Romance & Money
Money Managing Tips:
Do NOT cash out your future
Julianne in New Orleans:
We are planning to wed in June of 2005. We have a bout
$10,000.00 in credit card debt. We are also buying a home this fall with the
money ($13,000) we have both saved for the last two years. The down payment
and closing cost are leaving us a bit strapped. My spouse thinks we should take
the money out of our 401k’s,
since we have less than $7000.00 combined. He thinks they’re so small it
won’t matter much and that we can start over again later. Is that a good
decision, or should we wait to get married for when we can afford our big dream
wedding?
Oh Julianne, congratulations on your upcoming new home, and marriage. However,
you are already dancing on a slippery slope. If you have $10,000.00 in
credit card debt and are spending your two year savings on the purchase
of a house, you are doing things a bit backwards. First, never cash out
your future for one day of bliss! Never! It is not a good idea
to cash out your 401k. That $7000 (if left alone, and assuming a 7% return)
would be worth over $35,000.00 by the time you are 65. Leave it alone.
Second, take that savings and apply at least half to the
reduction of your debt. Go to
www.quicken.com/planning/debt and
calculate how long it will take you to pay off the rest. To have saved $13,000.00
in two years is excellent! That tells me you can get rid of your debt in record
time.
Now, buying a home is always a good investment, but sometimes
you have to look at what your short term needs are and readjust your goals.
Buy a less expensive first home, or condo (don’t forget home owners
association dues). Finance by using a first time homebuyers program,
and ask the seller to pay your closing cost. Adjust to the overall cost of
homeownership for a year or two. Then take your equity (and no doubt,
savings) and buy bigger and better when you can comfortably afford, and when
you understand the full ramifications of homeownership (taxes, leaking roof,
utilities, etc.). Going into a large purchase with your eyes closed can be
a rude awakening.
“If ignorance is bliss, why aren't
more people happy?”
Anonymous
As far as the wedding of your dreams; because you’ve
already begun a financial life together, you need to address your current responsibilities
first (debt, savings, 401ks, and a new home). Instead, consider a small and
intimate wedding this fall.
By protecting your finances, you safeguard your marriage from arguments that
can be prevented by using some common sense in the first place. Remember, one
of the top three reasons couples break up is because they argue over the stress
of their finances.
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