What's up? What's up? What's up teammates, Michael from winning to wealth here from money talk Monday, number 37. In this week, I'm actually gonna be taking a listener question. Jessica writes, I'm 26 years old and currently living with my parents. I'm coming up on having $20,000 saved and I've always said that would be what I needed to move out and get my own place. Lately, I've been wondering if I should get an apartment or just buy my first house. My family tells me I'd be throwing money away renting an apartment, and I really just don't know what to do. Please help. I believe so many of us face this dilemma of knowing whether or not it's the right time to buy a house at some point in our lives. So with that said, let's talk about it. Jessica, first, I want to say thank you so much for this question. I actually want to start this episode off by addressing the thought that running is somehow throwing money away because I believe that's a big, big part of your question. And I gotta say, like, I don't know where that theory came from, but it's one of the few money sayings that I literally hate. Like I honestly cannot stand when people say that renting is not throwing money away, like not even close. As a renter, your money is going towards a place to sleep and live and do life. When you take out a mortgage or buy your first house. Your Money is also going towards those very same things. You're literally getting value for your money either way. So let's just stop with this whole notion that running is somehow throwing money away, like you're getting something in return. for it, and I get people say this because when you buy your first house you have an opportunity to build wealth through equity. But I'm going to link to this study that I found in the show notes in this study shows how when you account for inflation, taxes, interest maintenance, closing costs on the buy, and the sale, and everything else that goes into buying a house, the actual rate of return on a house is more often than not less than zero. Again, that's going to be in the show notes that study so head over to winning to wealth comm slash Episode 37 it's a very in depth study, it breaks down all the numbers, all the data. So again, go check that out winning to wealth comm slash Mt m 37. So Jessica, and listen, I'm not trying to spook you out of buying your first house. That's not what I'm trying to do. There are plenty of great reasons to buy a house. Matter of fact, I bought my house right? For many reasons like stability for my daughter and the school district and neighborhood and just all those other reasons. But the first thing I do want you to understand is you're not throwing money away. If you choose to rent, you're getting great value from either choice. However, based on everything that you told me, which is eliminate amount of data, I don't know your full story, but based on what you shared, if I were in your shoes, and things were going well with my parents, I would either continue living there a little bit longer to say more, or I'd find a decent apartment where the rent doesn't take more than 25% of my pay. But there are two reasons why I say this. The first reason is, the houses are money pits. I mean, there's no way around that. Like when you rent an apartment. Maintenance takes care of everything like you can call them in the middle of the night. They'll come Change your friggin lightbulbs first thing in the morning, they deal with the plumbing issues and just so much more. And that's a super nice perk to have. And to be honest, it's one that I really miss, as someone who bought a house who's not like super, super handy, I really miss that aspect of like not paying to maintain a place. We've been in our house for over two years now. And I'm going to tell you like here are a few things that we've had to cover that I wouldn't have had to pay for if I was a renter. So our house obviously came with certain appliances and they were a little older, we knew they were kind of near the end. We didn't know how close to the end they were and they died like within that first year, like literally everything pretty much done. Now we probably could have bought used appliances for much cheaper, but we didn't and that cost us like four grand. The second thing that I didn't have to pay for it when I was a renter was landscaping. The guy I use now he doesn't Super awesome job. And our cost here averages out to be around $60 a month. That's what we put in the budget every month, which I've heard is actually super cheap for a job well done in our area. But even still, that's 60 bucks I didn't have to pay when I was renting an apartment. We also had to replace our thermostat, which cost like $200. And then when we got the thing hooked up, it didn't work right. And so I had to pay somebody another hundred dollars to come out and do some stuff with the wiring and all that just to get it working right. So again, our costs for owning our home have been relatively small so far, but I see people in my neighborhood getting their roofs replaced all the time. There's also one side of our fence that water just like sits under in our backyard, so it's gonna ruin one side of the fence. And we're gonna have to end up replacing the fence but we'll probably end up also having to do like a French drain or something to keep the water from ruining the news. When we replace it, I share all of that to say that buying a house is not just about buying a house, it's assuming responsibility for the house. And that can get super expensive because like I said, You're literally responsible for everything from the light bulb to the H HVAC system. And what this means is you're either going to have to know how to fix this stuff yourself. Or if you don't, you need to have enough money to pay someone who does. Which brings me to the second reason why if I were in your shoes with your exact situation, I wouldn't buy a house. I'm just not sure you have enough money saved. Now you've done a fantastic job saving so much to this point. But we just talked about all the things that could go wrong. So first things first, you need to have an emergency fund and some sinking funds. My recommendation is that before you buy a house, your emergency fund needs to be enough to cover at least six months of your essential expenses. This is important because Because things break unexpectedly and sometimes people lose their jobs like now, I hope this doesn't happen to you, but it does happen. It's like in the song Miss Jackson from outcasts when Andre 3000s. Like, you know, you can plan a pretty picnic, but you can't predict the weather, like we have all of these great plans of how things are going to go. But then sometimes unexpected stuff pops up. And that just changes everything. And in those situations, a lot of times, the best thing