This guide is a modified version of Dave Ramsey’s 7 Baby Step Plan, that specifically features California modifications designed around new grads.
It’s important to follow these steps in order as you climb out of debt and then save up for a house or any other financial goals. To climb anything effectively, you have to follow one step after another.
Most people will not get rich winning the lotto / becoming a pro athlete, but rather saving on everyday expenses and knowing exactly where their money goes.
- If you are someone with debt or just wanting slight directionality on how to be smarter with money, this is probably for you.
- Dave Ramsey gives advice for THE AVERAGE PERSON.
- This guide targets California new graduates, featuring their tax numbers.
- If you are starting this guide debt-free, congratulations! Let’s double-check our budgeting basics, ensure a $1,000 emergency fund, and then jump to step 3.
I do believe (unfortunately) that we need a good credit score.
We should understand that Dave has worked with thousands of folks over the years and has actual doctors in his company that help people understand financial behavior. I 100% agree with him on how most folks use credit cards, and I would NOT recommend them until you are debt-free and on step 4.
- If you have credit cards, go ahead and put them away until that step.
- However, a credit score is honestly a judgment of how well you manage debt and not money. Lenders for home mortgages will almost always look at credit history. You limit your options if you choose to avoid this, and for any large investment (a home), it makes sense to ensure you are getting the most competitive rates.
- Listen to Dave’s advice until you reach step 4.
Do not use a credit card. At all. Behaviorally, when people have a credit card to fall back on, they will spend on things they don’t need (and I 100% agree with him from my conversations too). If you have a credit card before you have good financial habits, it will be much harder to climb out of debt.
- “I use it just like a debit card.” How many times have we heard this familiar phrase? Sure, this is certainly more reasonable advice than reckless spending . . . in theory. In practice, it tends to go a little differently.
- When you spend with credit cards, you spend with “future” money. Since you’re not paying the moment you buy something, it’s less painful to purchase something with a card than with cash.
- If you don’t feel that slight pain when cash leaves your hands, can you guess what happens 10 times out of 10? Bingo! You spend more money.
- Often, critics of Ramsey say a shorter mortgage repayment term means that you'll have higher monthly payments, which can make it more difficult to qualify for a loan and which can impact the flexibility you have in your budget.
- It makes little sense to commit a huge portion of your monthly income to a housing payment and leave yourself with less money to invest.
- You could have done better investing that money
- If you follow Ramsey’s advice and pay off your mortgage quickly, it does provide a feeling of security.
- Once you have no house payment, you can do whatever you want with your money.
- The argument here is emotional stability vs financial benefits.
- California homes will continue to appreciate. Working to pay off your home and building equity, is a safe bet outside of just added emotional stability.
- California has a housing shortage, and folks are regularly bidding much higher than asking for properties.
- We think we make more money than we do. California wages may be high, but so are our expenses. If one lacks discipline then it’s better to have your money tied to an asset that will grow in value vs something flashy (a car).
0) Learn How to Budget.
Using the method below, you can manually track this in Notion or a notes app.
- Calculate monthly income (after taxes).
- Create a list of all recurring monthly expenses.
- Any credit card debt, car loans, gym expenses, Netflix, food, and housing.
- Set a monthly saving or debt elimination goal. Know where your dollars are going.
Have this written down and saved somewhere.
- You can also use a website like Mint or YNAB.
1) Build a starter emergency fund. This is $1000.
- In this first step, your goal is to save $1,000 as fast as you can. Most of us are not prepared for a rainy day. So we often dig deeper into debt (using credit cards) to pay for an emergency when it occurs. That puts one in further debt.
- It’s honestly not a matter if an emergency happens, but when.
- Don’t think of this as a $1,000 that isn’t getting an investment return, think of this as $1,000 of insurance to cover you in the event that something happens.
- An emergency turns a crisis into an inconvenience.
- Once this is saved up, please pretend like this money doesn’t exist.
2) Use the Debt Snowball Method to pay off ALL DEBT
- Step 1: List your debts from smallest to largest regardless of interest rate.
- Step 2: Make minimum payments on all your debts except the smallest.
- Step 3: Pay as much as possible on your smallest debt. Boil your budget down to the absolute basics.
