My advice to my kids was pretty basic stuff for most of us older HD readers, but I think they found it useful. Their monthly income, after taxes and retirement contributions funds their lifestyle which can be divided into two categories:
Housing which should include monthly savings to cover long term maintenance and repairs, in addition to mortgage, taxes, insurance, utilities, and other costs.
All others.
To answer the question of how much can they afford to spend on a house, its determined by the costs of the two areas above. They can choose how much to allocate to each, or they can let the lender decide for them. I suspect if they choose the latter path, they would likely end up in a more expensive home but find themselves strapped for cash. You gave your kids wise advice David.
Bill Bernstein wrote about this topic in "The Investor's Manifesto". His discussion of the cost to rent versus the cost of monthly mortgage payments for the same house was interesting. Also in another article of his which I can't locate, he produced a graph which showed the varying gap between the two for a median priced home over decades. And how the gap would become very wide just before a bubble would pop. I have suggested to my adult children that when deciding how much they can afford to pay for a house, they include the cost of escrowing money each month into a bank account dedicated for future unpredictable but inevitable maintenance and repair expenses which they will surely encounter. Interesting article. I look forward to part II.
The most important lesson in finance I learned was to live below my means, and invest the difference. I did this successfully without a budget for years. However, years later when I tracked my spending for the first time, I was surprised by how much I spent on some items and how little on others. I found that a budget helped me to better align my spending with my priorities. So, do I need a budget? Of course not. My spending was under control before, but now it is spent more efficiently. To each his own.
Many get by just fine without following a formal budget and I respect that. Like many retirees, our income is determined by annual distributions from our IRAs and social security benefits, minus taxes. Our spending plan, or "budget" guides how we allocate those dollars. I find that realistic assumptions and flexibility are key. I have revised our budget many times. But what I do not do is increase the portfolio distributions to allow higher spending. Like any tool, if used wisely it can be useful. But any failures are mine, not the plan's which I put in place. Of course, it can be convenient to blame someone else at times. I have told a couple friends that my financial manager could have done a better job last year. I may or may not include the fact that I am that manager!
Your mom must have been a very kind and generous soul. And I like your word to the wise. Like many others, our gift giving is guided by what we have budgeted for. For regular gifts, such as birthdays and Christmas, we give nominal amounts. For the infrequent and large gift, such as helping one make a down payment on a home, it is confidential and understood to be a one time event.
Personally, this is a very important topic, and I do not want to inadvertently appear to favor one child over another. I mentally distinguish ordinary gifts from what I think of as strategic investments. The former are more or less equal in size. The latter, used for such things as a house down payment or help with a large repair bill, may be tailored as I take their relative financial positions into account. While we do this gifting quietly, they are all aware, understand and agree with our logic.
Nice pun! We recently toured a museum which had some antique automobiles on display. I learned that back then, car bodies were typically designed and built by horse drawn carriage companies. Hence the name "horseless carriage". Which got me to wondering whether some earlier buyers of horse drawn carriages were drawn to certain models because they were deemed more "prestigious" than others. By the way, nice article!
Comments
My advice to my kids was pretty basic stuff for most of us older HD readers, but I think they found it useful. Their monthly income, after taxes and retirement contributions funds their lifestyle which can be divided into two categories:
- Housing which should include monthly savings to cover long term maintenance and repairs, in addition to mortgage, taxes, insurance, utilities, and other costs.
- All others.
To answer the question of how much can they afford to spend on a house, its determined by the costs of the two areas above. They can choose how much to allocate to each, or they can let the lender decide for them. I suspect if they choose the latter path, they would likely end up in a more expensive home but find themselves strapped for cash. You gave your kids wise advice David.Post: Home Prices and Affordability
Link to comment from February 16, 2026
Bill Bernstein wrote about this topic in "The Investor's Manifesto". His discussion of the cost to rent versus the cost of monthly mortgage payments for the same house was interesting. Also in another article of his which I can't locate, he produced a graph which showed the varying gap between the two for a median priced home over decades. And how the gap would become very wide just before a bubble would pop. I have suggested to my adult children that when deciding how much they can afford to pay for a house, they include the cost of escrowing money each month into a bank account dedicated for future unpredictable but inevitable maintenance and repair expenses which they will surely encounter. Interesting article. I look forward to part II.
Post: Home Prices and Affordability
Link to comment from February 13, 2026
The most important lesson in finance I learned was to live below my means, and invest the difference. I did this successfully without a budget for years. However, years later when I tracked my spending for the first time, I was surprised by how much I spent on some items and how little on others. I found that a budget helped me to better align my spending with my priorities. So, do I need a budget? Of course not. My spending was under control before, but now it is spent more efficiently. To each his own.
Post: The Monthly Mystery of the Vanishing Paycheck
Link to comment from February 12, 2026
Baby steps will pay off. Good job, Dad.
Post: House Move and the Upcoming Hassle Factor
Link to comment from February 12, 2026
Many get by just fine without following a formal budget and I respect that. Like many retirees, our income is determined by annual distributions from our IRAs and social security benefits, minus taxes. Our spending plan, or "budget" guides how we allocate those dollars. I find that realistic assumptions and flexibility are key. I have revised our budget many times. But what I do not do is increase the portfolio distributions to allow higher spending. Like any tool, if used wisely it can be useful. But any failures are mine, not the plan's which I put in place. Of course, it can be convenient to blame someone else at times. I have told a couple friends that my financial manager could have done a better job last year. I may or may not include the fact that I am that manager!
Post: The Monthly Mystery of the Vanishing Paycheck
Link to comment from February 10, 2026
Your mom must have been a very kind and generous soul. And I like your word to the wise. Like many others, our gift giving is guided by what we have budgeted for. For regular gifts, such as birthdays and Christmas, we give nominal amounts. For the infrequent and large gift, such as helping one make a down payment on a home, it is confidential and understood to be a one time event.
Post: Helping Adult Children
Link to comment from February 10, 2026
Personally, this is a very important topic, and I do not want to inadvertently appear to favor one child over another. I mentally distinguish ordinary gifts from what I think of as strategic investments. The former are more or less equal in size. The latter, used for such things as a house down payment or help with a large repair bill, may be tailored as I take their relative financial positions into account. While we do this gifting quietly, they are all aware, understand and agree with our logic.
Post: Helping Adult Children
Link to comment from February 9, 2026
Nice pun! We recently toured a museum which had some antique automobiles on display. I learned that back then, car bodies were typically designed and built by horse drawn carriage companies. Hence the name "horseless carriage". Which got me to wondering whether some earlier buyers of horse drawn carriages were drawn to certain models because they were deemed more "prestigious" than others. By the way, nice article!
Post: Choices, choices everywhere
Link to comment from February 9, 2026
Simple, wise message. I think Jonathan would have concurred!
Post: Value of Waiting
Link to comment from February 7, 2026
Aiming for optimal and getting 70% of the way there seems pretty good to me.
Post: The High Cost of Financial Advice: A Tale of Two Portfolios Revisited
Link to comment from February 6, 2026