I read an article recently talking about how the current generation of college graduates will be the most frugal, basically since the Great Depression. They will be a generation that will save more than they spend, that will drive used cars, and that will put off buying a house until they have a 20% or more down payment saved up.
This is because they are graduating college and entering a world where jobs are hard to find and harder to keep. A world where their parents are continuing to work because their retirement savings were reduced or swept away, and their family homes are worth less-than-planned, if they can even be sold.
However, I am not of that generation. I am a 30-something. He is a 40-something. We own a home already, as do many of our friends. Although my car is now 8 years old, I bought it new at a time when many of my friends were buying cars new.
Most importantly, we (my generation) are already deeply upside down in our homes. We simply didn't own them long enough before the market crashed. If we have a car payment, we're upside down on that, too. We've gotten into debt (more than our parents did), and we're figuring out how to pay that off while still trying to have everything our parents had and more.
We're closer to retirement then those just getting out of college, and just keeping our fingers crossed and our prayers loud and clear that things will recover "in time" for us, and we're wondering how we will help our parents as they reach retirement age with drastically smaller incomes then they planned on.
As a follower of Dave Ramsey, there were a few things I had deeply ingrained in me during my broke years. The baby steps, the baby steps were like the Yellow Brick Road. Simply follow them without question and you will reach the debt-free Emerald City:
1) Build a "Baby" Emergency Fund
2) Pay off consumer debt
3) Fully fund your Emergency Fund to 3-6 months
4) Invest 15% of household income into retirement (pre-tax & ROTH IRAs)
5) College Funding for Children
6) Pay off House
7) Build Wealth & Give
Then what happened? Layoffs and downsizing ran rampant and even the debt experts said to stop paying more than minimums and IMMEDIATELY increase your emergency fund. Fund one or two YEARS of expenses, in fact, before you thought about socking money to a credit card payment.
The bottom fell out of the housing market and a mortgage became a bad debt, as well. Looking at the market value of our home today, despite all the work we have done to improve it, it will be 2027 before we've paid off enough of our house to break even.
Sure, we would LIKE to think the market will come back, but we can't KNOW that. So. 2027. Sixteen years from today. I won't be at retirement age yet, but he won't be so far off. And that's not to make a profit in the selling and have that cash to roll into a smaller home. It's just to break even.
It makes me wonder if it's time to rewrite the baby step order again. Does the house need to get paid off right along with consumer debt?
If I was still doing my "debt snowball", and was only minimally funding retirement and savings, we could double our mortgage payment, quite honestly. If we did that, we would be "right-side up" on our home in two years, and have it paid in full in eight years. (If you've ever DONE a debt snowball, you know that once you're snowballing, it keeps getting bigger....so that eight years is actually a worse-case scenario.)
For many of us, our home loans have taken on the weight of consumer debt. Considering relocating? Too bad, you can't sell your home. Want to do a major remodel? There's no home equity loans, because there's no equity. Every month you make a mortgage payment and it's just a reminder that you bought too soon, paid too much, made a bad choice, or simply got screwed by the world at large.
Do you get out from under that, and then fully fund your retirement with an easy mind? Or do you trust the simple steps laid out by people a lot smarter than me?
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