- Step 4: Repeat until each debt is paid in full.
The debt snowball ignores interest rates on debt — frankly, if we knew how to do the math, we wouldn’t be in debt. The debt snowball aims to build better financial habits and remain motivated as we knock out debt little by little.
Let’s not do the math. Managing finances in an efficient manner requires a behavioral change. The easiest way to learn this method is by working through a few real-life examples.
Let’s say you have four different debts, and make $43,500 / $22 an hour / ~$2,800 monthly after taxes.
Rent: $900
Grocery/Food : $250
- $1,800 HP store card— $90 payment
- $2,000 Best Buy card— $60 payment
- $2,200 Capital One card— $250 payment
- $2,400 Discover Card— $250 payment
- $15,000 student loan— $500 payment
It may feel impossible to knock these down in their current stage, but with the snowball, it CAN be done.
Using the debt snowball method, you make minimum payments on everything except the $1,800 HP card. You’re already paying $1,150 a month, and now we’re just going to strategize a bit.
Let’s say the minimum payments on the other debts are $50 per account. That means we can direct $950 towards the smallest debt, which is the store card.
However, we’re going to ATTACK this debt, so any extra funds in the month (after food and housing) should go towards this. There is about $500 leftover after the rent/grocery budget that can also pay down debt in this example.
Rent: $900
Grocery/Food : $250
- $1,800 HP store card— $1450 payment
- $2,000 Best Buy card— $50 payment
- $2,200 Capital One card— $50 payment
- $2,400 Discover Card— $50 payment
- $15,000 student loan— $50 payment
In just 2 months, we’ve now paid off the first account! Congrats! We also were able to pay an extra $350 towards the Best Buy card that second month. Here’s what the debt picture looks like after that account is paid off:
Rent: $900
Grocery/Food : $250
- $1,650 Best Buy card— $1500 payment
- $2,200 Capital One card— $50 payment
- $2,400 Discover Card— $50 payment
- $15,000 student loan— $50 payment
In 2 months, we’ve now paid off the second credit card! We also were able to pay a MASSIVE $1,350 in the second month towards the Capital One Card. The snowball is picking up speed!
Just three major debts left!
Rent: $900
Grocery/Food : $250
- $2,200 Capital One card— $1,550 payment
- $2,400 Discover Card— $50 payment
- $15,000 student loan— $50 payment
3 Months. You will no longer have credit card debt. Only the student loan remains. The light at the end of the tunnel is getting closer.
Rent: $900
Grocery/Food : $250
- $15,000 student loan— $1,650 payment
In 10 months, you are going to be debt-free. Even if the interest is growing, it’ll be less than a year until this is paid off.
Congratulations! $23,400 of debt was paid off in 19 months. — and this assumes you keep the same salary throughout. The only way to speed it up is either to get a higher-paying job or to cut down spending.
Let’s say you have four different debts, and make $50,000 / $24 an hour / ~$3200 monthly after taxes
Rent: $1500
Grocery/Food : $300
- $3,000 store card debt— $70 payment
- $5,500 credit card debt— $150 payment
- $14,000 car loan— $380 payment
- $50,000 student loan— $550 payment
It may feel impossible to knock these down in their current stage, but with the snowball, it CAN be done.
Using the debt snowball method, you make minimum payments on everything except the $3,000 store card. You’re already paying $1150 a month, and now we’re just going to strategize a bit.
Let’s say the minimum payments on the car loan, student loan, and credit card are $50 each. That means we can direct $1,000 towards the smallest debt, which is the store card.
However, we’re going to ATTACK this debt, so any extra funds in the month (after food and housing) should go towards this. There is about $250 leftover after the rent/grocery budget that can also pay down debt in this example.
Rent: $1500
Grocery/Food : $300
- $3,000 store card debt— $1250 payment
- $5,500 credit card debt— $50 payment
- $14,000 car loan— $50 payment
- $50,000 student loan— $50 payment
In 3 months, we’ve now paid off the store account! Congrats! Here’s what the debt picture looks like after that account is paid off:
Rent: $1500
Grocery/Food : $300
- $5,500 credit card debt— $1300 payment
- $14,000 car loan— $50 payment
- $50,000 student loan— $50 payment
In 4.5 months, we’ve now paid off the Credit Card! Just two major debts left!
