When people discover I’m a financial planner, they say things like…
“We’re thinking about a bigger home for our growing family. Do you agree with that old adage that your mortgage shouldn’t exceed 28% of your income? Also, should we wait to buy until interest rates drop? And then, should we pay off our mortgage as fast as possible?”
These are all great questions (but too many to answer in one short column).
Here’s what I typically tell eager home “up-sizers”…
You never just buy a bigger house.
You also buy a bigger utility bill, insurance bill, decorating bill, remodeling bill, lawn care bill. And in moving into a more upscale neighborhood, most also buy the extra expenses that go along with an upscale lifestyle (more spent on dining, travel, and entertainment).
These luxuries aren’t right or wrong, good or bad. This is just how life typically works.
A home purchase is primarily a lifestyle decision. (It’s only secondarily an investment decision.) Consequently, the more home—and upscale lifestyle–you buy, the less money you have to create financial independence and margin for yourself.
It’s worth remembering that your new house—with those wonderful new carpet and fresh paint smells—will soon get old. Meanwhile, that higher mortgage payment will stay with you for 15 or 30 years.
On the other hand, being a hoarder of wealth isn’t a great solution either. You might as well spend some of what you earn building memories with those you love. It isn’t wrong to enjoy your life.
Back to housing upgrades…here’s what I see: Most people err on the side of buying too much house.
So, how’s this for a crazy idea?
Before building or buying a bigger physical house, build a healthier fiscal house.
“Huh?”
Here’s what I mean: When your fiscal house (i.e., your financial life) is in order, you’re better able to enjoy that beautiful house you want to buy or build. On the other hand, if you overspend on housing and stretch yourself too thin, you’ll live with constant stress and the fear of losing your home.
What does getting “your fiscal house in order” look like? It means protecting your assets (tangible and intangible), spending less than you make, and saving enough to move steadily towards financial independence.
Once you’ve taken these wise financial actions and made these money habits part of your lifestyle, then you’re better positioned to make good decisions about how much house you can afford.
Sadly, I don’t see many people making their fiscal/housing decisions in this order. Most overspend, then end up scrambling so hard to FUND their life, they don’t actually have time to LIVE their life! Please don’t join that stressed-out group.
And while we’re on the topic of getting your financial house in order…
Maybe you’re wondering, “How am I going to turn my retirement savings into regular retirement income?” If so, I’ve got a helpful, free tool for you. It’s called the RISA (i.e., Retirement Income Strategy Assessment).
In less than 10 minutes, it can show you what kind of retirement income plan best aligns with your personality, resources, goals, and lifestyle. There’s no obligation, and you can access it by clicking here.
Afterwards, if you want to discuss your RISA results further, reach out.
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