill: "I think you should do it. I love it. You have so much money saved for college already. It's very impressive."
  • The hosts caution about managing the brokerage account strategically to mitigate tax implications and encourage Mike to proceed with confidence, given his and his wife's enjoyment and commitment to their careers.

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Key Insights and Takeaways

1. Balanced Financial Assessment:

   • Mike and his wife have meticulously balanced their income, savings, and investments, allowing them to contemplate significant financial decisions confidently.

2. Strategic Asset Allocation:

   • By leveraging both retirement accounts and brokerage holdings, the couple demonstrates a diversified approach to asset allocation, ensuring liquidity while maintaining long-term growth prospects.

3. Risk Management:

   • The decision to finance a portion of the new home purchase rather than depleting savings entirely showcases prudent risk management, maintaining cash flow stability.

4. Future-Proofing Financial Goals:

   • Continued substantial savings and investment growth position the family to sustain their financial aspirations, even with the added expense of a more expensive home.

5. Professional and Personal Fulfillment:

   • The couple's satisfaction with their careers and current living arrangements reflects the importance of aligning financial decisions with personal well-being and lifestyle preferences.

---

Notable Quotes

• Jill Schlesinger ([11:41]):
  "I truly believe that you can do this."

• Mark ([11:55]):
  "That's what it's for. And they're still going to continue to save $120k a year. They're going to replenish this thing within five years."

• Jill Schlesinger ([12:05]):
  "I know, it's going to be amazing. I think you should do it."

• Mike ([13:13]):
  "It's not imminent. It's more so waiting to see when the White House comes up because it's, you know, limited. It's probably going to wind up being a pocket sale versus on the market. And so I would say I'm targeting sometime in next 36 months."

---

Conclusion

In "Can We Upgrade Our House?", Jill Schlesinger expertly navigates the delicate balance between ambitious homeownership dreams and sound financial planning. By dissecting Mike's scenario, the podcast underscores the importance of comprehensive financial health, strategic investment, and personal fulfillment in making significant life decisions. Listeners are encouraged to evaluate their own financial landscapes holistically, ensuring that major purchases align with long-term goals and current prosperity.

For those inspired by Mike's story and contemplating similar financial moves, Jill invites you to reach out for personalized advice:

• Email: [e-mail]
• Website: jillonmoney.com

Stay tuned for more insightful discussions and actionable financial guidance on future episodes of "Jill on Money."

Transcript

[Jill Schlesinger]

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[Mark]

By the way, by the way, New Year's Eve, as midnight is approaching, Amanda's like, what are you doing on the computer?

[Jill Schlesinger]

Yeah, and that was it.

[Mark]

I was waiting for midnight so I can go in and change the price.

[Jill Schlesinger]

Oh, my God, you're crazy. God bless you. Go bless that Mark. He's watching out for me. Anyway, check out Jill on Money Live. Okay, right now let us talk to Mike from Wisconsin. Mike, welcome to the program. What can we do for you, sir?

[Mike]

Hey, great to be with everybody today. Thanks for taking me on, Bill. And yeah, so I basically my question for you guys is I'm 42. My wife's 40. We've got three great kids and we've done pretty well thus far and built up a pretty good nest egg and brings you kind of on cruise control. And I just want to make sure that what I'm considering is not going to blow us up.

[Jill Schlesinger]

Okay, so you're 42. Your wife is 40, you got three kids. How old are the kids?

[Mike]

Nine, seven and five.

[Jill Schlesinger]

Everybody's in school now. Is the five year old in school?

[Mike]

Yes. Which is.

[Jill Schlesinger]

Oh, you're breathing that sigh of relief, aren't you?

[Mike]

And everybody's on the same bus.

[Jill Schlesinger]

Oh, my gosh. Fantastic. Mike, how much do you and your wife earn?

[Mike]

It varies year to year. I'm in sales, so I would say an average year, you know, we're around 325. And it can go up to 400.

[Jill Schlesinger]

Wow.

[Mark]

Must be large where they are.

[Jill Schlesinger]

Holy smokes is right. My God. Okay, so let's keep. Keep giving us the, the. The general gestalt of you and your family. You're making retirement contributions on this. Whatever. Let's call it almost 400 grand. I mean, it's pretty amazing how much is in your retirement accounts.

[Mike]

So in my 401k, there's about 965. In my wife's about 465. Wow.

[Jill Schlesinger]

All pre tax, Mike.

[Mike]

So mine is all pre tax. And then a few years ago we started splitting the tax perspective, and so my wife has been doing hers into a Roth 401K stays in trouble.

[Jill Schlesinger]

Okay, that's great. So that's a lot of money. Wow. What about other savings that you have? So you've got the two retirement accounts at, I don't know, $1.4 million. And then what else do you have saved?