Rent: $1500
Grocery/Food : $300
- $14,000 car loan— $1350 payment
- $50,000 student loan— $50 payment
10.5 Months. The light at the end of the tunnel is getting closer.
Rent: $1500
Grocery/Food : $300
- $50,000 student loan— $1400 payment
This last one takes a while, however, if you remain diligent in payments, it’ll take 36 months to get this paid off.
Congratulations! $72,500 of debt paid off in 4.5 years — and this assumes you keep the same salary throughout. The only way to speed it up is either to get a higher-paying job or to cut down spending.
Let’s say you have only two debts, and make $150,000 / ~$8000 monthly after taxes
Rent is: $3000
Grocery/Food/DoorDash : $550
- $45,000 car loan— $750 payment
- $135,000 student loans— $3500 payment
This is a unique situation because it doesn't feel like we’re making progress on the loans due to high-interest amounts. The interest-only payments on student loans will feel like you aren’t making the process, but once the car is taken care of, we’ve got a straight path to the finish line. You make a lot, but you aren’t able to save a lot. Hopefully, we can also find a roommate during this time to cut down that rent expense, but we will continue the scenario assuming the worst case. However, we are going to cut out 3 DoorDash orders each month, saving $100.
Rent is: $3000
Grocery/Food/DoorDash : $450
- $45,000 car loan— $4400 payment
- $135,000 student loans— $150 minimum interest payment
One year later, congratulations — we’ve got a straight path to pay off the student loans!
Rent is: $3000
Grocery/Food/DoorDash : $450
- $135,000 student loans— $4550
In just over 36 months, we will have paid off every single dollar from that student loan. This assumes your living expenses remain the same during those 3 years, and that you also don’t get any bonuses or pay increases.
3) Save six months of expenses in an emergency fund.
Congrats on being debt-free! After this step, we can ease up on the intensity.
- We’re fortunate enough to have paid off our debts early, and before other responsibilities start adding up, let’s build up a solid emergency foundation while we still have momentum from the debt snowball.
- The more robust your emergency fund, the less likely you are to feel stressed about financial emergencies, like losing a job, having a dead car battery, or a medical operation.
- Ideally, no more than 35% of your income is being spent on housing. This may seem extreme for an average budget, but the reality is we will be paying more than 30% of our income on rent in California (on average) — again, this highlights the importance of being debt-free.
- Have a certain percentage dedicated to giving
- The remainder goes towards the emergency fund.
- When there’s an emergency. It may be tempting to have an account with major cash reserves sitting in it, but the purpose of saving it was for an emergency. Having a solid fund turns a crisis into an inconvenience.
- This money is not meant to grow like a stock market account. This should be thought of as a form of personal insurance.
- You pay the opportunity cost of not being able to invest these funds with the peace of mind knowing you are financially stable. Don’t touch the emergency fund unless there’s an emergency.
Once the first three steps are complete, we have to remain intentionally intense! If you have a mortgage, jump to step 6.
- Most of the call-ins to Dave’s show already have a mortgage, but even if they don't, often, they don’t need to save a downpayment for a home worth more than $300k. Unfortunately, there aren’t many homes that are in that range.
- This is why I suggest investing 5% instead of 15% into retirement, and putting the rest towards a downpayment account.
- This is now when you can use your credit card again.
4a) Invest 5% of your income into retirement accounts
Retirement has always been on our minds, but so has the dream of homeownership. We’re not going to put more than 5% of our income here because this step has two goals.
- To build a pattern and habit of saving for retirement
- To save up enough money for a downpayment
We know that we need to invest in building wealth, and we're very likely eager to grow quickly now that we've paid off all debt.
You’re going to want to take any employer matches offered and then then maximize each account following order:
- 401k (match the percent, then move to Roth)
- Roth IRA (max this out)
- 401K — (this already has funds from the match, but now you max it out)
- HSA accounts
- Backdoor IRA
- Regular brokerage
The likelihood that you will reach the 4th account while investing 5% before saving enough for a downpayment is extremely low — since that’s the immediate goal. Retirement is still the first step before saving for a house because we build healthy financial habits.
