WOMEN RETIRE Photo From Shutterstock

Photo From Shutterstock.com

Don’t Bet Everything On Your House

· · 60 Comments

By Craig Erwin, Ph.D.

Photo By J. Remus On Unsplash.com

Don’t bet everything on your house even though houses mean a great deal to Americans. For most Americans, their house is their single biggest investment. Of course, many Americans live paycheck to paycheck and have very little saved. The Federal Reserve found that 46% of Americans would not be able to come up with $400 in an emergency. And the median 401(k) balance is $22,217, far less than the value of a typical American home. So, for many Americans, their home is by far their most valuable asset.

Is it a good thing that most Americans’ biggest investment is their home? No. Although having a home certainly beats not having a home, and many view it as a way to force yourself to save, a home lacks many of the qualities you would want in an asset. It is far less liquid than stocks and bonds. Plus, it can’t be easily sold to raise cash when you retire because, then where would you live? It is also very expensive to maintain, unlike stocks and bonds. You must pay steep property taxes, utilities, insurance, and maintenance expenses, so it is quite an expensive asset to own. Although its biggest benefit is that you can use it for shelter, that shelter does not come cheap. By the time you finish paying off a 30 year fixed loan, you will have paid 2.5 times the amount of the original loan and almost double the value of the home.

Clearly, Americans are very fond of home ownership. New home construction is at its highest level in a decade (in the midst of a pandemic). Builders are struggling to keep up with demand and the market for existing houses is humming along too. Existing home sales just hit a 14 year high. Americans are definitely in love with the idea of owning a home.

Although I own a home and I am usually happy I do, it would terrify me to have my home as my most valuable asset. And let’s face it, most of us don’t really own our homes; the banks own them. We slave away, struggling to pay down the mortgage for decades so we can finally say we own our houses for a few short years before we die. The vast majority of us only own a small fraction of our houses and build equity painfully slowly.

Not only are homes expensive to maintain, they can be money pits. It is tempting to keep replacing things like furniture and appliances, to keep remodeling regularly, and to keep filling our houses with expensive knick-knacks and gadgets. But, all of these things cost money. And the more money you pump into your house, the less you can save for important things such as college expenses and retirement.

Is there a better way? Should your home be your most valuable asset? I spent much of my life in apartments, even though I have had a house with a mortgage for the past 15 years since my kids started school. The benefit of spending my early years in an apartment is that I didn’t have to pay property taxes, PMI, insurance, or maintenance expenses. As a result, I had a lot more disposable income. What did I do with it? I saved aggressively for retirement through my employers’ retirement savings plans. By the time I bought a house, I had already accumulated a sizeable retirement account balance. After buying a house, I had to sharply reduce the amount I regularly contributed to retirement savings so I could pay the mortgage, PMI, insurance, etc. Fortunately, though, I had already laid a great foundation for retirement. I would have had less disposable income to use for retirement savings if I had bought a house when I was young; as a result I would have accumulated much less for retirement.

Owning a home can be a wonderful thing, but it can also be a burden and it won’t come cheap, so go in with your eyes wide open. Much like having children or adopting a pet, it’s unwise to buy a house on a whim. Before you buy, make sure you are ready for it, you really want and need a home, and you can afford it. Roughly 7 million people lost their homes during the great recession between 2007 and 2009. For many of them, buying a house was the worst decision they had ever made. If you choose to buy a house, make very sure that you are ready, you can afford it, and it won’t wreck your retirement savings plans. Owning a nice house is great, but it’s perfectly okay to rent, especially if you’re young and you don’t have kids. You don’t have to own the place you live in, especially if it could throw your retirement plans out the window.

For related blog posts, click on the following links.

https://womenretire.com/some-people-will-always-have-more-money-than-sense/

https://womenretire.com/for-most-americans-saving-money-is-hard/

NEVER MISS A POST

Lorem ipsum dolor sit amet, consectetuer.

Reader Interactions

Leave a Reply

Your email address will not be published. Required fields are marked *

Comments

  1. 4 stars
    I’ve been browsing on-line greater than three hours lately,
    but I never discovered any attention-grabbing article like yours.
    It’s beautiful value sufficient for me. In my opinion, if all site owners and bloggers made
    good content as you probably did, the web might be a lot
    more useful than ever before.

    Reply

  2. 5 stars
    I know this website gives quality depending content and additional information, is there any other web
    site which presents these things in quality?

    Reply

  4. 2 stars
    Howdy I am so thrilled I found your site, I really found you by
    mistake, while I was browsing on Google for something
    else, Nonetheless I am here now and would just like to
    say kudos for a fantastic post and a all round exciting blog (I also love the theme/design),
    I don’t have time to read through it all at the moment but I have saved it and also added your RSS feeds, so
    when I have time I will be back to read much more, Please do keep up the
    great job.

    Reply

  5. 1 star
    Hi there this is kind of of off topic but I was wondering if blogs use WYSIWYG editors or if you have to
    manually code with HTML. I’m starting a blog soon but have no coding know-how so I wanted to get
    guidance from someone with experience. Any help would be enormously appreciated!

    Reply

  36. 1 star
    Have you ever thought about publishing an e-book or guest authoring on other websites?
    I have a blog based upon on the same information you discuss and would love to have you
    share some stories/information. I know my subscribers would enjoy your work.
    If you’re even remotely interested, feel free to send me an e-mail.

    Reply

  38. 3 stars
    When someone writes an post he/she keeps the image of a user in his/her brain that how a user can know it.
    Thus that’s why this article is amazing. Thanks!

    Reply

  48. 4 stars
    Its such as you learn my thoughts! You appear to know so much about this, such as you wrote
    the ebook in it or something. I feel that you just could do with
    some % to power the message home a little bit, however
    other than that, that is excellent blog. A fantastic read.
    I’ll definitely be back.

    Reply

  50. 2 stars
    We are a group of volunteers and starting a new scheme in our community.
    Your website provided us with valuable information to work on. You’ve done an impressive job and our entire community will be thankful to
    you.

    Reply

  54. 4 stars
    great submit, very informative. I ponder why the opposite
    specialists of this sector do not notice this. You must continue
    your writing. I’m sure, you have a great readers’ base
    already!

    Reply

  55. 5 stars
    Wonderful blog! Do you have any suggestions for aspiring writers?
    I’m hoping to start my own blog soon but I’m
    a little lost on everything. Would you advise starting with a free platform like WordPress or go for a paid option? There are so many choices out
    there that I’m completely confused .. Any recommendations?
    Appreciate it!

    Reply

  56. 3 stars
    First off I would like to say great blog! I had a quick question in which I’d like to ask if you do not mind.
    I was interested to find out how you center yourself and clear your mind
    before writing. I have had trouble clearing my mind in getting my thoughts out there.
    I do take pleasure in writing but it just seems like the first 10 to 15 minutes are usually lost just trying to figure out how to begin. Any recommendations
    or tips? Thanks!

    Reply

  57. Great post, Mr. Erwin. Sadly, I have close friends in their 40s who sacrifice cash, retirement savings, and college savings just so they can have big, beautiful houses or McMansions. Some of them even took out 30-year mortgages (because of interest payments, half of the principle will only get paid off after the 20th year). Even after I’ve shown a couple of them my spreadsheet analysis, proving that expensive homes substantially reduce net worth, and that they would be living beyond their means, they still bought these expensive homes. Their reasons were not financial; they did it because it made their families happy. Mcmansions are symbols of prosperity and aren’t sound investments for most of us.

    Reply