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Financial Jiu Jitsu will teach you how to gain leverage in the real world, step by step, until you are confident you no longer need more.

Never Fear Being "Left Behind" by the Economy

Never Fear Being "Left Behind" by the Economy

There was a push for people to "get into the housing market before they're outpriced forever."  This led to people who didn't have enough money, or good credit, into applying for loans that were way more than they could afford.  We all know how that turned out, circa 2008-2009.

In a capitalist country (God Bless America), supply will always meet demand.  Demand will always meet supply. When that isn't happening, you have market and price fluctuation until they balance.  Except in the event where an aristocracy is forming and slowly purchasing all of the middle class assets, there will never be a time where you will "never" be able to afford a home - anywhere.  Although real estate prices are rising, there will be a ceiling, a bubble, and another collapse.  Those that stuck it out and held liquid or cash until that happens are going to have the opportunity to get the house that they actually want.

 In other words, there will always be another train coming

In other words, there will always be another train coming

Until that downturn comes, it is important to live below your means.  The hardest rules for us humans to follow are simple yet so difficult, because of some offshoot of evolution we are constantly comparing ourselves to our neighbors.  If Ugg across the mountain has a bigger cave, with more sun exposure, and a saber-tooth tiger rug on his doorstep, more cave girl chicks are going to look to Ugg as a provider.  You can't allow that and survive as an individual who contributes to the gene pool, so our brains were like "you should either kill Ugg or get better stuff than him, so cave chicks will want to be with you." This resulted in a desire among humans to not only compare themselves to one another in terms of physical strength, but also their achievements, their belongings, social status, and so on.  Since we live in an advanced society that pretty well frowns on cold blooded murder, then we double down on the other aspect of "success," which is materialism.

The only way to escape the trap of having more and better stuff than those around you is being grateful of everything that you do have.  People in larger houses can host parties and seat more people, but is it really worth being a slave for 15 more years?  I don't think so, and I doubt our readers do either.  Buy a small place, with enough room.  Make sure it has everything that you need and nothing in excess.  Put 20% down and have enough money each month to double or triple your mortgage payment.  Get the best rate with a 5/1 ARM or a 15 year fixed APR.  These things aren't even difficult if you simply live beneath your means.

Do an internet search for "How Much House Can I Afford" and you will see that they essentially use the same measure that the banks use to determine your eligibility for a loan, which is your income to debt ratio if the loan is approved. That limit was set at 40% including all debt payments (cars, student loans, etc) and generally 30% for a mortgage alone.  Note that this is in pre-tax income.  You punch in your numbers and spits out a figure for how much you could afford, but not necessary how much you should  afford. If you want to get into the real estate market now, don't fall victim like those poor first time home buyers in 2004, who were only beginning their lives and had to foreclose when they lost their jobs and their house tanked in value in 4 years.

Editor's note: DDon believes that this is a good time to be saving cash/bonds/liquid funds in lieu of investing in a peak real estate market. If you are going to buy a house, never do it because you are afraid of being left behind. 

-DDave

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Not Sexy - Spending Your Time On Maintenance

Not Sexy - Spending Your Time On Maintenance

Pay down Mortgage or Invest? A complicated analysis

Pay down Mortgage or Invest? A complicated analysis