- 35% (or less) of your income is being spent on housing.
- 5% for fun stuff
- 5% retirement
- Have a certain percentage dedicated to giving
- The remainder goes towards the house downpayment fund
4b) Save towards a downpayment
- You should aim for 20% down.
- $40,000 for a $200,000 house
- $60,000 for a $300,000 house
- $80,000 for a $400,000 house
- $100,000 for a $500,000 house
- $120,000 for a $600,000 house
- $160,000 for a $800,000 house
- $200,000 for a $1,000,000 house
- $300,000 for a $1,500,000 house
- $400,000 for a $2,000,000 house
- No. But you should try to.
- The rule of thumb for down payments is this: A smaller down payment means you spend more on your home—a bigger down payment means you spend less. Why is this true? Because the size of your down payment impacts three things:
- PMI - or private mortgage insurance. If you pay less than 20% down, you have to pay an additional monthly fee, that protects the lender in the event you stop paying.
- Cost of interest — The lower your loan amount, the less you pay in interest
- Your monthly payment — When you put a larger payment down, your loan amount is generally less, so your payments are also lower.
- The location.
- Location, location, location — and this is the answer every professional will give you. It’s simple, it’s the one thing that you can’t change. Factor in your commute, proximity to schools, and other lifestyle amenities that a city may have to offer.
- The price.
- We’ve worked hard to remain debt-free, but a home mortgage will still feel daunting because of its commitment. One of the biggest regret people have with a home purchase is that they didn’t factor in the total cost of ownership and are frustrated at the cost of upkeep when compared to renting.
- Factor in any repairs needed before a spot is liveable.
- When buying, generally plan to remain in that area for at least five years for it to make sense.
- The type of home.
- Determine if you want to live in an apartment, single-family home, condominium, duplex, triplex, or even fourplex. Consider HOAs, additional fees, and possible restrictions a property may have.
- How it is governed and represented
- The covenants and bylaws
- Fees and assessments
- What’s included (trash/wifi/gym/pool)
- The HOA’s financial viability
- The legal history of the HOA (is it or has it been involved in lawsuits?)
- Absolutely! This is where you want to enjoy a little bit of all your hard work. Though, you wouldn't want to go into debt to buy a car or anything else.
- Any purchase you make in this stage does delay you from saving towards a downpayment, and generally speaking, home prices are almost always going up (even when they go down, rates cancel it out — see step 5)
5) Get a Mortgage
This is where the path REALLY deviates from Ramsey, and I’ll dive into specifics. First, I will define a few terms, explain why I believe his approach is unrealistic for most people living in California, and then highlight a more realistic balance.
Once you’ve secured the mortgage, shift back to 15% for retirement.
- Amortization: Amortization is the process of paying off the principal and interest on your loan. You may see it expressed as an amortization schedule—essentially an outlook of every payment you need to make until you've paid off the balance of the loan in full.
- Down payment: The amount you pay toward the home purchase out of your own savings
- Gross Income: an individual’s total earnings before taxes or other deductions
- Net Income/Take Home Pay: The money you actually end up with after taxes and fees.
- Interest Rate: The interest rate is the amount a lender charges a borrower and is a percentage of the principal—the amount loaned.
- Simple interest = principal * interest rate * time
- Loan amount: The amount you borrow to cover the rest of the purchase price. Your loan amount will be the home’s sale price minus your down payment
- Loan term: This is the amount of time you have to pay back your mortgage. If you make full payments on time every month, your loan balance will end up at zero during the last month of your loan term
- Fixed-rate mortgage: A fixed-rate mortgage is a home loan that has a constant interest rate for the lifetime of the loan. Fixed-rate mortgages are typically offered in 10-, 15-, 20-, 25-, and 30-year terms—giving homebuyers the security of a predictable monthly payment. Shorter-term fixed-rate loans typically carry the lowest interest rates and are more desirable if you're comfortable handling a larger monthly payment.
- Owner-occupancy: Owner-occupancy refers to the concept of living in the home that you own. It is crucial information from the lender's point of view because if you weren't planning to live at the home you were purchasing or refinancing, you would be classed as an absentee owner. In that instance, the home may be considered an investment property and you would not be eligible for the same types of home loan products or rates available for a primary residence.
