If you’ve been around the PF block a time or two, you’ve inevitably ran in to an article about Buying vs. Renting. It’s like a right of passage as a personal finance blogger. Today, however, I don’t so much want to compare renting to buying as they both have obvious pros and cons. Instead, I’m simply going to share with you the one and only reason I absolutely, positively, can not bring myself to buy a home.

Our rent is $975/month.

I rest my case. Haha, but seriously. We pay less than $1,000/month for a small one bedroom apartment above our landlords main house. We have ocean views, stainless steel appliances, and crushed marble trim. We live in a nice neighborhood (not an apartment or condo complex), and although space is tight, it’s totally doable for the two of us.

Our rent takes up about 11% of our gross pay. Keeping our housing expenses proportionally low has afforded us the ability to put more of our take home pay in to savings. We’ve made some pretty incredible strides over the not-quite-two-years we’ve been married and I don’t want that progress to stop.

Buying a house would do just that. According to Zillow, a $975 mortgage payment would buy us a $137,000 pad. Seeing that I’m not interested in buying a condo (I hate the idea of HOA’s and Assessments that I have no control over), $137k wont go far in the way of real estate where we want to live.

To be honest, we’d have to be at minimum in the $300,000 price range to start finding 3 bedroom houses in neighborhoods we liked (Yes we could find cheaper houses in other neighborhoods, but remember, if we are going to buy something we want to be happy there. A house is a home first, an investment second.). Zillow tells me a $300,000 mortgage, at 4% interest, with zero down (had to calculate zero down to be fair since renting does not require us to give up any of our liquidity), would end up costing about $2,025/month.

And that is the exact reason we say “Heck no!” to home ownership. For us, it’s an apples and oranges comparison. We are totally fine renting a one bedroom apartment (apple), but if we were buying for the long-haul we’d only be interested in 3+ bedroom houses (orange). Is it fair to make that comparison? Of course not, but that is our reality and it is the comparison we must make.

Renting keeps our costs low and keeps our income more liquid. Before we consider buying anything, our actual rent costs and our predicted mortgage costs needs to be virtually the same. If buying is going to leave us significantly less liquid than renting, I have no desire to drink the kool-aid.

I was checking my twitter stream yesterday when I stumbled on an article by my girl Sandy titled “I Bought A Rental Home With My 401K“. If you’re too lazy to click-through and read the article the gist is Sandy took out a $40,000 401K loan to pay cash on a $38,000 investment property (I didn’t know places that cheap existed…haha). If you want more details you’ll have to read the article.

Contrary to what you might be thinking, I’m not actually here to discuss Sandy’s situation. Instead I thought we could focus on the bigger picture and talk about borrowing from retirement in general. Would you do it? 

I’d be lying if I said the thought of pulling a little bit out of retirement hadn’t crossed my mind. I have a goal to reach $100,000 in savings before Girl Ninja and I buy a house. If I liquidated my Roth IRA (which I can do penalty free on my contributions) we’d be at that $100K threshold.

Maybe I’m stubborn, but when I put that money in to a retirement account, I put it in to a RETIREMENT account. Ya know, for when I retire. This is non-negotiable. Compound interest is a freakin’ miracle. The earlier I invest, the longer I have to let compound interest work to my favor. If I pulled all my money from my Roth IRA, or 401K, I’d lose out on five years of compound interest. The first five years. The most important five years. I ran the numbers, if I took $30,000 out of my Roth IRA today (and then resumed maxing out contributions until I was 65) I would lose $419,000 in earnings.

So yeah, an extra $30,000 would be sweet to have in the ol bank account. But an extra $419,000 in my retirement accounts sounds a heck of a lot better. 

For this Ninja, my retirement accounts are a one-way relationship for the next 40 years. I’ll be putting money in, but wont be taking any out. How about you? Would you borrow from your retirement accounts for a house? A new kitchen? Facebook stock?

If I could be any animal I would be a house fly. Okay, not really, I’d probably be a fire-breathing squirrel, but house fly would be second on my list. Yeah I know flies are pretty gross looking and only have an average life span of about a month, but they do have one thing going for them: persistency. Sure they are rather annoying, but ya can’t really say they lack commitment or dedication.

I was at the beach this weekend, trying to get my tan on, but a handful of flies were doing everything they could to prevent me from reaching ultimate relaxation. They’d buzz around me and land on my legs and stomach. I would try and swat at them, but they are just too darn quick and seemed to narrowly escape my hand each time. I think the flies got some sick pleasure out of taunting me, as they continued “touch and go” landings on my body. As annoyed as I was, I had to acknowledge the fact that these flies were persistent.  Even when facing certain death as I swatted at them, they never gave up on their mission: Annoy the crap out of me.

This may be a stretch, but hear me out… Our financial attitude should mimic that of a fly. When declaring war on debt, like so many have, we have to keep consistent and remain committed to our battle. Paying down my student loan was not exactly my idea of a good time, but being aggressive and throwing all my extra money at it allowed me to pay down four years worth of loans in just two years.

I had a written goal to pay off my loan. A fly has a goal of bugging (pun intended) the crap out of me while I chill out on the beach. Sure our goals are different, but the only way to achieve them is remaining persistent. Just as I tried to stop the fly from reaching its goal (by murdering it), it’s important you’re aware that your lenders are going to try to prevent you from becoming debt free. They’ll add late fees, increase your interest rates, and change the terms of your contract. But we can not… I repeat, CAN NOT, let our creditors “swat” us to death. We will fight, persevere, and ultimately end up victorious. Let this be a lesson to you all, although flies may be gross, they can teach us a thing or two about managing our money.

