I am looking into some unavoidable housing-related expenses, on the order of ~20k EUR, within the next year, by all appearances. It is an expense related to plumbing, which will add to the value of my housing unit, and which will be depreciated over 25 years IIRC.
- Why is it unavoidable?
- Why is it "by all appearances" next year?
- What are the alternatives for this maintenance?
- Maintenance or remodelling hardly ever adds value to a housing unit. Why do you think it will?
- How long do you plan to live there?
- How would you feel if you moved to another place and still had monthly debt payments for the 2025 plumbing repairs of your previous home?
I like option 2, getting a loan for this expense. I see that the interest is tax deductible (we have that in the Netherlands too for house-related interest expenses). So while the APR is about 7%, you're actually "only" paying 4.7% of interest and "the government" is paying the other 2.3% .
I do also like this option because you plan to live there for a long time. If you were moving in a couple of years, I'd probably take the higher rent payments and leave the next tenant with the rest of the costs, but it seems like one way or another, these costs will be yours to pay because you also plan to enjoy the benefits for many years to come.
With an actual interest rate of 4.7% it would be a good gamble that you can get a higher average return for your money in the stock market. So then you would mathematically do wise to just pay this loan off slowly and to invest all the rest of your surplus money in the stock market. Stay aware that if at some point the tax deduction goes away or gets reduced, it may become better to pay off the remainder of that loan immediately (or as fast as is possible at that point). Make the calculations again at that point.
Emotionally, I can imagine that for example you want to be done with this loan at some point. Maybe you will plan to pay it off when you retire (even though you could also take the monthly payments into account during the first years of retirement). Maybe you will plan to pay it off in say five years instead of the say eight years that is the official term of the loan. Just because you want it finished sooner. Maybe you pay the minimums but put some windfalls towards the loan if and when they happen. It will not be the mathematically best option, but maybe that feels better.
In other news, I've been mulling over the concept of reproducibility as it pertains to this thing of ours. One irreproducible aspect of my life is that I pay something like 30% of the median rental price, and this to a large extent enables a high savings rate. An equivalent reproducible price could only be achieved by living in a podunk town. On the other hand, I consider my wage fairly reproducible: it's either at or below the median. I would consider salaries way above the median to be likewise irreproducible.
Have you decided anything on this? Feel free to just point me to a later post.
I was in a similar situation three years ago, albeit job was minimum wage and living costs were sweeping the floor, some years we had 7-10k GBP for two people. Then DW and I transitioned to median wage jobs to get more reproducibility. We have still chosen an affordable city, but now we are getting continuously higher wages so if this does not impinge on the rest of life and we continue, reproducibility will broaden.
Have you decided anything on this? Feel free to just point me to a later post.
I was in a similar situation three years ago, albeit job was minimum wage and living costs were sweeping the floor, some years we had 7-10k GBP for two people. Then DW and I transitioned to median wage jobs to get more reproducibility. We have still chosen an affordable city, but now we are getting continuously higher wages so if this does not impinge on the rest of life and we continue, reproducibility will broaden.
My irreproducible edge is time. I earn an above local median wage in much less time than usual. Neigh impossible for others to reproduce, or even to scale up myself.