- If you take out an $800,000 mortgage from the bank and the loan agreement stipulates that the interest rate on the loan is 3%, this means that you will have to pay back the original loan amount of the original loan of $800,000, but also the interest over 15 years, equalling a total of paid in the life of the loan:
- If you take out an $800,000 mortgage from the bank and the loan agreement stipulates that the interest rate on the loan is 4%, this means that you will have to pay back the original loan amount of the original loan of $800,000, but also the interest over 15 years, equalling a total of paid in the life of the loan:
- If you take out an $800,000 mortgage from the bank and the loan agreement stipulates that the interest rate on the loan is 5%, this means that you will have to pay back the original loan amount of the original loan of $800,000, but also the interest over 15 years, equalling a total of paid in the life of the loan:
$800,000 * 3% * 15 (years) = $800,000 + [$800,000 * 3% * 15 (years)] = $1,160,000.
$800,000 * 4% * 15 (years) = $800,000 + [$800,000 * 4% * 15 (years)] = $1,280,000.
$800,000 * 5% * 15 (years) = $800,000 + [$800,000 * 5% * 15 (years)] = $1,400,000.
Wow OK LOL — this was written in 2020, when interest rates were 3%. Take a look below at more realistic numbers.
- If you take out an $800,000 mortgage from the bank and the loan agreement stipulates that the interest rate on the loan is 6%, this means that you will have to pay back the original loan amount of the original loan of $800,000, but also the interest over 15 years, equalling a total of paid in the life of the loan:
- If you take out an $800,000 mortgage from the bank and the loan agreement stipulates that the interest rate on the loan is 7%, this means that you will have to pay back the original loan amount of the original loan of $800,000, but also the interest over 15 years, equalling a total of paid in the life of the loan:
- If you take out an $800,000 mortgage from the bank and the loan agreement stipulates that the interest rate on the loan is 8%, this means that you will have to pay back the original loan amount of the original loan of $800,000, but also the interest over 15 years, equalling a total of paid in the life of the loan:
$800,000 * 6% * 15 (years) = $800,000 + [$800,000 * 6% * 15 (years)] = $1,520,000.
$800,000 * 7% * 15 (years) = $800,000 + [$800,000 * 7% * 15 (years)] = $1,640,000.
$800,000 * 8% * 15 (years) = $800,000 + [$800,000 * 8% * 15 (years)] = $1,760,000.
In a simpler sense, when interest rates are higher, you can afford fewer homes. You may be able to qualify for a home that’s worth $800k when interest rates are 3%, but only $700k once rates jump to 4%.
Dave Ramsey gives the advice to get a 15 year, fixed-rate mortgage, that’s no more than 25% of your take-home pay.
It’s important to note that these examples do NOT include private mortgage insurance (PMI), property tax, home insurance, or HOA dues—which factor into following the 25% rule
The following numbers are based on a 4% interest rate on a 15-year fixed mortgage.
