Recently we looked at this list of 15 things put together by John Rampton which may be holding you back from financial freedom. The list is :
- Living Above Your Means
- Lack Of Determination
- Neglecting your Health
- Purchasing a Home
- Relying on One Source Of Income
- Wasting Valuable Time
- Not Acting on Your Ideas
- Not Reading
- Fear and Negativity
- Not Setting Goals
- Avoiding Routine
- Not Collecting Assets
- Spending Time with Toxic People
- Failing to Follow to Allocate your finances (70/30 rule)
- Not Having A Mentor
Today we are going to look at the fourth - Purchasing a home
A rather divided school of thoughts here, one goes along the line of 'borrow as much as you can and buy as soon as you can', the other is to take your time, focus on you, your life , what you want, then, when the time is right, buy if that is what is right for you.
Of course, at this point, I am standing back from the 'financial wisdom' or otherwise, of owning a home, and rather looking at the point of it in the first place. Yes it is a way of giving some long term stability over a number of years for retirement, but should the whole of your adult life be constrained to that goal?
Akin to the all inclusive holiday, where, because it is there, you are going to make sure you get all you can (BBQ, beer, curry, ice cream, cocktails with umbrellas in, and so on), mortgages have a similar mentality of 'how much can I get, because it is offered to me'.
I am the first to appreciate the cost of housing. Here in Cornwall, in some small fishing villages, a 2 bedroom cottage can sell for upwards of £600,000, with a basic starter home coming in at £180,000 if you are lucky. Now, to people living in some parts of the country, that may seem like a bargain, but not when you appreciate that Cornwall has the largest disparity between average wages and house prices in the country, and has done so for many years. That makes it difficult not to borrow as much as you can get, and this dilemma is repeated all around the UK and beyond.
If however, we have a plan (a financial plan) which doesn't just dedicate every spare penny to owning the house (or renting it from the bank for 25 years), but build in savings for us to invest in business ideas, savings plans, other ways of growing wealth, then maybe this could bring more avenues towards financial freedom.
With all spare funds being dedicated to a mortgage, what happens when things go wrong? Borrow more - yay! Then we have an issue to find a way of repaying that, and so the cycle continues. Borrow some equity when the house price goes up! Problem solved - or is it? Another commitment to the bank, and less margin.
Sometimes, it may pay to stand back, figure out what you actually want from where you live, rather than just the ego of owning it.
I once had a lovely elderly (90) client who wanted to relocate to another part of the country nearer to her family. She was selling her property in Cornwall, yet felt compelled to buy again, after spending just an hour looking around it. A new area, a new house, everything different, yet she was going to commit to this after barely just one hour! I suggested renting - either for a year, or for the rest of her life. Sadly, when I visited her, she was neither happy in the house nor the location, and both her intent and haste had cost her far more than just a number of unexpected plumbers bills - her happiness. Maybe those widows who sell up and effectively live on a cruise ship for the rest of their lives are on to something after all!
Today's work is to think what you actually want FROM your home - not what it looks like (that is when ego may start to creep in). How would you like it to serve you in feeling, the emotions it brings, maybe flexibility of your life in it, or even flexibility of life full stop. Where would it be and how would that feel? Is there a compromise where you could live in the ideal place, but do it without huge burden to yourself? For a moment, forget actually 'owning' the house (you actually only own part of it in any case - the bank owns the majority usually), and think of living in it.
only if it makes financial AND personal sense. Like an all you can eat buffet, just because it (the money or food) is there, it doesn't necessarily mean that you need to take (eat) it all.