You are likely right. There are very few home entry points for early career people. I hope I said that better than “starter home”***
ETA: or lower income people
OT: Explain please
- Thread starter horshack.sixpack
- Start date
ETA: or lower income people
If you have a five year old and a three year old, would you really want your wife left with ten years of your income? How much advancement in her career do you think she’s going to have taking care of two children by herself? What if you have a special needs child?
From the point I’ve had my first child, I have never been at a point where 10x my income would be sufficient insurance for me. And I don’t have any special concerns. Just a normal family.
I've seen enough Dateline to know she prolly merked you for that insurance money and within 6 months will have moved on with that dolphin trainer she met on that anniversary trip to Sandal. She'll be fine.
Well you might have a view of life insurance to where your family wins the “tragedy lottery” and gets an actual financial boost and quality of life improvement in the event of your demise. And that’s fine I suppose if that’s the level of coverage you are willing to pay for. But for the majority of the population, it’s not a “spouse never has to work again and we’re gonna be fine” policy….its a moderate safety net to allow a few years for adjustment and simply prevent financial ruin.
In your example, the 5-year old and 3-year old will both be in school within 2 years, freeing up the wife to make as much advancement as she needs. From the payout, you could set aside $2500 / year / child for 8-10 years for after school and summer care…..after that the oldest is 15 and can be at home with the youngest quite reasonably without supervision. That’s only $50,000 or so….5% of the money. Add another 8k for the youngest for all year day care / pre-K for 2 years, and that’s $16k. Then the wife has all the freedom she needs to work a full 8-5. Or she could do none of those things and get a remote work job and still work 8-5. Or she could remarry to someone else who has a stable and well paying job. Many different options here.
Worst case scenario, set that $66k aside. Say you have a pretty nice home….you could pay off your entire mortgage for….say….$400k. If your property taxes are $3500 a year, $35k takes care of that for a decade. Home insurance premiums of $3,000 a year, set aside another $30k and that’s taken care of for a decade. If utilities average $300 / month, another $36,000 covers that for 10 years.
That’s a total of $567k to cover all basic living expenses besides gas, groceries, and television / internet for a decade…..and also greatly reduce any monthly housing expenses for the rest of your spouse’s days if she so chooses.
Now, I feel my estimates were quite reasonable for most upper middle class folks, but lets say they are low in your case, and lets add 20% across the board. That would bring the total up to $680,000ish. That STILL leaves $320,000 for whatever….fully funded college for the 2 kids if deposited into 529 account, private school, new car, savings, whatever else. Could probably actually do all those things with that amount of money. And in a more likely scenario, a good financial planner would help the spouse invest a large % of that money and only cover what was immediately necessary with the rest in order to allow for the sum to continue paying even greater dividends.
So I guess I’m really struggling to know what you’re not getting with 10x your income, or $1 million, or whatever. An amount that high provides a level of financial security that very, very few people have even with the primary breadwinner still alive and working.
ETA: To answer your question….I have 3 kids 7 and under and currently have a policy through my work that pays 6x my income if I die….and I feel pretty good about that for right now.
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SS bennies for a wife and 3 kids is north of $50k a year. If they can't get by on that plus a cool mil, there's definitely something in need of adjustment.
Hope not. If it's because I said something that you think sounds correct....you should listen more.
It all depends. If you are in an early family stage of life where savings are low, debt is high, life ins is cheap, etc, it may make sense to carry a ton of life insurance. I tell people, really the only way to do family finances "wrong" is to have future expectations and current activity in no way be compatible. Ie, If you want to retire at 55 and at 40 you have no savings and are spending all your income....you're doing it wrong. But if you want to work until 67 and spend almost all your income until then....that's very doable. And in that case, carrying a ton of insurance is advisable, because you are leaving behind very little in savings if you die.
well hear me out. Buy land where it’s cheap. And that’s reasonable if you factor in financial cost.
but you keep telling people $300k homes are the way to go when making $100k household income!
great financial advise
Where they are building these $300k homes. How much do you think the land was worth? Market value sale.