- Maximum Mortgage Payment: $1,000
- $150,213 home with 10% down ($15,021)
- $168,990 home with 20% down ($33,798)
- $193,132 home with 30% down ($57,939)
- $225,320 home with 40% down ($90,128)
- Maximum Mortgage Payment: $1,250
- $187,767 home with 10% down ($18,777)
- $211,238 home with 20% down ($42,248)
- $241,415 home with 30% down ($72,424)
- $281,650 home with 40% down ($112,660)
- Maximum Mortgage Payment: $1,500
- $225,320 home with 10% down ($22,532)
- $253,485 home with 20% down ($50,697)
- $289,697 home with 30% down ($86,909)
- $337,980 home with 40% down ($135,192)
- Maximum Mortgage Payment: $1,750
- $262,874 home with 10% down ($26,287)
- $295,733 home with 20% down ($59,147)
- $337,980 home with 30% down ($101,394)
- $394,310 home with 40% down ($157,724)
- Maximum Mortgage Payment: $2,000
- $300,427 home with 10% down ($30,043)
- $337,980 home with 20% down ($67,596)
- $386,263 home with 30% down ($115,879)
- $450,640 home with 40% down ($180,256)
- Maximum Mortgage Payment: $2,500
- $375,534 home with 10% down ($37,553)
- $422,475 home with 20% down ($84,495)
- $482,829 home with 30% down ($144,849)
- $563,301 home with 40% down ($225,320)
- Maximum Mortgage Payment: $3,000
- $450,640 home with 10% down ($45,064)
- $506,971 home with 20% down ($101,394)
- $579,395 home with 30% down ($173,818)
- $675,961 home with 40% down ($270,384)
- Maximum Mortgage Payment: $3,750
- $563,301 home with 10% down ($56,330)
- $633,713 home with 20% down ($126,743)
- $724,244 home with 30% down ($217,273)
- $844,951 home with 40% down ($337,980)
- Maximum Mortgage Payment: $4,250
- $638,407 home with 10% down ($63,841)
- $718,208 home with 20% down ($143,642)
- $820,809 home with 30% down ($246,243)
- $957,611 home with 40% down ($383,044)
- Maximum Mortgage Payment: $4,750
- $713,514 home with 10% down ($71,351)
- $802,703 home with 20% down ($160,541)
- $917,375 home with 30% down ($275,213)
- $1,070,271 home with 40% down ($428,108)
Well, I got licensed as a loan broker for fun immediately after college to figure out what it takes to qualify for homeownership. I was offered to help prospective home buyers find their perfect mortgage at Guidance. However, I chose to help California’s housing crisis through development instead 😅.
A 30-year, fixed-rate mortgage that’s no more than 35% of your take-home pay that you pay with the goal of 15 years.
- Our goal will be to pay down the mortgage within the 15 years, but home prices might not allow us to qualify right away.
- Using this method, we can buy in, before homes continue to appreciate at rapid levels, and can work on trying to pay down the mortgage early.
- Getting a 30 year fixed in California is justifiable because home prices have historically, over any 15 year cycle, gone up in value more than the interest rate.
- Over a 30 year period, homes have doubled in value, 100% of the time
- California has a major supply shortage, and people still want to move to a state with great weather and amenities, regardless of taxes. Since we aren’t making it easy to build additional housing (SB9 and ADUs are a great start), there’s going to be a shortage for the foreseeable future.
- Since we are debt-free, and our only expenses are for housing and food — this is a safe middle ground.
- Ignore lenders who talk about gross income qualifications, and focus on what you actually get in the bank account.
- We’re in a state with relatively high taxes (as highlighted in the examples for Dave’s Rule).
The following numbers are based on a 4% interest rate on a 30-year fixed mortgage.
- Maximum Mortgage Payment: $1,400
- $222,600 home with 10% down ($22,260)
- $262,500 home with 20% down ($52,500)
- $292,000 home with 30% down ($87,600)
- $328,800 home with 40% down ($131,520)
- Maximum Mortgage Payment: $1,750
- $285,200 home with 10% down ($28,520)
- $336,500 home with 20% down ($67,300)
- $374,200 home with 30% down ($112,260)
- $421,500 home with 40% down ($168,600)
- Maximum Mortgage Payment: $2,100
- $347,800 home with 10% down ($34,780)
- $410,300 home with 20% down ($82,060)
- $456,400 home with 30% down ($136,920)
- $514,000 home with 40% down ($205,600)
- Maximum Mortgage Payment: $2,450
- $410,400 home with 10% down ($41,040)
- $484,200 home with 20% down ($96,840)
- $538,500 home with 30% down ($161,550)
- $606,500 home with 40% down ($242,600)
- Maximum Mortgage Payment: $2,800
- $473,200 home with 10% down ($47,320)
- $558,200 home with 20% down ($111,640)
- $620,700 home with 30% down ($186,210)
- $699,000 home with 40% down ($279,600)
- Maximum Mortgage Payment: $3,500
- $598,400 home with 10% down ($59,840)
- $706,000 home with 20% down ($141,200)
- $785,100 home with 30% down ($235,530)
- $884,200 home with 40% down ($353,680)
- Maximum Mortgage Payment: $4,200
- $723,600 home with 10% down ($72,360)
- $853,750 home with 20% down ($170,750)
- $949,500 home with 30% down ($284,850)
- $1,069,500 home with 40% down ($427,800)
- Maximum Mortgage Payment: $5,250
- $902,500 home with 10% down ($90,250)
- $1,075,500 home with 20% down ($215,100)
- $1,196,000 home with 30% down ($358,800)
- $1,347,000 home with 40% down ($538,800)
- Maximum Mortgage Payment: $5,950
- $1,036,600 home with 10% down ($103,660)
- $1,223,200 home with 20% down ($244,640)
- $1,362,700 home with 30% down ($408,810)
- $1,532,200 home with 40% down ($612,880)
- Maximum Mortgage Payment: $6,650
- $1,162,000 home with 10% down ($116,200)
- $1,371,200 home with 20% down ($274,240)
- $1,524,700 home with 30% down ($457,410)
- $1,717,400 home with 40% down ($686,960)
Notice how those numbers are realistic for what you see in the market? Unfortunately, if you follow Dave’s steps exactly, you’ll be priced out of the market for much longer.
