How Much to Spend on New House?

Summary

Jill on Money with Jill Schlesinger: Episode Summary Episode Title: How Much to Spend on New House?
Release Date: January 24, 2025

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Introduction

In this episode of "Jill on Money", host Jill Schlesinger, CFP®, addresses a listener's query about determining the appropriate amount to spend on a new home. The discussion delves into personal finance strategies, investment balancing, and the emotional aspects of significant financial decisions.

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Caller Introduction and Financial Situation

Will, a 52-year-old technology professional from New York City, reaches out with a commendable financial position. He is married, with two children aged 15 and 10. Will details his substantial savings and investments, highlighting his disciplined approach to financial management.

• Will: "I have around 700k earmarked for the home purchase... Approximately 2 million in just free and clear brokerage account." (05:01)

Analysis of Will's Financials

Jill begins by assessing Will's current financial standing, which includes multiple rental properties generating substantial income and significant retirement savings.

• Jill Schlesinger: "You have tons of money, you've got tons of income. You have no interest in retiring early, right?" (11:24)

Will shares that he and his wife have been meticulous savers, contributing consistently to retirement accounts and managing rental properties without mortgages. His brokerage account, largely composed of mutual funds and long-term holdings, underscores his commitment to growth and stability.

• Will: "I started with 25 bucks a month and I kept raising it... Two million bucks." (07:05)

Discussion on House Purchase

Will seeks advice on balancing his down payment and mortgage to optimize his new home purchase without overextending financially. He contemplates spending between $1.2 to $1.3 million, considering a $700k down payment and a mortgage ranging from $200k to $600k.

• Will: "I could finance it and pay it early... I could pay that in five years." (09:50)

Jill emphasizes the importance of understanding mortgage implications and suggests that Will might also consider emotional comfort with debt versus liquidating investments, especially given current high-interest rates.

• Jill Schlesinger: "Do not buy any more insurance... Then you're in great shape." (15:35)

Strategies and Recommendations

Jill advises Will to evaluate his pension details to better understand his future income streams, which are crucial for long-term financial planning. She also discusses the benefits of Roth accounts versus traditional ones, considering tax implications and Required Minimum Distributions (RMDs).

• Jill Schlesinger: "If you had your druthers... Enjoy the house you want." (09:16)

Mark Talercio, the executive producer, adds insights on maintaining liquidity and suggests New York Municipal Bond Funds as a suitable investment for Will, given his tax circumstances.

• Mark Talercio: "...New York Municipal Bond Fund is actually not a bad idea for someone like you." (14:44)

Key Insights and Conclusions

The conversation highlights the delicate balance between saving, investing, and spending. Will's disciplined saving habits have positioned him well to make significant investments without jeopardizing his financial stability. Jill underscores the importance of allowing oneself to enjoy financial rewards after years of sacrifice and prudent management.

• Jill Schlesinger: "You have permission to enjoy it a little bit." (18:22)

Will reflects on the sacrifices made to achieve his financial standing, emphasizing the value of hard work and prudent financial decisions.

• Will: "There's been a lot of sacrifices for many years... Money doesn't grow in trees." (16:40)

Conclusion

Jill encourages listeners in similar situations to reach out for personalized financial advice, emphasizing that with careful planning and disciplined saving, it's possible to achieve significant financial milestones while maintaining stability and enjoying the fruits of one's labor.

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Notable Quotes with Timestamps

• Will: "I have around 700k earmarked for the home purchase." (05:01)
• Jill Schlesinger: "You have permission to enjoy it a little bit." (18:22)
• Will: "I've taught my children from very little. You know, money doesn't grow in trees." (16:40)
• Jill Schlesinger: "Buy a house that you want. Enjoy it." (18:45)

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Final Thoughts

This episode serves as an insightful guide for individuals contemplating significant home purchases, illustrating how to balance savings, investments, and personal satisfaction. Will's story exemplifies the rewards of disciplined financial management and the importance of making informed, emotionally satisfying decisions.

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For more financial advice and discussions, visit jillonmoney.com and subscribe to "Jill on Money" on your preferred podcast platform.

