With my wife working again, we will be what one family friend referred to as DINC’s, or double income no children. We’ve already redone our budget, with the only additional expense being her monthly commuter pass (which at $160 isn’t exactly cheap, but is much better than driving and parking in Boston every day). We set aside some money for each of us to help float our checking accounts a bit more, and then dedicated the rest to savings and paying my student loan.

The savings will first go towards our $10,000 emergency fund, which is 25% of the way there so far. After that, it’s time to save up for a house. And what a challenge that is going to be!

I’ve recently been enamored with the concept of compound interest (whereby interest you accrue in an account, and that stays there, helps the account build interest even faster). Unfortunately, I became a bit too enamored with it, and assumed that it would help just as much over a few years as it would a few decades.

Of course, that’s not the case, and we’re going to have to do most of the house savings with our own money, with interest accounting for about 10-15% of the money contributed. So how much do we need to save?

First, we need to know how much the actual house is going to cost, of course. I took a look at the average house cost for some communities we like and found it to be about $375,000.

Second, we calculate the down payment as being 20%. This amount is always the recommended down payment, and also allows you to avoid paying private mortgage insurance, which can cost $50-$80 a month. So we would need to save $75,000 for a down payment.

The next question is simple: When do we want a house? We’re both 25, so let’s say we want one by age 30. Using a savings calculator, assuming we get 5% interest in an online savings account, I found that we would need to save $1150 a month, not including any other savings, to have that money in five years!

Unfortunately, I don’t really see that being possible. So what are our options? First is to simply wait an additional year before buying a house. Second is to buy a cheaper house, and third is to pay less than 20% on a down payment. At this point, the first option seems most likely, but I still have quite a lot to learn about paying for a house.