Financially Possible

In part I of My Biggest Financial Mistake, I discussed how I missed a huge opportunity building wealth when I chose to pay off my mortgage as quickly as possible and neglected maximizing my 401(k) contributions. In this post, I am sharing another aspect of that financial mistake.

Lack of Self Awareness Was Costly

Back in year 2002, I didn’t have a clear picture of what my housing needs were. I didn’t have the same self awareness that I have nowadays. I didn’t ask myself much questions when it came time to search for a house. As a result, that house I bought was much bigger than I needed. I fell into the social comparison trap when I saw others left and right purchasing much bigger houses.

Thinking Ahead of Myself was Costly

I also tried to anticipate my future needs and those of my future family. That decision was costly. I did not need three bedrooms. I did not need three car garages. I certainly didn’t need or want one third of an acre of land. When the task of maintaining the lawn was too much for me, I hired my brother to help. This certainly does not fit the profile of someone as frugal as I am. In fact, nothing about the purchase of the house made sense to me in hindsight. Don’t get me wrong; the house was beautiful with a vaulted ceiling by the entrance. However, its size was far more than what I needed at the time.

Go Small

What messages do I have for those looking to buy a house today? First, determine if the purchase of a home makes financial sense for you. Paula Pant at Afford Anything wrote a very informative post on this topic (see here). I highly recommend her website if you are interested in real estate. Second, ask yourself if purchasing a home in the near future is a must or if that’s a purchase that can be deferred. If is the latter, take the time to get to know yourself and understand what your true needs are. Deferring such a big purchase also gives you more time to do research. I encourage you to consider the flexibility of renting (such as job mobility and the ability to live in different neighborhoods or cities). Next, I suggest you to buy small if you still want to purchase a home after considering all the above. In fact, buy much smaller than what you think you need or what’s comfortable for you (and your family).

Going small has so many benefits:

• Less space to clean and maintain
• Less space to clutter the house with material things
• Smaller mortgage payments (certain US markets defy all logic though)
• Lower property taxes
• Lower home insurance premiums
• Lower heating and cooling costs
• Less tempted to buy status items that go with the size and value of the house
• Living in less space and tighter proximity brings the family closer together for more love

What other benefits can you think of when going small on housing?

Ideally, what percentage of your net worth you would put in your personal home (if you choose to own) and in investment properties (if you choose to buy RE investments)?