This Could All Be Yours, For Only…..
One of my friends recently reached out to me, confused and seemingly frustrated. He was dumbfounded as to how his friends were seemingly lapping him financially when, in his estimation, their income was probably similar. When I asked what makes him think that, he cited a few financial decisions one of his closest friends recently made. In short, his best friend purchased a $700,000 house, which apparently proves he's rich. As I explained to my confused friend, a large house purchase isn't a sign of wealth, but rather a sign of a high cost of living. Here's the quick math I gave him:
Let's assume his friend made a 5% down payment, or $35,000. That means they needed to finance the remaining $665,000.
With a 6.75% interest rate on a 30-year schedule, the monthly principal and interest payment would be approximately $4,300/month.
The real estate taxes for their jurisdiction would be approximately $1,200/month.
Homeowner's insurance would likely run in the $200/month range.
Therefore, their minimum monthly payment would be approximately $5,700.
I say minimum because that number does not include repairs and maintenance. We should expect to pay at least 1% of the house's value per year (over the long run) on repairs and maintenance, or approximately $500-$600/month.
Oh yeah, and while it assumes they put a $35,000 down payment on the house, it doesn't factor in any money they spent on furnishing it.
Therefore, on average, this couple is spending at least $6,000/month for their house, plus another $50,000+ the day they move in.
"Holy #$#@!!!! I would never want that sort of pressure on my family. We'd have to give up everything else we value in order to make that work. And that financial pressure would make us feel like absolute crap."
"Good, so you have no reason to be jealous of them!"
There's no free lunch in life. Whenever we see someone around us making extravagant purchases, there's a very real cost. There are consequences. When they spend that money, it's $x less they get to spend on something else. Or if they financed it, it's $y more added to their budget each month, for years, to pay it off. Every action has a reaction.
If that last paragraph is true, then we should all spend less time being jealous of other people's decisions, and more focused on simply making value-add decisions for our own family. Life is so much better that way!
Or through the lens of a recent conversation I had with one of my sons, he asked, "Dad, why don't we live in a house like my friend ____ lives in?" Translation: Why does our house suck when his friend is living in a mansion? My answer was simple. We make intentional choices that allow us to do the most important things for our family: Dad gets to help people, Mom gets to stay at home to be with you more, we give generously, and we travel to make lots of memories.
Whatever financial choices you make today, I hope they align with your family's values, goals, and vision. Don't live the world's values....live yours.
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