Transcript

[Jill Schlesinger]

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[Jill Schlesinger]

Welcome to the Jill on Money show. It's Friday, January 24th and we are here answering your financial questions. Now the way we do that, it's very easy. We just have you do a tiny, tiny bit of work. Go to our website jillonmoney.com and click the Contact Us button. It's in the upper right hand corner wherever you are on the website. And when you do that, a form will pop up. That is the email we receive. And if you're going to send us an email, fine. If you're shy, don't worry about it. We do email shows. If you'd like to join us live, then check the box. And Mark will do everything else.

[Mark Talercio]

He is the best executive producer in.

[Jill Schlesinger]

The whole wide world. Mark. I think I can say that with great authority. I've worked with a lot of executive producers, and you are the best. So Mark does everything else on the website as well. He is responsible for freshening up the content and putting up cool stuff and making sure our resources are up to date. So check it all out. Just go to jillandmoney.com and bookmark it. And while you're there, don't forget, sign up for the free weekly newsletter comes out today. Every single Friday comes out, so we encourage you to do that. Okay. Today we are talking to Will, who's on the line with us from New York City.

[Mark Talercio]

Hello, Will.

[Jill Schlesinger]

Welcome to the program.

[Will]

Hello, Jill. Hello, Mark.

[Jill Schlesinger]

What can we do for you?

[Will]

Well, I have a good problem. I'm trying to determine what is the appropriate amount of money I should be spending on a new home about to purchase. I happen to be in a. I'm in a very lucky position, have a good chunk of savings for the down payment, and I'm struggling determining what is too much, what is too little. I tend to err on the too little on the low side, so.

[Jill Schlesinger]

All right, well, let's try to figure this out. So, Will, how old are you?

[Will]

I'm 52.

[Jill Schlesinger]

Okay. Are you married, single?

[Will]

I am married. With child?

[Mark Talercio]

With children.

[Jill Schlesinger]

Okay. And do both you and your spouse work right now?

[Will]

No, I work.

[Jill Schlesinger]

Okay. And how old is she?

[Will]

She's 51.

[Jill Schlesinger]

Okay, and how much do you earn right now, will?

[Will]

Approximately 325.

[Jill Schlesinger]

You own a place right now. Are you renting right now?

[Will]

We own. And we also own some other rental properties.

[Jill Schlesinger]

Oh, okay. Would you sell your first. Would you sell to buy or would you keep everything in? Just rent. This the. Your. Your primary going forward?

[Will]

The primary I would not need to sell. I'm probably just going to keep it and either continue either renting it or keep it in the family.

[Jill Schlesinger]

Oh, very generous. Okay, how much is the current home worth?

[Will]

Approximately 350.

[Jill Schlesinger]

Okay. Mortgage outstanding or none? No mortgage, of course. Marc, did I smell this from a mile away? Oh, my God. Okay, Rental property one or two?

[Will]

Three.

[Jill Schlesinger]

Oy vey. Okay, rental property number one. How much is it worth?

[Will]

Let's say that the combined of all three is approximately $9,000.

[Jill Schlesinger]

9,000. Mean 900,000.

[Will]

I'm sorry, 9,000 per month.

[Jill Schlesinger]

Oh, 9,000 in income. How much are they worth?

[Will]

I want to say 3 million.

[Jill Schlesinger]

And any mortgages Outstanding on those? No, ma'am, of course not. No, ma'am. Mark's giggling. You made Mark giggle. All right, so will you say now you have your income is 325, then you have this extra hundred of rental income, right?

[Will]

No, that includes that. I'm sorry.

[Jill Schlesinger]

Okay, all in. Got it. Okay. And what is, what is the balance sheet look like? So what do you have in savings right now? What is earmarked for the house? The new home purchase rather.

[Will]

For the home purchase I have around 700k.

[Jill Schlesinger]

Okay. And that's just in cash right now?

[Will]

Yes.

[Jill Schlesinger]

Okay, so Newhouse fund. I'm going to call that Newhouse fund.

[Will]

Exactly.

[Jill Schlesinger]

Okay, what other assets do you have in addition to that?

[Will]

We have retirement savings approximately 1.6 million.

[Jill Schlesinger]

That's amazing. Fantastic.

[Will]

In brokerage stocks and mostly mutual funds. Around 2 miles.

