Should You Buy a House?

A post back we determined that a house is not really an asset or an investment.  It just drains more and more money directly and indirectly.

So the question is, should you buy house then?

The answer is absolutely yes.  You should own your own home. 

Well if a house is not an asset or an investment why should you buy one?

The house may not be your best investment but it is your best forced savings plan.  In the long run homeowners will almost always outperform renters in terms of net worth.

Lets run this scenario.  You decide to rent for the next 10 years so you get a nice two bedroom apartment for say $1,000 a month.  After 10 years and spending $1,000 / month * 120 months = $120,000, what do you have to show for it?  Nothing, nada, zip.

Some smart readers might point out that the money that you saved by renting could have been invested at a 8% return and thus could amass a small fortune.  Yeah that would be the logical thing to do… if you’re a Vulcan (Star Trek geek coming out).  How many renters really invest the difference?  Do you know any?

Now lets take scenario B.  You decide to buy a house and live in it for the next 10 years.  The house is $150,000 and costs you $1,500 a month in mortgage, taxes and insurance.  The payment is high but you manage and you stick with it for 10 years.

After 10 years and assuming a very conservative 3% appreciation that $150,000 house is now worth about $201,000.   Right off the bat you made a real capital gain of $51,000 by literally sitting on your ass-et.

But it gets even better.  If you put %10 down on the mortgage at 6% and owed 90% or $135,000 at closing, after 10 years your balance is now $112,731.21 or about $22,265.79 less.

Even gets even sweeter than this.  All that mortgage interest and taxes you paid on the house are tax deductible.  The savings on this is considerable and will vary depending on your income, number of dependents, etc.

So without counting tax savings, after 10 years of home ownership you made $51,000 of capital gains + about $22,000 in loan pay down or about $73,000.    Owning a house in this scenario made you $73,000 richer after 10 years.  That’s equivalent to saving $400 a month and making it grow at an 8% interest in the same amount time.

In summary, you should own your home for no better reason than to force you to save and not spend it away.  The pride of owning your home… priceless.

You're Probably Sabotaging Your Goals by Just This One Action

Have you ever had a great plan or a dream that you wanted to accomplish?  Did you share it your friends, family, loved ones?

I'm going to guess that you didn't and instead you kept it to yourself.  You might have told your wife but that's about it.

Why is that?  Have you ever thought "there's this thing I want to do but I don't want to tell anyone in case it doesn't happen".  Sure you have.  Often you don't even tell yourself but keep it recessed in the back of your mind.

I believe we all fear sharing our most wild and exuberant plans because if we don't accomplish them we'll look like fools.  We dread the conversation that starts with "what ever happened to your plans to xxx", or "didn't you say you wanted to become a xxx"?

This innate fear is actually a great tool. It is precisely this fear of failing that can help you succeed.  If you have a goal you want to accomplish then telling as many people as you can commits you to getting results.

For many of us the fact that we told someone that we were going to do x or y, is that last push that helps us get over the obstacle and accomplish our dream.

The next time you have a great plan or a great goal, tell as many people as you can.  If you want to be truly committed make a bet like shaving your head if you don't go through with it.

The key here is that you should not be focused on the outcome but rather on the attempt itself. If you had a goal to make $100,000 in a year but only made it to $95,000 did you really fail?

It's better to aim high and miss than to aim low and hit.