Financial advisers recommend spending no more than 30% of take-home pay on housing. I have always lived by this rule and now have $750,000 in cash savings. But now I need to make a big move. Is there ever exceptions to this that make good sense?
My wife and I just found out that we are pregnant with our second child. We want to move closer to be with family for childcare support because our oldest is still 22 months old and can’t be put in daycare for medical reasons.
We are living in our single family house in a nice neighborhood in Los Angeles. We purchased the house for $758,000 in 2016. We put down $200,000 and financed the remaining $568,000. Our monthly housing costs, including mortgage, tax, insurance and utilities, total roughly $3,400 per month. My wife and I both work full time. Our combined monthly take home income is $12,200.
We want to move into a house that is closer to family. A relative has a house available and it’s very comparable to our current house. She rented in the past for $6,000 but is willing to offer us for $4,600. Factoring water and power utilities, I estimate our new housing costs to be close to $5,000 per month. She said the $4,600 covers all her overhead, and she is willing to give discount in exchange for not having to deal with tenant issues. Going from paying $3,400 to $5,000 is a big change, in addition to our growing family and the increasing cost of childcare. I also worry about the inflation which is driving up the cost of everyday goods and services. In short, I don’t feel that we can or should afford to pay 45% of our take home income towards housing when we have a baby on the way.
Perhaps I can rent out our current house to cover our current mortgage and tax as well as some cash flow to help with new childcare cost when the baby is due this summer. However, dealing with a new baby coming and our young toddler who is not old enough for school will be a major undertaking. We will not have the energy or the motivation to deal with property management for the foreseeable future.
“‘Daily living expenses will increase with time, but it’s much harder to change or lower fixed expenses such as rent or mortgage payments.’”
— Jennifer Weber, vice president of financial planning at New York-based Weber Asset Management
Another thing to keep in mind while making this choice is what you’d spend on childcare if you didn’t move closer to family. As Brooklyn-based financial planner Landon Tan pointed out, childcare can often exceed $1,600 a month in many parts of the country. What would the alternative look like and cost? If your back-up plan would be to hire a nanny or some other at-home caregiver, then chances are the difference in monthly costs may not amount to much.
At the same time, you’ll want to ensure that you could afford to bring on professional support with your kids if, for any reason, your family isn’t able to help out.
If you do decide to make the move, multiple advisers recommended considering selling your former home. As you mentioned yourself, you won’t have the time or energy to handle the property’s management. Paying an outside firm to do that is an option, but comes at a cost. Selling the home, particularly in today’s competitive market, would provide you with another source of funds to offset the monthly hit.
My ultimate advice to you: Keep talking to your wife about this opportunity. It really seems like a move that would benefit your family and provide some peace of mind — a necessity for parents.
As Brett Maikowski, an investment adviser representative with Texas-based THM Wealth Management, smartly puts it: “Good financial planning is about aligning your money with what’s important to you.”
If it turns out the top priority for your family in the next few years is offsetting the stresses of childcare, then the move will be worth it. But you may decide that trading the stress of raising two toddlers with fewer nearby resources for the stress of tighter finances isn’t worth it. That’s a decision only you and your wife can make. But if you continue to take this measured approach, then I’m sure you’ll settle on the best option for your household. I wish all of you the best of luck.
By emailing your questions, you agree to having them published anonymously on MarketWatch. By submitting your story to Dow Jones & Company, the publisher of MarketWatch, you understand and agree that we may use your story, or versions of it, in all media and platforms, including via third parties.