- November 20, 2023
- Posted by: legaleseblogger
- Category: Related News
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Family Budgeting for New Construction Savings
In the past year, we have put a lot of effort into family budgeting in order to save for our dream of new construction. Realistically, we are looking at least 5 years down the line to start this project. Despite not having a high income, we have been able to implement a family budget based on our income and a frugal lifestyle that allows us to save at least $400 per month, along with any additional savings from staying under budget. Additionally, we have made it a priority to max out our retirement savings. We have also taken steps to lower our mortgage payments through refinancing and are continuing to overpay on our mortgage to accelerate the payoff timeline.
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Choosing the Right Account for Growth and Minimizing Risk
Considering that we are comfortable with a level of risk, we are seeking advice on the type of account that would strike a balance between growth and risk minimization. While we are considering a High Yield Savings Account (HYSA) due to its lower risk nature, the current market conditions make it less appealing. We are open to exploring other options that could provide potential growth while still managing risk effectively.
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****** just grabbed a
We are facing the same dilemma and ended up investing conservatively into the stock market. Since our goal is to a mass cash to fund everything keeping it a HYSA seemed so silly. We do keep the emergency fund/tax fund in the HYSA.
If your time line is flexible, then I’d put it into index funds.
On any given day, there’s a 53% chance stocks will rise and only a 47% chance they will fall. Far from “guaranteed,” but with 1,825 dice rolls (the number of days in five years) you’re very likely to come out ahead vs a savings account.
Increase that period from 1 day to one quarter and now you have a 68% chance that the stocks have risen.
Increase that period from 1 quarter to 1 year and your odds are about 75% that the stocks have risen.
The math gets a little complicated when you’re investing periodically over time and not dumping everything in at once and waiting which those averages are based on. But if you’re dropping money monthly, over a 5 year period, your chance of having less money than if you just held it in savings is roughly 30%. If you can stomach a 30% chance that you might have to wait six years instead of 5, I’d go with stocks.
That’s also discounting the fact that your investments are likely to rise in value – so you might meet your five year goal in only four and a half.
But what is your goal? You never said how much money you need? How much will the house cost to build? Price it today, then figure in 5% increases every year from today until you build.
If the project would cost $100,000 right now, it will cost $105,000 next year.
In five years it will cost $128,000, approximately.
So if your projected date is five years out, you need to consider how much *less* your $400 a month will afford you when it’s time.
Once you have all those pieces, then you can decide if you’ll take the risk and invest it, or if you’ll make more cuts/increase earning to compensate for the ever increasing costs of building.
Land tends to cost far less than building costs. Have you considered buying the land well beforehand?
If you do go with a HYSA, check out LMCU’s accounts: https://www.lmcu.org/personal/banking/checking-accounts/max-checking/
3% on balances up to 15,000 and you can open accounts for both you and your partner!
Look into Mutual Funds. There are tons of them so it is hard to decide which one. But you can make a lot more money in one of those than a Savings account.
Is the new build more expensive than the value of your current house? I assume you roll the proceeds from your house sale into the new build. Hopefully the price difference isnÔÇÖt too much.
5 years is mid range to me, so tough to decide if itÔÇÖs worth putting the money into the market or now. You could always do HYSA plus CDÔÇÖs?
Side note: maybe look into calculations of if you should continue to overpay your mortgage since you plan to sell soonish, you wonÔÇÖt be saving much in interest.
Where do you live? Some states/localities have homebuyer savings programs where you receive benefits for putting money into a separate savings account and use it specifically for purchasing a home.
Here is the one for Alabama https://revenue.alabama.gov/wp-content/uploads/2019/02/HomeBuyerSavingAcct.pdf
Definitely don’t invest something you’re going to use in 5 years. Keep it in a hysa and just say you’re paying potential gains for the peace of mind that you know when you go to buy/build your home that your money will be there.
I would probably stop overpaying your current mortgage and just sink that money away to help build up your down payment… But that’s just me, personally.
Buy an index fund. Morning special about the five year mark people throw around.
Odds are very high that five years from now the market is higher than it is today.
Stop buying things you donÔÇÖt need, and stop financing restaurants and fast food places