[Jill Schlesinger]

Oh, 2 million in just free and clear brokerage account. Okay, that's good. Is that account managed or do you manage it yourself?

[Will]

I manage it myself.

[Jill Schlesinger]

Okay. And would you say if you look through that account, is it mostly long term holdings that have low cost basis or a little bit of everything?

[Will]

That's exactly what they are. I have bought and added to that for the past 20 years. I started with 25 bucks a month and I kept raising it 100, 200.

[Jill Schlesinger]

Amazing.

[Will]

Keep adding and not taking a penny out.

[Jill Schlesinger]

Unbelievable.

[Will]

Two million bucks.

[Jill Schlesinger]

Unbelievable. We are. I mean, it's just, you know, you guys could be, you should be the spokespeople for every investment company. Like, hey, I didn't start out with a lot. Like, I bet, like when you got out and you started, you know, investing, how much were you earning?

[Will]

$56,000.

[Jill Schlesinger]

Okay, right. So 20 years ago or 30 years ago, you just start small and you just keep adding to it. It's amazing. So is your belief that you would take the 700 and use that as a down payment and finance the rest? Like what's your game plan? What are you considering?

[Will]

Yes, that's my hope. I want to. The range that I'm looking is between 901 point X. And the X is what I'm trying to determine here. So with a 700 down, I'm looking at a mortgage of anywhere between 200 and 500 or 600.

[Jill Schlesinger]

All right. Anyway, it doesn't matter. In the New York area, you'd be in conforming mortgage territory. I mean, I know it's a high mortgage interest rate and that'll drive you crazy, but let's, let's let me go on from here. Would you be entitled to a pension going forward or not?

[Will]

Yes, I have a pension as well.

[Jill Schlesinger]

I don't know why that doesn't surprise me. Mark, what will the pension amount be?

[Will]

What is it now? When I retire?

[Jill Schlesinger]

Well, let's say what, I mean, let's say that you, let's say that you retire at some age 65, 67. What would the pension be then?

[Will]

Probably like a million dollars.

[Jill Schlesinger]

No, not cash value. I mean on an, on a monthly basis. You know that.

[Will]

On a monthly basis. I have not calculated that, but I would guess anywhere between 10, you know, 10 to 15K a month. I have not calculated that. I'm sorry. I apologize.

[Jill Schlesinger]

You should ask the, and you should ask your employer to give you that information. And I'll tell you why. It will help us understand whether or not it's time to like, pull the trigger and actually take some more money out of the brokerage account. And I'm going to explain what I mean by that right now. In your retirement account. Is that all traditional or is there some Roth in there?

[Will]

Most 95% is traditional. I just started shifting that to Roth for the same reason that your reason that you're thinking. Because the tax, the taxes, the RMDs are withdrawals are just gonna kill me.

[Jill Schlesinger]

Kill you. I know, I know. Okay, if you had your druthers and I said to you, listen, dude, get a million and a half dollar house and you don't even have to worry about financing it. We're going to take some money out of your brokerage account, we're going to sell some of this, these assets, and you're just going to own it in cash. Is that what you ideally would like to do?

[Will]

Well, I could finance it and pay it early. I thought it was that with the extra income that I'm not using right now, that I'm just saving. If I could, if I reposition that to just paying, I could pay that mortgage. Let's say I borrow 500 grand, could pay. I could pay that in five years.

[Jill Schlesinger]

Theoretically, absolutely. I just want to, I'm trying to take your temperature emotionally. If you're like, I don't want a mortgage because you don't have mortgages. You've paid them off aggressively. I mean, I'm, I'm fine with you taking a, you know, going out and getting a mortgage and paying it down however you want. I just wanted to try to get a sense of whether or not you felt like you just hate mortgage debt so much that you'd rather. Okay, you're good.

[Will]

I Don't mind. And I would worry also that selling assets off the brokerage account would incur in taxable income.

[Jill Schlesinger]

Oh, yeah. I mean it is. I mean it would be long term capital gains for sure. Right? Yes, yes. So, all right, so let's presume that you think the upper range is a million and a half for where you're looking.

[Will]

Yeah. That is a nice.

[Jill Schlesinger]

That's probably right. Right. You would get a house you want.

[Will]

I was thinking more like 1.2, 1.3.