Agree, but in general I think its hard to say as a long term rule going forward that 10x your income would ever be considered “low” for many people. If anything, it would leave a lot of people somewhat over-insured. There’s no hard and fast rule that fits every family or individual, but in general you are going to need less and less insurance as you get older, so long as you are following a normal life path by increasing all your other assets (property, savings, 401k / Roth IRA, etc.) that would be inherited and either partially or fully liquidated in the event of your death.
But yes, if you are young and both premiums and savings are low, higher than 10x income could make sense.
If its inside the city limits of the largest city in the state of MS, I’d surmise the land is worth more than many people probably think it should be.
But based on the alleged price of $300k, that’s still not very much for the land. Again, $300k is the rock bottom, bargain basement price for absolutely śhitty as hell new starter home construction in an urban area in 2023. This ain’t the 2009-2011 or even 2019 housing market any more. You can’t buy much at all for $300k even if you’re looking at older homes / neighborhoods that are also in questionable areas….let alone new builds. No builder can sell new construction for that cost and make a profit unless they get the land for almost nothing…..relatively speaking.
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It’s only rock bottom bc people are dumb and pay for it.
And scream that it’s a need.
it’s not.
No, it’s rock bottom because it’s the bare minimum the (probably low-end) builder can sell it for and make enough money to justify doing the development in the first place. No disrespect, but your tone throughout this thread indicates you are pretty wildly out of touch with what $300k can get you in today’s housing market (hint: not much….anywhere). Most simple thing I can tell you is that a house that only 5 years ago was $180k as new construction now easily costs $350k. So what’s being built in Jackson would have been in the neighborhood of $150k-$160k just 5 years ago….as a brand new home. So ask yourself what quality of home that would be in your mind if your brain is still wired to what the market was pre-COVID.
“People are dumb and pay for it”….well, if I’m reading things correctly, none of these houses are sold yet. So nobody has paid for any of them as of right now. And they might not. But the price the builder sets isn’t coming down, it almost never does. They’ve got to keep their lights on and do right by themselves in this deal before they give a crap if anyone is overpaying to live in West Jackson.
It’s not about winning the tragedy lottery, it’s just about leaving your family in the same position financially as if you had not died. Certainly it’s fine to leave them just enough to get by, as long as that’s what you’re choosing to do. I’m not sure most people view life insurance as, give a few years to adjust to losing a huge portion of your income (or all of your income if you have a stay at home spouse that is the survivor). I am certainly an outlier on a lot of things, but I would assume most spouses with children, particularly husbands, would lean towards the “as well off financially as if I survived” approach more so than the “needs a decade to find a new spouse, replace my income him/herself, or learn to live without” approach
a surviving spouse taking care of children by him/herself is generally either going to pay a ton for childcare, or not advance the same as if he/she had a spouse to help. Certainly a single parent can make enough to survive particularly with ten years of their former spouses income, but they’re not generally going to be as in good of a position financially, unless they make sacrifices with their personal life with their children.
Ten times my income would give my family a good net worth that they could survive on. They would not be deprived, particularly combined with our current savings. But maintaining our current lifestyle with that would mean my wife’s lifestyle later on would be diminished compared to if I were living unless she remarried somebody with a good income or assets. I don’t want her to feel like she has to do that and I don’t want her to feel like she has to cut the kids’ current lifestyle to avoid it.
plus, if my spouse or I am widowed, our expenses will go up probably a decent amount, because there is a lot of work that each of us do that realistically will need paid help to do if one of us dies (eg, driving kids around, cleaning the house, cooking, mowing the lawn, doing repairs around the house, etc.). Neither one of us could maintain our current work schedule and do all the work that the other does for the kids or around the house.
ETA: I’m also not saying 10x I come is never enough. I’m just saying it’s relatively easy to figure out what you need for what you want to accomplish and a 10x rule is going to leave a lot of people short of what they want to accomplish.
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Consider a policy that is not tied to your work. You could get a pretty big term policy for 20-30 years and then anything work related is lagniappe.
Tell me you have never listened to Dave Ramsey without saying, "I have never listened to Dave Ramsey"
You find out what that land cost and get back to me.
Otherwise what I’ve said is correct.
If a house income us $150,000 buying a $300k home, all good.
anything around a $100,000 in income is short sighted at $300k
anything less than $100 is risky
My go by has been anything near what the bank says I can afford is risky. They don’t care if you tithe, eat, vacation, have medical bills, etc…
If I’m understanding you, I agree.
they are trying to sell loans. They are gonna sell what they can when they can.
