How To Save Money For Your First House

Jared’s a youngster asking a good question. He says, hello, my wife and I are in the process of saving up to buy our first home in a few years. We were curious to get there faster.
Should we save money into a high yield savings account or should we put money into a regular brokerage account to potentially grow more? We want to avoid taxes as much as we can. So do we need to invest in ETF’s index funds or can we use regular stocks? What do you think, Shanna? Well, that’s a really great question. I think a lot of people, a lot of young people are tempted to do that, you know, to get to your goals as quickly as possible.

I would say avoid the temptation to invest in things that are inequities. You mentioned, he mentions here that his goal is a few years. So to me, that is short term.
I mean, I think it’s pretty safe to assume that housing prices will not be lower in the next three years. And in fact, housing prices are raising or increasing almost as much or faster than the rate of inflation in general. So I think it’s a great idea to use a high yield savings account because, you know, there’s very little, if any, risk to your principal there.
And you’ll be able to earn, you’ll be able at least to keep, keep up with, or keep up closely with housing prices as they continue to rise. I didn’t see. Did it say where, where Jared lives? Didn’t say where.

Shanna. Now, okay, different parts of the country have housing prices that are climbing faster than, than other places. But I would say, you know, for your short term goal, you don’t want to take a risk.
I mean, if you, three years is short term and, you know, statistically speaking, you’ve got somewhere around a 16% to 17% chance of seeing your money, the value of your money be less than what you started with three years down the road. So, you know, if your timeframe is not very flexible for wanting to get into a house, which I would think that it wouldn’t be, that’s, that’s, you know, really a top priority for young folks who are launching, starting their, their individual or their married lives on their own to get a home, you know, achieve the American dream of homeownership. So I would say stay away from things that are, you know, volatile in nature to meet those short term goals.

Yeah, that’s good, Shanna. You know, he had mentioned also wanting to avoid taxes as much as he can. How important do you think that is for his situation to avoid taxes? Because I can remember like I’ve got you in my head and Dan in my head saying, you know, taxes comes with making money.
You know, that’s just a reality. Not to be afraid of that. How important is that for Jared? I would say not very important.
I mean, if you’re looking at equities, you know, that’s even more reason to stay away. You know, there’s a temptation there to want to trade, to want to find stocks that are going up in price and to take a chance and make some quick money. But if you sell a stock in, if you own it for less than a year, then you’re subject to short term capital gains which are going to be taxed at your ordinary income rate.

So if you’re in the 22% tax bracket, you’ve just lost 22% of your, of your gain to taxes. So even more reason to avoid that type of strategy. Yes, you will have to pay taxes if you earn some interest, if you, or in a high yield money market account or something like that.

But you know, I think it’s something that you have to do if you don’t earn any interest at all. The good news is you won’t pay any tax. But you also will get further behind in your, in your savings goals because the cost of home ownership is just continuing to increase.

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