[Mark Talercio]

Since I talked to you before you.

[Jill Schlesinger]

Went on the air. Right. And I know where you're looking. I think that you may be drifting into a million and a half for what you want and where you want it, which is not bad. I don't have a problem. You've got tons of money, you've got tons of income. You have no interest in retiring early, Right?

[Will]

No whatsoever.

[Jill Schlesinger]

You're doing your thing. Everything is good. And right now you're shifting away from the pre tax retirement into a Roth contribution. How much are you putting in there? You're putting in the maximum.

[Will]

I'm putting sufficient just to get the matching because I have so much in the traditional.

[Mark Talercio]

Yeah.

[Will]

That I'm going to end up with so much in retirement accounts that it's just. What's the point of just accumulating more and more and more if I'm. If I'm covered with what I have already?

[Jill Schlesinger]

Do you want to put like the 23,000 to a Roth retirement account? Like not a Roth IRA, but a Roth version of your retirement and just start building up Roth, or do you care? I mean, you have so much money, you're not gonna spend a lot of money.

[Will]

That, that's really what I'm thinking. I have to exercise the spending muscle more than my saving muscle. I've been saving for so long that I forgot how to spend. That's where I find myself. It's a lucky and very grateful position to be in and I'm thankful every day.

[Jill Schlesinger]

Yeah.

[Will]

But you know, when you've done something for so long, to do the opposite of that, it takes time, I guess.

[Jill Schlesinger]

I wonder, is it any. Is there any reason why. I know this is like you don't want to, but like, is there really any reason you want to keep that primary?

[Mark Talercio]

Is it a good rental?

[Will]

You think I might just pass it to one of my children when they're old enough? I got at a good price. I don't need the cash. So instead of just getting the cash for it, I could just keep it.

[Jill Schlesinger]

Yeah.

[Will]

Just pass it down in the future.

[Mark Talercio]

Hey, wait.

[Jill Schlesinger]

Anyone listening who needs a rental in New York City, contact us. We might get you a good deal with Will. I mean, if you had. Also like truly, if you had someone just living there and taking care of it would be fine also, right? Is there anything else in this scenario that is worrisome? Like if we get you. I guess the one thing is if we get you to buy this million and a half dollar house versus whatever million. You're not going to get a million dollar house where you're looking that you want to live in. That's my guess. But let's say we have you spend the million and a half. Are you going to freak out and not spend money on anything else? Will you and your wife start to enjoy yourselves a little bit, please?

[Will]

Yes, yes, Jill, we very much, Will.

[Jill Schlesinger]

All right. Because it doesn't seem to me like it makes a ton of sense to do all these shenanigans. We like, we work really hard to help you get where you want to go, but then you have to give yourself permission to do this. Like this is what you've done. You've spent a lot of time squirreling away money, living beneath your means. Like all of this is great. How old are your kids?

[Will]

15 and 10.

[Jill Schlesinger]

Okay, so you have young kids, so you know, we got a ways to go. Do you have college fund for the kids?

[Will]

I have 529s in place, yes.

[Jill Schlesinger]

All right, so really, you're in great shape, right? You know that.

[Will]

Thank you. Thank you. My other question was about where to park the extra cash that I have right now. Whether to put it in brokerage accounts or use a Roth IRA cash that I'm not using or that I'm not going to use for the foreseeable future.

[Jill Schlesinger]

So not associated with the new house purchase. Beyond.

[Will]

Beyond, yes, beyond.

[Jill Schlesinger]

I mean, it's like almost irrelevant. You could certainly do a Roth. You could certainly just throw it in the brokerage account if you want to keep it liquid and you want to maybe have it available. I mean, look, by the time you.

[Mark Talercio]

Find your house, if all of a.

[Jill Schlesinger]

Sudden, weirdly, mortgage rates are at 8% and you're like, oh, I want to put a little bit extra money down, you may want to have access to it, but if most of your in your brokerage account, most of it is equities and you want to have some, that's safe, I'm happy to have you have some money in money market or even just have you. You're a New York resident. New York Municipal Bond Fund is actually not a bad idea for someone like you because your income just is, you know, it's putting you into a place where, you know, between the federal, the state, you're still in the city that, you know, you pay a lot in taxes, relatively speaking.