that you can do is just have a pile of money to buy you some time to figure this stuff out. So going back to the six months of essential expenses, you need to know the monthly cost of everything related to shelter, like your mortgage or your rent, your utilities and things like that. You also need to know your average monthly cost of your food expenses, and also your transportation and that includes like a car payment, your car insurance, gas, literally everything you need for transportation to and fro Work and all the places you need to go. Now, once you know the monthly totals for shelter, food and transportation, you need to multiply that number by six. And that's the target for how much money you need to have saved in the bank before you buy a house. In most cases, I believe $20,000 is a great emergency fund. I think it's fantastic. And like I said, You've done a great job saving that much. But here's my concern. You also need to have money saved for a down payment and closing costs if you buy a house and I don't think 20 K can do all of those things. So the standard recommendation is to save at least 20% of the purchase price so that you can avoid having to pay PMI, which is just like mortgage insurance in case you default on the loan. PMI is usually between a half and a hole percent of the purchase price and you pay it annually if you don't put 20% down. Actually most mortgage lenders will pay actually charged that in your monthly rate, so they'll break it down by 12 months. So Jessica, like I don't know where you live. But let me give you an example of that using some simple math. So let's say you buy $120,000 house without putting $24,000 down, which would be the 20%. You will be responsible for anywhere between $600 to 1200 dollars per year, which breaks down to being an additional monthly bill of between 50 and $100 per month. So that's 50 or $100 per month, you're gonna pay because you didn't put 20% down. Now, PMI isn't permanent. If you get a conventional loan, your lender should remove it for you after your loan to value ratio is higher than 20%. But if you don't get a conventional loan, then you'll probably have to refinance the house to get it removed at that 20% Mark, which that's going to cost you several thousand dollars to do so you can see like the All these costs are potential costs associated with just not putting 20% down on the house. And I know it's really hard for a lot of people to save up 20% for the home, especially if you live in like a high cost of living area, I don't know where you live. And and this is again, in addition to the emergency fund, it can be tough, and you can choose to put less down. But again, I did just kind of have to let you know that there's a cost associated with going that route. So that's just something to consider there. Now, those are my two reasons for not buying right, but you are your own person, Jessica and you get to make the choice that you feel is right for you. And so with that said, If you choose to buy a house right now, my first goal would be making sure that you build up that emergency fund. Like I said, life is going to happen and the best thing you can do is to be as financially prepared as possible. So many people buy that first house and they want to focus on buying furniture, painting and upgrading all these other The cosmetic features, but literally the best thing you can do in your situation is to just keep stacking cash until you have that emergency fund built. And that's especially if you use a huge bulk of that $20,000 just getting in the house, like you're really gonna have to ramp up and focus on that emergency fund. But if you don't use a huge chunk of that $20,000 up front, let's say you find some low or no money down program to get into your house, then your your goal needs to be getting to that 20% loan to value ratio as quickly as possible so that you can eliminate that PMI. Now, another thing you probably need to do is set up sinking funds. I touched on this a little bit earlier, but there are going to be some important things that pop up as a homeowner like an annual Hoa fee, or insurance for natural disasters like I live in Houston so I pay for flood insurance every year. And so if you're in an area that's prone to natural disasters, and you might have to seek out some additional insurance, those things come around annually. And they're these costs are usually not a part of your mortgage. And they can absolutely wreck your budget if you forget when they pop up. So like, I know my flood insurance is every April. So every March, I usually sit down and we budget that in as a cost. But if you forget, it can be a huge wreck to that budget. And so, to do this sinking fund method, what you're going to do is you're going to take the total cost, then divide it by the number of months you have until you need to make the payment. So let's say your HOA fees are $500 and you have 12 months to save up to pay this Hoa fee. What you're going to do is you're going to divide that $500 by 12 months, and you're going to start saving the 4166 every month, so that when that due date rolls around, you're prepared and your budgets not wrecked and you're not having to tap into your own money. Emergency Fund for something that wasn't an actual emergency, right? Because there's a difference between something that's an emergency and something that you just didn't plan for. But Jessica, I hope this information was really helpful. And I do want to thank you again, so much for writing me with your question. As I said, if I were in your shoes, I decided to either keep living with my parents are really renting a small apartment for less than 25% of my salary. Now, if you are listening and you have a question that you'd like answered, you can head over to winning to wealth, comm slash question and ask away. Now that's not a guarantee that I'm going to answer your question on the show. But I do get back to more most of the people who actually reach out to me, you can also hop in our private Facebook community which can be found at winning to wealth.com slash teammates that is winning to wealth.com slash teammates. The Facebook community is just a great place again to hop in ask questions, cheer other people on one of the favorite features and I just found this out the other day when people said it is I do what's called a winning Wednesday, where I just asked people Hey, like what wins Have you had over the last week and people share money wins they've had, we've recently started sharing life wins. So getting promotions and all this great stuff and it's just a super encouraging environment. So head over to winning to a comm slash teammates to be a part of that. But thanks again for tuning in to another money talk Monday until we talk again, keep racking up those wins one at a time. Take care