November 24, 2022

View online | Sign up

TOGETHER WITH

Happy Thanksgiving 🦃 for those celebrating it today. In 1949, the typical single-family home in the US was 909 square feet in size. Can you guess what the average single-family home size in the US was in 2021 (in square feet)? a. 2,480, b. 2,880, c. 3,280. Follow the wave 🌊 below for the answer.

Our topics for today:

The future of the mortgage market
How much in savings should I have?
The difference that 1% can make

*No Movers & Shakers today as the US stock market is closed in observance of Thanksgiving

HOUSING

The Future of the Mortgage Market

Over the last 15 years, the mortgage market has been cruising uncharted waters. Despite how normal that environment eventually felt to us, it was a historical deviation, and something we may not ever return to.

After a year of inflation, rate hikes, and record increases in home prices that lead to equally steep drops in affordability, mortgage rates are finally sobering up and climbing to their former glory.

Where do we go from here?

Historically: Our shortsightedness can easily lead us to feel as if mortgage rates are high again, but is that really true? The current average rate for the prototypical 30-year fixed loan is now 6.61%, still a nudge below the historical average of 7.76%.
Recency bias: Homebuyers have been spoiled lately. Rates stooped as low as 2.8% just late last year, and have risen 135% since to their current levels. It's that rapid increase that creates the shock we're feeling.
As for the future: The most pessimistic outlook put forth by the Economic Forecast Agency (EFA) places rates near 11% by the end of 2023, but most projections call for a landing between 5.5% and 7%.
Home buyer impacts: 7% interest rates aren't that bad, that is until you combine them with record home prices. Although existing home sales have continued to fall, the median home sale price increased again in late October to $454,900. Another increase isn't what prospective buyers wanted to see, but a slowdown in that growth rate is entirely welcome.

Still looking to buy a home?

They say the best time to get started is yesterday but is that still true for buying a house? The answer is that it depends on the purpose of your purchase. If you're searching for a house to call home for decades to come, it matters a lot less when you bought it or what happens to the market value. What's important is making sure it fits your budget, and not out-leveraging yourself in the event of a downturn.

For investors though, the equation becomes more complex, and the answer depends a lot on your philosophy and investment plans. In this scenario, you have to consider both the short and long-term future of the housing market and how that plays into your ability to turn a profit.

Take this related lesson on this topic and earn Dibs 🟡 while you're at it:

Mistakes to Avoid When Buying a Home

Housing

7 mins

BUDGETING & SAVING

How Much Savings Should I Have For My Age?

They say comparison is the thief of joy, but if that's the case then it must also be the giver in some cases. Comparing yourself to others your age in terms of how good you are at saving money can serve as validation or a motivator, but both are positives to the financially woke.

Fidelity recommends savers stash away 3x their annual salaries by the age of 40

So at a $50,000 salary, that's $150,000 saved. A saver who starts at age 22 with that $50,000 salary would need to save a little over $8,000 per year to achieve this by 40. That comes out to a bit over 16% of your annual gross income.

They also recommend that...

by 50, you should have 6 times your salary saved.
by 60, you should have 8 times your salary saved.
by 67, you should have 10 times your salary saved.

How should you prioritize your savings?

There are two types of saving that hold priority over everything else: retirement and emergency funds. They serve two different purposes, one is an insurance policy while the other is a full income replacement strategy, and everyone's life has different needs.

So, here are some general rules to apply that can help:

Establish an emergency fund of 3-6 months of expenses first, as a safety net.
Put away 10-15% of your gross income at minimum for retirement planning, and more if you wish. The later you wait, the higher you'll need to adjust to meet your retirement goals.
Contribute to your company's 401k, especially if they offer an employer match. It may seem like a small percentage, but that free money compounds over decades. An employer match you aren't taking full advantage of is like not accepting free money.
Based on your income, consider also opening an IRA or Roth IRA. Go for an IRA if you plan to withdraw the funds at a later date when your tax bracket is lower, and consider a Roth if you predict your tax burden will be higher in the future than it is now.

FEATURING STACKIN

Budgets, like diets, don't work for everyone. Instead, Stackin focuses on helping you do the emotional work of finding what you truly value.

Then, they provide insights to help you understand the connection between your emotions and your money, so you can reach your goals.

Start today by taking this money relationship quiz for free on Stackin.

INVESTING

The Difference That 1% Can Make

Planning for retirement is an inexact science for all of us, but one thing that's a constant truth is that the more you invest now, the more you'll have later.

Prices have always gone up, and the cost of retirement goes up with it. This has been exceedingly true the last couple of years as we've endured historic levels of inflation and economic uncertainty, making it more important than ever to sock away more dollars for the future.

A drop in the bucket matters

Recent changes: Thanks to inflation, the IRS recently made some changes to our retirement account contribution limits to account for the rising cost of living. Work-sponsored retirement plan contribution limits are going up by $2,000 to $22,500 for 2023, up from $20,500 in 2022 for those under 50. And the additional contribution allowed for those over 50 is increasing by $1,000 to $7,500 in 2023, up from $6,500 in 2022.
Increase your contribution regularly: A recent study by Fidelity showed that for those not already maxing out their contributions, increasing your investments by just 1% annually can make a substantial difference come retirement. While a 1% increase may not seem like much (and that's precisely the point!), that additional 1% can make a big difference decades later. For example, a 35-year-old making $60K could potentially accrue an extra $85K by age 67.
Automate it: If your plan allows for it, setting up an automatic annual increase is the ideal hands-off approach to take here. And it takes only seconds to do.

Take this related lesson on this topic and earn Dibs 🟡 while you're at it:

Boost Your Retirement Savings

Retirement Planning

8 mins

🌊 BY THE WAY

📐 Answer: 2,480 square feet. While U.S. homes are getting larger, on the whole, they still vary drastically depending on the location. See the average home size by state (Visual Capitalist)
🍕 Gen Zers trading turkey for pizza as Thanksgiving prices surge (New York Post)
📉 Investor home purchases tumble 30% as rising mortgage rates cool housing market (Fox Business)
🍑 ICYMI. Has the market bottomed? (Finny)
🏙️ The 10 U.S. cities where the first year of homeownership is the cheapest (CNBC)

🛁 Finny lesson of the day. As the markets continue to whipsaw as they have all year if you've sold an investment at a loss, then bought it back within a short time window, please beware of the IRS Wash Sale Rule:

What's the Wash Sale Rule?

Investing Basics

6 mins

How did you like today's newsletter?

🔥 Great, enjoyed it

😐 Okay, but you can do better

👎 Not interesting

Refer friends to Finny

Finny is a financial wellness platform on a mission to make your money work for you. The Gist is Finny's twice-a-week (Tues & Thurs) newsletter covering personal finance & investing insights and money trends. The content team: Austin Payne, Carla Olson, Chihee Kim. Finny does not offer investment and stock advice.

Please support our brand sponsor⁠—Stackin—as they make rewards on our platform possible. If you're interested in sponsoring The Gist, please reach out to us. And if you have any feedback for us, please contact us. Share this Gist