[Mike]

So my wife has a traditional IRA of about 100K. We have Roth IRAs combined of about 2, 265. And then we have a brokerage account with about 7. 7.5.

[Jill Schlesinger]

Oh my God. You have a lot of money saved. Do you have an incredibly low cost of living? Like what? You probably. You own a house.

[Mike]

Yeah. So we have our house that we bought kind of right in the sweet spot for rates and what have you. So we bought maybe 10 years ago. So I think our current place is. Is probably worth 700k and we owe another 200 on it yet at a 275 rate.

[Jill Schlesinger]

Okay.

[Mark]

And any way he said that our current place. So I'm guessing another property.

[Jill Schlesinger]

Is there another property or is there a desire to buy a second property?

[Mike]

Yes, on both fronts. So we have a family cabin up north in Wisconsin that we have a 50% equity stake in that's paid off. I would say that our half of that's probably worth 200k. But you know, we drive three and a half hours to go up to that place. And I'd really like to live on the lake around where we live right now.

[Jill Schlesinger]

To do that, to live in a desirable lake house closer to you. What would that mean? How much would we have to spend for that?

[Mike]

I mean, on the low end, probably 1.5. Nice. Like 1.8.

[Mark]

And this is like vacation or primary.

[Mike]

Now this. We'd sell our primary home and then.

[Jill Schlesinger]

Move into this place, but keep the cabin.

[Mike]

Correct.

[Jill Schlesinger]

I have a half a million dollars. Let's just say 1.8. Can we just do that? Because why why not? If we're going to do this, let's do it. What's the. What would be the game plan? Would it be sell the house, put down 500 grand, and then finance the rest, or do you want to put down the money, Some money from the brokerage account? Like, how do you want to. How do you want to try to do this?

[Mike]

Well, so my thought process was we've been really good savers the last 10 years we've been married, and I feel like we're going to continue to be able to refill that brokerage account. And the idea of having a monthly payment coming out of our cash flow if we finance the full amount kind of makes me physically ill. So I was thinking, what if we took, you know, 500k in proceeds from the sale of our primary home. Yeah. Then 500k out of the brokerage, we put down a million, and then we finance the room.

[Jill Schlesinger]

You know, I get this. First of all, you're a salesperson. So all of a sudden, I just want to tell everybody, as much as everybody's going to be like, Jill's never going to go for this. As a person who was in sales herself, I understand that mentality, which is like, oh, I could have a terrible year, and who knows? And I don't want. I don't. Like. You want to. If you take risk with a lot of your. With your earning potential, it's hard to want to take risk in the fixed expenses that you're creating. So in that brokerage account, Mike, is there a massive amount of gains that we'd have to pay to do this?

[Mike]

I mean, there's. There's some, but I wouldn't say, you know, it's like 50% of the holding or anything like that.

[Jill Schlesinger]

Okay.

[Mike]

It's probably more in the range of 20, 25.

[Jill Schlesinger]

Okay. So I just want to be clear for. On this. Three or $400,000, let's say $400,000. And you said you're saving a lot of money, so we know about the retirement account where you're both maxing. Right. But what is. What do you. What do you think is the savings rate, the savings amount above that? Like, what do you. Obviously are saving like crazy. You said over the last 10 years, what has that amounted to on an annual basis, do you think?

[Mike]

I mean, we kind of buckets things, right. So we probably pay roughly a third in taxes, live on a third, and then save a third. So I would say we saved annually or somewhere in that 120 to 130.

[Jill Schlesinger]

Okay. All right. I mean, and you're still young. Is there any money that you've saved for college? Is everybody going to the University of Wisconsin?

[Mike]

Ideally, that's kind of what we're benchmarking to, is to be able to pay for that.

[Jill Schlesinger]

Yep.

[Mike]

So for the three kids, they've all got 529s in total. Across all the 529s, we're probably looking at, you know, around 150k across the three kids.

[Jill Schlesinger]

Wow, that's great. Do you guys have life insurance and estate plans done?

[Mike]

Yeah, we each have 20 year terms that probably have 15 years left on each. And then we bid our estate documents maybe five or six years.

[Jill Schlesinger]

So if I can reframe this question is the question, Jill, do I have permission to buy this big ass house and take a half a million dollars from my brokerage account, put a million dollars down and finance 800,000? Is that essentially our question?

[Mike]

It is, with one maybe additional bolted on question.

[Jill Schlesinger]

Okay.

[Mike]

Is, you know, I look at what we have saved so far and what we've done the last 10 years and if you extrapolate that at like let's say a 7% return. Yeah. In 13, 14, 15 years when our kids are all out of school, we're going to have this giant pile of cash. Seems way more than we're ever going to need. Is it totally unreasonable to make this outlandish purchase?

[Jill Schlesinger]

Oh, don't make a judgment. Why are you saying outlandish?