Right. They have an industry standard for percentage of income a mortgage should take worst case that will put you in a bind if you aren’t careful and actually borrow all the money they would lend you.
Well my work policy costs peanuts and still gives me really, really good coverage. So I’d certainly consider another policy if it also costs almost nothing. But then again, chances are still very much on the side of me not dying at an age that would leave my family in peril, so I also don’t wish to just throw an ever increasing amount of money away when what I have is more than enough.
Well, given what current new construction standards are…..I’m going on the assumption that with 200 homes and at that price, it’s going to be all homes in the 3BR/4BR, 1800-2800 sf range that are all crammed on 0.25 acre lots. So, that works out to about 50 acres of land, maybe add another 5 acres for roads, easements, etc.
So 55 acres….maybe figure $25k per acre, that’s around $1.4 million for the land in total for the development, and $6,250 per house for the land it sits on. Pretend I’m off, and its actually $50,000 per acre. Well, then it’s $12,500 per house.
So in reality, I have no idea why you’re continually talking about the land cost. Whether it’s $6,000 or $12,000 per house, its still a drop in the bucket on a $300k home in that area. The real source of the cost-up in houses is how much labor costs have increased, with materials also still being a minor part of that as well. Then you have all the other new construction costs that always get passed on to the buyers, including the costs of building permits, routing of plumbing / utilities / sewage to and from each individual lot, land clearing, roads and sidewalks, drainage easements, property taxes paid by the builder prior to each sale, etc.
At the end of the day, you can’t get a house up from a undeveloped lot for less than $300k anymore. Just can’t, unless you’re working for free. But believe what you want.
Touché.
And don't forget about the cost to develop said land. Curb, road, and gutter costs over $1million per lane mile these days. The infrastructure of roads, drainage, utilities, and sidewalks will take a $15k plot of land up to $65k per lot in a modern subdivision.
I think you just made my point for me.
Im not talking about the land cost.
I’m talking about the cost of the home.
If you build 200 cookie cutter homes and you build them around 1300 sqft which is plenty home based on NEEDS (especially considering the income levels of the people buying them) you could sell at $240,000 and make $55,500 per house after $9,000 in land cost.
50 acres at $37,500 is pretty damn crazy in that area. It’s the ghetto.
200 homes x $55,500 is $11,100,000 million. Plenty in there to factor in roads etc.
$300,000 per home in that area is absurd.
Hell I bet they have a hard time selling them at $220,000 per home without huge government incentives or something to go along with it.
You should see what the options are for keeping your policy if you change jobs. It’s possible the policy is dirt cheap because they are only obligated to insure you as long as you are employed at that job. You don’t want to have something make you uninsurable and then not be able to leave your job because you won’t be able to replace your insurance.
Fair enough. I’ve found that changing jobs meant varying benefits and having my life insurance independent of my work was best. I still take advantage of whatever work throws at me.
First off, as I said, no builders are doing 1200sf homes anymore in the South. That crap stopped way back in the 80’s. Buyers don’t want them because they have minimal appreciation, and its far more economical for a builder to do an 1800 or 2000sf house, because the build costs don’t rise proportionally with the square footage, and a lot of those savings get passed on to the buyer. More profit in the build. If you were allowed to build a 1200 sf house on a 0.1 acre lot, it might be different because then builders could just cram them in. But even places as poorly run as Jackson, you have minimum lot size requirements for single family new construction.
Regardless, I’m pretty curious how you came to the number of $175,500 as the amount it would cost you to get permits, clear the lot, grade the lot, run plumbing to the lot, run electrical / telecommunications to the lot, build the roads that run to the lot, build irrigation / drainage / sewage systems for the lot, pay property taxes payed on the land and everything on it by the builder, and so forth. 1 / 200th of the cost for everything above is getting passed on directly to the homebuyer, and as @PooPopsBaldHead said, that’s going to be in the tens of thousands of dollars. So what you’re saying is that you can build a 1300 sf house from foundation up for only $110k - $120k. And if that’s your position in today’s times, you’re full of it.
