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Question for the Money Doctors

Question submitted on Dec 2, 2018.

Question

I am a single, recently divorced 36 year old female.

My annual income is low, $47,500.
I do not have any outstanding debt and rent an undermarket apartment for $650/mo.

My current financial goal is to have 100k in Retirement by age 40, bringing my take home pay to just $1600/mo. Which is enough to meet my lifestyle and living expenses.

I have $140k in cash savings from the divorce settlement.

My question is whether to contine aggressively contributing to my 401k and rent, or use a portion of cash savings to buy a townhouse and take on a mortgage.

How do I know when I am in a good position to afford property?

Answer

Good for you for having some defined financial goals.  If you talk to 5 different planners, you are likely to get 5 different answers to your question since there are multiple ways to look at your situation.  One thought is to continue to aggressively fund the 401k as you mentioned and rent your dwelling since you're paying a below market rental rate.  You could make the argument that the return on investment of a well balanced 401k portfolio is better than what you would earn on your residence. That, combined with the consideration that your landlord may take care of maintenance problems such as water heaters and HVAC systems, has the potential to make renting less complicated.  I would recommend seeking out a fee only planner in your area to help you further analyze your situation. Good luck with your plans!


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