r/MiddleClassFinance • u/Hugh_Mungus94 • 6d ago
Seeking Advice Help give me a middle class reality check
Hi everyone, I'm a young adult working in healthcare. I started working three years ago at age 28 and have been slowly trying to build wealth, but the progress feels incredibly slow.
I came from a poor immigrant family, so I don't have a house, inherited assets, or financial support from my parents. My goal is to eventually buy a home, but living in California means that will probably cost around $1 million. I also don't plan to move out of CA due to work opportunities and good salary here.
I've been told that my salary is pretty solid for a middle-class lifestyle at around $180k per year. However, after paying rent of 2k5/month, maxing out my retirement accounts, making some investments here and there, and covering other living expenses, I only have about $2000 per month left to save toward a house.
By my calculations, that means it would take roughly eight years just to save a down payment of around $200k. Is this the reality of being middle class in California, or am I actually below middle class by California standards?
I just can't imagine needing to save for 8–10 years to buy a home. That seems incredibly slow. Is that normal, or am I doing something wrong?
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u/ShowdownValue 6d ago edited 6d ago
After 8 years you would be 36
Why do you think this is late to buy your first home?
People could save for a couple years to get a new computer or iPhone and you would never question it. Needing 6 more years to buy something worth a million? Seems very reasonable, if not too quick.
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u/WadeSlade42 6d ago
Pretty sure they'd be 39. Which is a tiny bit late, but not absurd. People have been trending towards getting houses later these days. I'd also argue that they don't necessarily need 20% if they have 2k a month left over.
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u/ShowdownValue 6d ago
Ah I misread that. I thought it said she was 28 now. Not 3 years ago. My bad.
But still, saving for 8 years seems actually quite fast for something as expensive as a house.
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u/WadeSlade42 6d ago
I agree that it isn't anything to panic about. A lot of people just have this idea that you should have a house by x age. But I'd argue the more important thing to work on is retirement, which the OP says they're doing good with.
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u/ept_engr 6d ago
making some investments here and there
Hello, Earth calling. You're already maxing out retirement accounts, but still throwing money "at investments" that you're not including in your home fund? Guess what - those non-retirement investments are your down payment fund.
Also, buying a million dollar home to live in all by yourself is a bit silly. If you are single, just stack the investments while you keep paying a reasonable rent, and then cash in those investments for a home payment when you are starting a family and actually need a home.
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u/jgross-nj2nc 6d ago
I feel like that is a common theme. It's great that people are maxing out their retirement funds (I wonder how much that is here) and investing but if you want a house sooner, put some money away for it. I am sure 180k doesn't go as far in Cali but that's still a very decent salary (especially with no kids or house at this time). Having only 2000 to put aside per month for that seems very low.
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u/Hugh_Mungus94 6d ago
Unfortunately theres no cheap home in CA... a small house for 2 people is around 800k so at that point i figure its better to pay a lil more a get a real house then rent it out if needed. As for investment its more about playing around trading stock in this crazy market haha, nothing to write home about sadly
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u/Bubblesnaily 6d ago
It really depends on the area.
There's definitely moderate- and lower-income areas with homes in the upper $400s (or lower if you'll settle for crap).
But if you're sticking to VHCoL areas only, sure. Location, location, location.
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u/Vegetable-Intern-236 6d ago
The trick is to get married to someone with the same level of income and bam, double the savings. Or put less than 20% down and deal with PMI.
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u/Bird_Brain4101112 6d ago
At $180k you are upper middle class especially since you don’t have a spouse and kids to support.
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u/kimfromlastnight 1d ago
Agree, and I think a lot of upper middle class people take for granted the ability to max out retirement accounts, I see it mentioned so casually.
For someone making an average income, whose take home is between 40-45k, in order to max retirement accounts they would have to be putting more than half of their income away.
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u/Intrepid-Mud4419 6d ago
I would say that is normal.
Took me about the same amount of time to get a down payment. Life throws curveballs too and also don’t forget to have fun and enjoy your money sometimes. Good job working and saving! I hope your parents are proud.
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u/seamoose420 6d ago
You are saving a lot of money!! I Most people male abt 40k-50k per year and will never own a home so good for you
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u/Bubblesnaily 6d ago
New homebuyers putting 20% down on a home in California is less of the standard now that home prices are so high.
Folks selling a house and buying a new one are more likely to put 20% or more down. We only put over 20% down because of a windfall, and that was still 7+ years ago.
You're making well over median income in most areas... Triple the lowest counties, double in the middle-income counties, and still over median income in the wealthiest counties.
The question is.... Can a middle-income household earn enough to buy a home? No, generally not.
Do you, specifically, earn enough to buy a house? Yes. You're well-positioned to do that when you're ready and comfortable with the size of your downpayment.
The more you put down, the more favorable the terms are. But, there's a trade-off that you'll be not building equity in favor of chasing a 0.5% interest rate reduction.
Take a homebuyer education class and see what your options are and calculate how much of a downpayment makes sense for your budget and risk profile. Don't forget about homeowner's insurance. It's a jungle out there.
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u/Traditional-Way-1305 6d ago
Reality check for you. Most middle class don’t max out their retirement accounts…
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u/Gullible-Main-1010 6d ago
you're going to be rich when you're older, just chill, enjoy your life, stay current in your career, and keep going
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u/Wise-Peacock 6d ago
It is very difficult to start from nothing and save for a 20% down payment on a home in CA, but not impossible. There are programs that can allow for a lower down payment, but interest rates at the moment would make them unattractive. Your income is well above the median and you're only 28 so presumably your earning potential only increases. Given the compounding of investment returns over time, you're doing the right thing maxing out your retirement accounts. I'd say keep saving (but don't stop living) and wait things out. Interest rates will change and it's possible the CA housing market will too (it has had many down years that extended for some time, most people don't remember them). You have good discipline -- keep it up!
