As a millennial, the pressure to feel like I should own a home grows with every passing year. It’s one of those ways we can really feel like we’ve made it. It’s how your peers know you are an adult. But is owning a home really a good idea? When does it make sense? Probably much later than we would expect.
As someone hell bent on being financially secure and becoming independently wealthy, the only things I think are more important than investing as much as I can, as soon as I can are:
- My relationships with other people, and
- My health.
It shouldn’t cost much money to build relationships – As The Beatles so famously said, “Money can’t buy me love.” As for my health, again, good relationships with good doctors (or good people in general) are worth more than all the money in the world, but hopefully healthy habits, health insurance, and my HSA will cover the financial burdens of sickness or injury.
That frees up every remaining dollar to max out my 401K, IRA, and HSA contributions every year – and further challenge myself to invest as much as possible outside of that. That I should max out every available tax-advantaged account (whether Roth or Traditional) before doing anything else is a foregone conclusion in my mind. My lifestyle is built around behaving as if the money that goes in to those accounts is not, and was never, available to me for any other purpose.
That sounds really intense! What does this have to do with buying a house?
In order to save 20% for a down payment on a home I would have to stop investing the maximum in my 401K and IRA and I am absolutely unwilling to do that, even for a year. And you should be too in my opinion. By forgoing investment in those accounts for even one year we would be missing out on literally tens of thousands, if not hundreds of thousands (depending on age) of dollars in retirement. And for what? The privilege and prestige of being saddled with hundreds of thousands of dollars worth of debt for decades? Not to mention taxes, insurance, and maintenance.
But… You many say – You are buying a house! That means you get to keep it! All the money you waste on rent is just flushed down the toilet.
This argument is not without some merit, but I believe it is quite overblown because it is much less certain that the value of a house will . I will in all likelihood, eventually buy a house. It will be a small house that costs much less than I will be told I can “afford”. And this purchase will be well after my age and salary have advanced to a point where the opportunity cost (future value) of the down payment, interest charges, taxes, insurance etc are more bearable and do not impinge on my ability to save and/or invest 30-40% of my income.