So I did a thing. I spent all of my savings on a house. I only have about 5k left for emergency situations. I’m a bit stressed out about this, but I think it was the right decision for me. Is spending all your savings on a house the right decision for you?
Spending all the savings on a house
Before everyone flips out on me, we need to define what I mean when I say that I spent all my savings on a house. To be clear, I did NOT wipe out any of my retirements accounts nor did I touch my investment accounts. When I say I spent all my savings on a house, I mean just my savings. That is, I spent pretty much all of my cash reserves.
That doesn’t make it a perfect decision though. I had over a year’s worth of living expenses saved up for an emergency. Now I’m down to a two-month emergency fund, which we can all agree is not enough.
Why was spending all my savings on a house a good idea?
I think that blowing all my cash reserves on a house was a great, albeit stressful idea. That’s because I was able to use the cash to pay for the house straight up – I have no mortgage payment. Huge win!! I only have to pay $150 in property taxes and $130 in insurance each month to have this house. That’s freaking amazing. With my living expenses being so low, that 5K “emergency fund” can stretch a whole lot further. Also, I’ll be able to rebuild that savings rather quickly with out having a mortgage payment.
Why would it have been a bad idea?
If I wasn’t Mortgage Free
It definitely would have been a bad idea to spend all my savings on a house if I wasn’t going to be mortgage free. Spending all my cash reserves and then having a mortgage payment would stretch me way too thin. If you are in this position, you should wait and build your cash reserves to ensure that you will still have a decent emergency fund after paying for the house. A good way to do this is with separate accounts. Build an emergency fund in one account while building a housing fund in another, and buy the house when both are fully funded.
You could also look into programs that don’t require as much of a down payment. FHA loans only require 2.5%, whereas conventional loans tend to require a 20% down payment. However, if you chose the FHA loan option, you will also have to pay mortgage insurance to your lender, which will increase your monthly payment. Many states offer special programs for first time home buyers as well, so that is something you could look into.
If I had to cash out my investments
It also would have been a bad idea to cash out my investments (especially my retirement accounts!) to buy this house. First, the market it not in a good place right now. I would be selling low, which we all know is a bad idea. Sometimes you can’t help the timing of things, but I’d rather not sell when the market is down.
Second, robbing from future Melanie is never a good idea. My retirement accounts have another thirty years to grow. Why would I want to destroy that potential growth, especially during a time when my dividends are buying even more shares? In general, taking money from your retirement account is a bad idea.
I’m not going to pretend I never did it though. When I bought my first house, I took a 10K loan from my (paltry at that time) retirement account. It took me over five years to pay that money back. However, I do think it was a good decision, as I made over 100K on that house when I sold it (thank god for the California real estate market!). If you have no other way to come up with a decent down payment and know that the real estate market will rise, it’s not a terrible option.
Is Spending all of your money on a house a good idea?
What works for me may not work for you. I will tell you that you shouldn’t spend every dime you have on a house, even to be mortgage free. Like I said above, I didn’t touch any of my retirement or investment accounts.
Your risk tolerance is also something that you should take into consideration. I’m not going to lie, it was extremely stressful to give up my giant bag of money, even though I knew it was a good decision. There’s a certain amount of comfort that comes with having a nice hunk of money in the bank.
But we all know that money in the bank doesn’t really do much besides provide that comfort. The interest rates on savings accounts don’t beat inflation, so having your money sitting in a savings account is only a tad bit better than having it stored under your mattress. I decided to invest all my extra cash in real estate (yes, I’m living in the house right now, but long term we are going to fix it up and either sell for profit or rent it out), but you may be more comfortable investing in equities. The bonus of buying the house is that it gives us a place to live for a while, so I find that to be an extra measure of security (though we will always have to pay taxes…it’s a shame that nothing is ever truly ours).
Do you think we made a good decision?
So here’s the real question…do you think it was a good idea for us to spend all of our cash holdings on a house? Would you do the same? Let me know in the comments!
Melanie launched Partners in Fire in 2017 to document her quest for financial independence with a mix of finance, fun, and solving the world’s problems. She’s self educated in personal finance and passionate about fighting systematic problems that prevent others from achieving their own financial goals. She also loves travel, anthropology, gaming and her cats.