Favorite Nail from yesterday. Reason why you don’t invite girls to basketball games

*originally posted 09/10*

Got an email yesterday from a PDITF reader (let’s call them Reader X) looking for ways to rid themselves of the paycheck to paycheck lifestyle. The email was much longer than the excerpt below, but I think you’ll get the gist…

First of all, let me say that I adore you and your approach to life. I read your blog with a sense of wistful jealousy and optimism that I too, some day, could have 76k in savings. That number is outrageous to me.

Whenever I read your blog, and other financial blogs, I understand they cater to people who are more… oh I don’t know… established with their jobs. People who could put $500 in savings a month with lifestyle tweaks and frugal changes. The point is, for my age, my salary is commensurate with experience. Meaning, I do not make enough money to have an “aggressive” savings plan like you and others. In fact, I am lucky if I have any money left over to save after my basic living expenses.

Do you have advice for your upstarts like me who are living on the exact amount of money they need to survive? Honestly, I feel terrible about myself because I am just treading water financially. I worry that something catastrophic will happen and my little $800 savings account wont suffice.

Before I get on with helpful advice, I have to rant for just a second and say I take issue with this line in Reader X’s email:

“Whenever I read your blog, and other financial blogs, I understand they cater to people who are more… oh I don’t know… established with their jobs.” 

If my blog is catered towards people who are “more established with their jobs” then I have failed miserably. I’m 26 years old. I am by no means established, and I really have no street cred to preach financial wisdom to those that are. I would hope by naming my blog Punch Debt In The Face I am sending the clear message that this IS NOT a place for the “good ol boys”, but regular, everyday folks, who want nothing more than to see a stupid stick figure drawing, and maybe hear a little bit about what I have to say on the topic of personal finance. Moral of the story: I am the 99%

I really like Reader X’s perspective on his/her situation. Particularly this line “my salary is commensurate with experience”. There is no entitlement in that statement. Reader X also shared in the email they are living frugally, so typical advice like “find cheaper rent, or cut out your cable bill” doesn’t really apply.

So how does one increase savings, if they don’t have the ability to increase their income at work and they can not really decrease their already low expenses? You don’t. BOOM! How’s that for blunt personal finance?

Don’t be discouraged by this, Reader X. You are only 22 years old and have the rest of your life to pad that savings account. When I was 22, I was making $38,000/year, had $28,000 of student loan debt, and about $600 in my checking account. You have to persevere this “paycheck to paycheck” season as it is just that, a SEASON, a temporary stage of life. As you gain more professional experience, you will be able to market yourself better, which in turn should/could lead to promotions or a new (higher paying) job.

I didn’t go from negative $28,000 to $75k in the bank overnight. It took me YEARS to get to where I am, and it will probably take you a while to get there as well. Instead of feeling terrible for “treading financial waters”, be encouraged that you are not DROWNING like most other twenty somethings. You, my friend, are doing exactly what you need to be doing to set yourself up for success. Work hard. Keep your costs low. Save any discretionary income you can. And smile. This is an exciting, albeit scary, stage of life.

p.s. often recommended ways to increase income are 1) Start a blog (I made $13,000 from this one last year). 2) Tutor (I made $12,000 in 2009 doing this). 3) Find a second job (serving at restaurants, or delivering pizza, is flexible with most day jobs) 4) Be content. One through three all require more of your time, if you don’t want to give up free time, you have to be content with what you have. No one is just going to randomly walk up to you and pay you $2,000 a month to watch TV. Oh, you could always get married. Dual income ROCKS!!!!

I was watching House Hunters yesterday and it featured a couple that was looking to buy in the greater Seattle area. The couple had recently moved from Texas and their goals was to buy a house within 45 days of arriving. I like House Hunters, but I hated that couple.

Multiple times during the episode the couple would make a comment like “Well in Texas the layouts aren’t like this.” or “In Texas, this house would cost half the price and be twice the size.” Guess freakin’ what Todo. YOU’RE NOT IN TEXAS ANYMORE.

I get that house prices in Texas are insanely cheap compared to the West Coast. I also get that New York prices are unbelievably high compared to Seattle. People, what are the three rules of real estate? Location, location, location. Regardless of what you might want to believe, WHERE you buy a house DRASTICALLY affects the value of said house. Your house in Texas costs $200,000 because fewer people live in Houston (per square mile) than Seattle. And fewer people (per square mile) live in Seattle, than San Francisco. Increased Demand = Increased Price.

Not too long ago, I blogged about our recent experience visiting some Seattle Open Houses. The three houses we viewed we’re all price around $400,000, incredibly small (like 2bd/1bth 1,300 sqft), and built over 60 years ago. Needless to say, $400,000 in Seattle buys you a very mediocre house that will likely need some major updating.

While many left constructive criticism or helpful hints, some readers provided worthless comments like “In Arizona houses are like $240,000. If I were you, I’d be looking for something more in that price range.”, “Wow, $400,000 for that? Can’t you get something nicer?” And….

Look at what you can get in your price range in XYZ, TX (where I live).

http://www.redfin.com/somerandomhouse

I think you need to see what you can get in other locations before you decide to spend that much money there.

Would you tell someone wanting to live in New York to consider moving to South Dakota just because house prices are cheaper? Would you tell someone looking for beach front property in San Diego to cap out at $500,000? No. That would be dumb. Just like it would be dumb to suggest I move to a city (or community) where I DON’T want to live, just so my house can be nicer/cheaper.

I get it if you just can’t relate, I really do. I get that if $400,000 in Texas buys you a McMansion, you might be shocked that it buys you a shack in San Francisco. Shocked is fine, but simply saying “find something cheaper” is useless. Cheaper real estate will always exist, but we looked at houses in Seattle because we wanted to LIVE in Seattle. Funny how that works, huh?