Saving to Buy a Home or Business
When you’re starting out financially, deciding whether to save money to buy a home or to put money into a retirement account presents a dilemma. In the long run, owning your own home is generally a wise financial move. On the other hand, saving sooner for retirement/financial independence makes achieving your goals easier.
Presuming both goals are important to you, save toward both buying a home and for retirement. If you’re eager to own a home, you can throw all your savings toward achieving that goal and temporarily put your retirement savings on hold. Save for both purposes simultaneously if you’re not in a rush.
You may be able to have the best of both worlds if you work for an employer that allows borrowing against retirement account balances. You can save money in the retirement account and then borrow against it for the down payment of a home. Be extra careful, though. Retirement account loans typically must be paid back within a set number of years (check with your employer) or immediately if you quit or lose your job. As I mention earlier in this chapter, you’re also allowed to make penalty-free withdrawals of up to $10,000 from individual retirement accounts toward a first-time home purchase.
When saving money for starting or buying a business, most people encounter the same dilemma they face when deciding to save to buy a house: If you fund your retirement accounts to the exclusion of earmarking money for your small-business dreams, your entrepreneurial aspirations may never become a reality. Generally, I advocate hedging your bets by saving money in your tax-sheltered retirement accounts as well as toward your business venture in a non-retirement account. An investment in your own small business can produce great rewards, so you may feel comfortable focusing your savings on your own business.
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