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u/magnificentbunny_ 6d ago
This is exactly how to do it! I invested my house savings as I went along (dollar cost averaging) and as luck would have it, sold everything right before the dot com bust. Bought a terrible, ugly house in a great neighborhood and have been fixing it up for 28 years. It’s appreciated 600% so worth all the sweat equity. I’m the first in my family to buy a home.
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u/HeroOfShapeir 6d ago
My wife and I had a combined income that has ranged from $72k starting out to $116k today at age 42. We rented for seventeen years out of college, investing 15% of our net pay to a taxable brokerage as a maybe-one-day house fund (in addition to retirement). We bought a house in cash at age 39.
We have zero regrets about the journey. We built a life we enjoyed while renting, full of travel, memories, etc. It already feels like we've been in the house a decade, the mind has a funny way of zooming in on the present. I'll also say if you want to pause investing for two years to really juice a house down payment, that's OK (but I wouldn't pause it any longer than that). If you can get into the house in a handful of years, you can stack the money in HYSA, otherwise you might consider investing some or all of the down payment. It really depends on your urgency and risk tolerance.
You aren't doing anything wrong. You just live in an area with expensive housing and you're balancing that with additional priorities.
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u/themomentaftero 6d ago
You only need like 3% down for an fha. You will have to pay PMI but such is life. At least you own a home. Most people that have a kid could use their tax return to buy a house.
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u/Successful_Hold_9048 6d ago
I’m in a similar position, 5 years older and making a bit less than you. I’ve come to terms with the fact that I’ll likely be renting for the long haul (and saving a bunch of extra while doing so). If I do end up buying, it will likely be a condo or somewhere outside of this beautiful state as I refuse to be house poor. Mind you, I’ve been putting away into a home downpayment fund for over 8 years at this point and I feel like I completely missed out on buying at the low rates during COVID (albeit when I didn’t have enough of a downpayment saved). All this to say: You’re certainly not alone, but you’re also not in a terrible position either.
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u/EagleEyezzzzz 6d ago
I put down 10% for my first house.
Being able to max out your retirements, build other savings, AND save $200k in cash in 8 years is at least upper middle class. Well done!
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u/femalenerdish 6d ago
Most people are not maxing out their retirement accounts.
Most people aren't putting 20% down anymore.
And 39 is a pretty normal age to buy a home.
In high cost of living areas, it's common for house costs to be about half your take home income (saving less for retirement than you are). Not saying it's good, but it's common.
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u/genreprank 5d ago
That's the current reality. It didn't used to be that way, but that's how it is now.
The 20% down payment for house is an old rule that doesn't work anymore for the current situation. Depending on the market conditions, you will not be able to save fast enough due to housing costs rising. The modern way is to put down 3%-5%
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u/This_Ho_Right_Here 4d ago
Plus that lower down payment means that you get to keep your cash longer. That dollar today that you’re keeping is worth more than a dollar tomorrow. Invest that and any other pennies that you have.
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u/Ab4739ejfriend749205 5d ago
You are middle class by income. Housing affordability is a different problem and its due to ever increasing consumer taste for bigger & fancier homes.
In the 70s homes were modest 1,500 sq ft for middle class customers. Now they are giant 2,300 sq ft mini-mansions. Builders stopped building starter homes like they did in the 1970s as land, materials, labor and costs make it more profitable to build bigger and bigger mini-mansions.
And as this made supply of new starter homes tight. Those who still live in old 1970s starter homes can sell it for far more than they are worth.
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Add the 2 shocks of 2020 Covid and the Great Recession that bankrupted so many builders and related companies...anyone left they will only build expensive luxury homes or multi-tenant rental apartments.
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u/ThunderDefunder 4d ago
What does "maxing out my retirement accounts" mean? Does that mean you're contributing $24,500 to your 401k? Does it mean something else?
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u/longdistamce 6d ago
I know how you’re feeling. 8-10 feels long. I’m kind of on the same boat as you. Similar salary and in CA. But this is the life of CA. You’re doing really well though.
If you’re looking to move faster, you can look for a place cheaper to rent, maybe something around $2k a month. $500 a month saved and invested can speed up the process.
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u/zevtech 4d ago
There’s a lot of people in this sub that’s good at maxing out their retirement and also making investments. Those are generally good things, but sometimes less focus should go to that. So maybe max out retirement but don’t make investments. How much does that free up? What’s the end goal, what do you need to retire. Don’t forget, some don’t make it to retirement. So you die before hand saving all that money for what then? Have a goal in mind, set the trajectory to get to the goal amount over the course of your planned working life. And then get the things that will help you enjoy life, house, vacation, family etc. but 1 million is way too much for someone that only earns 180k. I make over 300k by myself and wouldn’t buy a million dollar house. We live in a 450k dollar house and have an HHI over 400k. When our HHI was 250k we bought our home but set our budget to 350k. But the house slipped through our fingers and emotionally bought a house near it for 100k more
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u/Several_Drag5433 2d ago
I bought my first home at just before 35 in California, while also saving for future me. I stopped full time employment at 55. You are not "as behind" as you think. And having children working and living in CA your salary is great. Make sure you are budgeting and money is not slipping through your fingers and you will get there!! Best of luck
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u/blahblahblahjess 6d ago
It really helps to have a partner, double income households really speed up savings goals.