[Will]

Understood, understood.

[Jill Schlesinger]

So I would check that out.

[Will]

And my other concern was insurance. Ms. Jill? Present. I have, presently I have term insurance up to, up to 20, 29. That's five more, five more years. You know, my age.

[Jill Schlesinger]

Yeah.

[Will]

This concept of self insure where after a certain point that you have enough cash, you don't buy any more insurance, does that make sense?

[Jill Schlesinger]

Yes, absolutely. Do not buy any more insurance. Do you have your estate documents done? You have your estate planning done?

[Will]

I do, I do, yes.

[Jill Schlesinger]

Then you're in great shape, Mark. I'll tell you what, these people are going to cause us to get all this kind of hate mail. But when we get off the air, I can't wait to find out what Will does for a living because sometimes we ask you some of the nosier questions when we get off the air with you just to find out. But I just want to follow up on yesterday's call. Our friend from Philly, for everybody who is like, oh, this guy, he was living large. He actually wasn't. He was a guy who was saving from such a young time in his life and, you know, he wasn't in a big money business, so I was. I bet that's what the case is with Will. I'm going to find out any second.

[Adam Scott]

You know that. That's a common question, Jill, from listeners. We get, we get a lot of emails. Can you, can you ask these people on the air what they do for a living and how much they make.

[Jill Schlesinger]

Will do, do you feel comfortable saying which sector you're in?

[Will]

I am in technology. But what I want to say is that behind those savings, which I'm super grateful for, as I've said, there have been a lot of sacrifices for many years. I manage my, I, I do the maintenance on all my properties myself. I clean a lot of toilets. I cleaned a lot of floors. I've walked up, wake up in two, three in the morning to open. Somebody gets locked out. We do not buy brand new clothing. We buy some clothes at Goodwill. We enjoy that very much. And books, I buy my books used. So, you know, there's a lot of sacrifices behind that. I wasn't born with this money and I'm super grateful for it, but there's been a lot of hard work. My Wife and I, and even my children, you know, I've taught my children from very little. You know, money doesn't grow in trees. You have to work for it. And let's not be bashful of those who are doing okay. Let's be happy for them.

[Jill Schlesinger]

Right? I agree with you. I feel very comfortable, like, actually saying to folks, hey, listen, it is incredibly important that you are actually not judging people who have. And. And that's what we've always done on this show. There are some people who are fortunate. You know, I'm one of them. Like, hey, I grew up with a family that had some money. I wish they had more. But, you know, listen, I wouldn't be at a podcaster if I had a lot of money, but, you know, I didn't have to worry about paying for my own college. And that's a huge advantage. And. And I am very clear about that for everyone listening. You know, you hear about Will's story. You hear these stories. It's not so much that, you know, we want you to be like, oh, he doesn't deserve it, or you don't, but, like, it's just like, of course, appreciation. And also, if you've gotten to this place, I want you guys to feel like you have permission to enjoy it a little bit. And if that's what it takes, if it takes calling us and getting on the hot phone with us and getting here and saying me saying to you, hey, Will, you and your wife, you've made a lot of sacrifices. Go buy the house you want. Go buy the house you want. I mean, it's not going to be an $8 million house of you, but I don't think you'd want that. Buy a house that you want. Enjoy it.

[Mark Talercio]

Enjoy the fruits of all that labor.

[Jill Schlesinger]

Okay, thank you, Jill.

[Will]

Thank you for those words.

[Jill Schlesinger]

It is a pleasure. And please keep us in the loop. Tell us what's going on. Okay. If you are thinking about a new home purchase and you want to put a bunch of money down, or maybe you don't, but maybe you should, maybe you shouldn't give us a Holler. Go to jillonmoney.com, click the contact us button, and let us know if you want to come on the air live. Isn't it fun to hear people's stories? It really is fascinating to me. And don't forget that you can subscribe to us on the Odyssey app wherever you or wherever you find your favorite podcasts. Our music is composed by Joel Goodman. Mark Talercio is our executive producer and king of all things web. We are distributed by Odyssey. Please lift someone up. Change your work, change your wealth, Change your life. Thank you for listening. We'll talk to you on Monday. Real Estate it's been a cornerstone of.

[Mark Talercio]

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