By: Revanche

Your House is Your 401(k)?

May 8, 2007

Chatting about the house for sale down the streeet with a friend, I was taken aback at his bald statement: Forget about your 401(k) until you have a house. Your house is your 401(k)!

His logic is as follows:

It took him 10 years after college to buy his home. That was 6.5 years ago. He hasn’t contributed a cent in the last 6.5 years because he and his wife bought a fixer-upper and have spent that time and money tearing out floors, replacing the bathroom, kitchen and deck, and various other housely duties.
They overpaid the mortgage and refi’ed almost every 6-8 months (paying no closing costs each time) until they arrived at what they considered a great interest rate. I’m not sure what that is, but they’re happy with it.
Now, they have 1 little girl and another little one on the way, they’re secure in their home and are comfortable with their house and tax payments even with his wife working on sales commission and making a bit less than usual.

When he’s going to start contributing to his retirement again, or how much he really contributed before, was left unsaid.

I can see how being house wealthy with a growing family in his mid-30’s can create such an air of contentment, but I wonder how he’s going to make up for his lost years of compounding interest, unless he initially contributed heavily in his 20’s and that’s why it took a while for him to save the money needed for a down payment. On the other hand, he’s flexible, focused and driven, very entrepreneurial and creates new income streams for himself really easily.

I’m rather intrigued, not enough to stop contributing to my retirement plans and watch my tax bill shoot through the roof instead, but intrigued nevertheless.

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