This is reckless because you get qualified upon your income BEFORE taxes. However, you don’t see that money that goes away towards taxes. This will leave you house-poor. This excess spending is making it difficult or impossible for you to achieve your other financial or personal goals.
The most common cause of being house poor is not realizing the true cost of homeownership.
Remember that we have no debt/monthly payments when a lender looks at our qualifications. Same interest as above, 4%, 30-year fixed.
- $15k down has a purchase budget of $300,000
- $20k down has a purchase budget of $309,100
- $30k down has a purchase budget of $317,100
- $50k down has a purchase budget of $341,400
- $150k down has a purchase budget of $441,400
- $25k down has a purchase budget of $397,400
- $50k down has a purchase budget of $428,200
- $150k down has a purchase budget of $534,800
- 25k down has a purchase budget of $486,400
- $50k down has a purchase budget of $506,300
- $100k down has a purchase budget of $577,600
- $150k down has a purchase budget of $633,000
- 25k down has a purchase budget of $582,800
- $50k down has a purchase budget of $617,300
- $100k down has a purchase budget of $673,700
- $150k down has a purchase budget of $765,100
- $200k down has a purchase budget of $794,900
- $250k down has a purchase budget of $834,000
- $50k down has a purchase budget of $706,100
- $100k down has a purchase budget of $765,100
- $150k down has a purchase budget of $830,800
- $200k down has a purchase budget of $893,100
- $300k down has a purchase budget of $971,300
- $50k down has a purchase budget of $874,800
- $100k down has a purchase budget of $938,700
- $150k down has a purchase budget of $1,000,000
- $200k down has a purchase budget of $1,050,800
- $300k down has a purchase budget of $1,158,000
- $75k down has a purchase budget of $1,090,200
- $150k down has a purchase budget of $1,179,600
- $250k down has a purchase budget of $1,299,200
- $300k down has a purchase budget of $1,374,100
- $100k down has a purchase budget of $1,412,100
- $215k down has a purchase budget of $1,542,100
- $350k down has a purchase budget of $1,747,200
- $540k down has a purchase budget of $1,895,700
- $100k down has a purchase budget of $1,634,100
- $215k down has a purchase budget of $1,770,500
- $350k down has a purchase budget of $1,938,600
- $540k down has a purchase budget of $2,141,300
- $115k down has a purchase budget of $1,868,100
- $275k down has a purchase budget of $2,046,800
- $460k down has a purchase budget of $2,300,000
- $690k down has a purchase budget of $2,504,200
Now that a mortgage is secured, we can go from intensity to intentionality. We are back to the plan. These next steps occur at the same time.
6) Invest 15% of your income into retirement accounts
You’re going to want to take any employer matches offered, and then then maximize each account following order:
- 401k (match the percent, then move to Roth)
- Roth IRA (max this out)
- 401K — (this already has funds from the match, but now you max it out)
- HSA accounts
- Backdoor IRA
- Regular brokerage
- 35% (or less) of your income is being spent on housing.
- 15% retirement
- Have a certain percentage dedicated to giving
- Have a certain percentage for fun.
7) Treat yourself.
8) Pay off the home early.
9) Give and share with others.
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