And just one more thing - 1800sf @ $300k is $167 per square foot. Your 1300sf @ $240k is $185 per square foot. So, your house that you think is all the prospective buyer “needs” is actually a much worse deal for said buyer.
It’s still in the city limits of a major city in close proximity to 2 interstates, Madison / Ridgland and other suburbs, etc. They don’t just give that kind of land away. And the land cost really isn’t much anyway.
You need to remove the phrase “in that area” from your statement to ever be able to get this. If the land was completely free for the builder, the houses are still going to be $290k each. That is, quite simply, what it costs to build a home and make a modest profit while doing it. If the land was was completely free and the builder was doing it for free, its still going to be a $250k-$260k home just for them to get out what they put in.
You want to question the decision to develop a subdivision in that area, totally get it. I agree. But once that decision is made, the price is what it has to be for it to be worth doing for the developer. You cannot buy ANY new construction ANYwhere in 2023 for less than $300k. It just ain’t happening.
I think a lot of people may think they are getting coverage that is equivalent to “just as good financially as if (insert name) was alive”, but the only way you can reasonably expect to do that is setting your policy amount equal to your remaining # of working years multiplied by your income. So if you are 40, and planning to retire at 65, your policy would need to be 25x your income. Perhaps you could subtract 5 - 7 or so from that to account for time value of money and other benefits like SS surviorship, but that’s still 18x or 20x income for a mid-career person and something like 25-30x income for an early career person. I shudder to think of what either of those would cost for me. So, I think most people have to decide a reasonable compromise point that makes the premiums worth it.
As to the rest of your post, I can only assume you’ve weighed all that out and decided what coverage you need to get the peace of mind you desire. So credit to you for that.
We're not as far apart as you think. If you have 25x your income, you can most likely replace your income, inflation adjusted, for the next 30 years (very likely that you'll be able to do that and grow your nest egg, with say a 5% chance you won't make it 30 years before running out of money). But you really only need to replace what you don't save, so assuming a 15% savings rate, you're looking at a 21.25x multiple to replace what you actually spend. Throw in SS survivor benefits, and that brings that number down a good bit, with of course it covering more the lower on the income scale you are.
So early on, you have a big multiple of your income, but you're presumably young and healthy and it's dirt cheap. As your income grows, that same insurance becomes a smaller multiple, but you're also increasing your savings to offset this somewhat. If you are doing 20 year term, every 5ish years you can redo it and it doesn't go up much on a per dollar basis if at all if you don't have any health issues pop up. And you can up it (or reduce it) to get to whatever multiple you need at that time. You're worst case scenario is having a health issue where you can't get new insurance and you need to get self insured over the remining 15 years of the term, which can be tough but with 15 years to plan/prepare, you shouldn't be too bad off.
When I started working, I did have almost 20x my income in insurance. Now I only need to be at a little under 12x. All that to say that I'm certainly more conservative/risk averse than most, and don't think most of Dave Ramsey's listeners would want 20x their income, but I suspect a good number would want more than 10x their income and it seems too easy to figure out what number is appropriate to just tell people 10x your income.
And as I’ve stated, a builder could come in and build affordable housing which would be good for the builder and buyer.
That’s literally my whole point.
And I’m pretty sure someone just posted a 600 sqft house for $456,000 which is what really started this specific convo.
I think this fits only for a high-income, high-spending family that's relatively young. A low income family won't need much over SS benefits to keep the same lifestyle. (Well, maybe a single kid family will, as that gives a substantially lower benefit that 2 kids. And for 4, 5+ kids as well, as family benefits max out with 3 kids.) For a high income, low spending family, well that's a lower standard of living to maintain, and there should be substantial assets on hand.
I would say calculate how much spending your family will do based on current spending, subtract out SS and assets (like 401k), add in debt, and there's how much coverage you need. Add in some langiappe if ya want.
But I'm an old guy that married a young wife and has young kids. I don't fit into most people's plans. My problems are predicting future spending well past my retirement.
If your definition of “affordable” is $240-$260k, then no, they couldn’t. That’s literally my whole point.
$300k is as affordable as it gets these days for new construction, within the constraints of the construction labor and materials markets, buyer preferences, laws / regulations, and work that must be done. For better or worse, that is reality.
No its not.
You can absolutely build 200 hourse for $135 a square foot or even less and make money selling them.
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