[Mike]

It just the number just kind of pops out.

[Jill Schlesinger]

Listen, I truly believe that you can do this. Mark, are you anti taking a half a million dollars from the brokerage account? Because I'm not. Because I think they're young and they'll crank.

[Mark]

No, that's what it's for. I say this all the time. That's what it is for. And they're still going to continue to save 120 grand or so a year. They're going to replenish this thing within five years.

[Jill Schlesinger]

I know, it's going to be amazing. I think you should do it. I really do. And you're on track to do whatever you want to do. You really are. The kids, I mean, also you have so much money saved for college already. It's very impressive. So I think the whole picture looks great. I guess that one way that you could hesitate would be if you said, oh, either you or your wife hates your job and you're going to go down to one income and your base or your, your total earnings will go from four to two. Then I Might be like, I don't know. But you are planning to continue working, right? Both of you?

[Mike]

Yeah, no, I. I really enjoy what I do, and my wife has already gone down to 80% already, so.

[Jill Schlesinger]

So we've already made that adjustment, I think. I totally think you should do this. I love it. I want to see what a $1.8 million house looks like in Wisconsin. I tell you something, I want to see pictures of this. I think you could do it. Just be careful on the brokerage account as you're selling. I presume you're managing all of your own money, is that right?

[Mike]

That's correct.

[Jill Schlesinger]

Okay. Just be careful and be mindful of taxation. Right. Like you want to try to be as smart as you can. Let's not be clever by too much because you want to do it. When are we going to actually pull the trigger on this game plan?

[Mike]

I mean, it's not imminent. It's more so waiting to see when the White House comes up because it's, you know, limited. It's probably going to wind up being a pocket sale versus on the market. And so I would say I'm targeting sometime in next 36 months.

[Jill Schlesinger]

Okay, well, 36 months, that's a ton of time. All right, well, then keep saving and keep rocking and rolling and go find yourself a house. The longer you wait, I mean, the better the situation is going to be for you guys, just in terms of your own financial future. So I'm all bored. This plan, Mark is, too. We like when people save money and use it.

[Mike]

Fantastic. Thanks so much, guys.

[Jill Schlesinger]

All right. Thank you so much. And if you are like Mike and his wife and your good savers, but you're kind of scared about making the leap, give us a Holler. Go to jillonmoney.com, click the contact us button. Write us a note if you'd like to join us on the air live. Check the box. Mark will do everything else. Don't forget to sign up for the free weekly newsletter, which comes out every single Friday. You can subscribe to us on the Odyssey app or wherever you find your favorite podcast. Don't forget to put your hands, metaphorically, on someone's back. Change your work, change your wealth, Change your life. Thank you for listening. We'll talk to you tomorrow. Real estate. It's been a cornerstone of wealth building for generations, but it's also often a major headache for investors. 3:00am Maintenance calls, tenant disputes, property taxes. Enter the fundrise flagship real estate fund, a $1.1 billion real estate portfolio built for you. We're Talking more than 4,000 single family homes in thriving Sun Belt communities, 3.3 million square feet of in demand industrial facilities, all professionally managed by an experienced team. With the Flagship Fund, you're tapping into real estate's most attractive qualities. Long term appreciation potential, a hedge against inflation, diversification beyond the stock market. Check, check, check. All without complex paperwork, massive down payments or soul sucking landlord duties. Visit fundrise.comjillonmoney to explore the portfolio. Check out historical returns and see just how easy it can be to add real estate to your investing strategy. Carefully consider the investment objectives, risks, charges and expenses of the Fundrise Flagship Fund before investing. This and other information can be found in the Fund's [e-mail] Flagship this is a paid advertisement.

[Ben Stiller]

Hey, I'm Ben Stiller.

[Adam Scott]

I'm Adam Scott and we make a.

[Ben Stiller]

TV show called Severance. On January 17th, Severance is back for season two on Apple TV and we can't wait for you guys to see it.

[Adam Scott]

And before the premiere, Ben and I are going to be binging Season one and putting out daily recap podcasts. Podcasts.

[Ben Stiller]

Yep. Each weekday beginning January 7th, we'll be dropping an episode featuring exclusive behind the scenes tidbits and brilliant insights from our cast and crew and us.

[Adam Scott]

Patricia Arquette, Britt Lauer, Zach Cherry, John Turturro. The list goes on.

[Ben Stiller]

All your favorite Lumen employees, their friends, families, enemies in your feed every single weekday.

[Adam Scott]

And here's the best part. After that, we're gonna keep going. Tune in weekday as we recap every episode of Season two. The podcast drops on the same day the episode comes out.

[Ben Stiller]

It's the Severance Podcast with Ben and.

[Adam Scott]

Adam on Apple Podcasts, the Odyssey app, or wherever you get your podcasts.