Wednesday, March 14, 2012

The Mistake My Budget Couldn't Recover From, Ever.

It is the single largest expense of nearly every budget: Housing.

In my original estimates I wrongly assumed that the only thing that would change in our expense equation was the cost of housing. We previously didn't have any, so I looked at our budget compared to our anticipated income and came up with what I thought we could reasonably afford.

Using my target number of $950/month I set out to find a house that would fit our price range and needs for our family. Thanks to the Internet you can research home prices all over the country. And thanks to the Internet you don't really get the full picture of what that house will cost.

I figured that at $950/month we could afford a house in the $135,000-$145,000 range (in 2006). I should add that $950/mo would be our top end. But then I started to discover that the seemingly affordable housing in the area we were relocating to wasn't as affordable as the numbers made it seem thanks to property taxes. Property taxes are a mere annoyance in some areas of the country, like where we were from. Property taxes in other parts of the country represent a large % of the costs associated with housing, like where we were going.

All of a sudden the price range we had to look in to meet the $950/month that I thought we could safely be in dropped dramatically to about $100,000. See in our state property taxes run on the low side about $2,500/year to $5,000/year about the low-average. Finding a home that was in good condition, that would meet our needs over the next 6 years was all but impossible to do in one week.

That probably explains why the realtor we were working with started showing us more expensive homes than the ones we asked to look at. Not to mention that she had a personal stake in showing us more expensive homes, her commission was based off the sales price!

When she showed us the house we eventually bought we were skeptical that we could afford it (those gut feelings are usually right), but the bank assured us that we could. What does the bank know about how I spend my money or what is important to me. What did they care about how many children we had, or if we ate rice and beans for every meal. Did they care that we would never take a vacation, see a movie, or get a babysitter? No.

On top of that we only had a week to look at potential properties. We had already spent so much time looking that turning back and starting over seemed to represent a failure on our part. What was the point of spending the money to come out to look if we went home empty handed.

Rentals? We had already convinced ourselves that we were going to buy a house. See, we were finally responsible adults with a family, and that is what people in our stage of life do. Don't fall for the lie. Buying is a good decision for some people, in some situations, in the right areas, under the right conditions. Interns and residents aren't always those people.

In the end we convinced ourselves that we could squeeze an extra $300 out of our budget. Really? Where did we think it would come from? We were so naive! To think we could eat less, drive less, buy less than we did as medical student with more children coming was just plain stupid. But the really foolish thing was to think that this house would never need any maintenance - that it would just take care of itself.

No Home Is Self-Sufficient! Over the last 6 years we spent $20,000 maintaining this home. That works out to an extra $277/month every month. Add that to the $300 we thought we could squeeze out of our budget and our budget was squeezing us by almost $600/month - just for a house, and that was before our property taxes increased.

Buying a house stretched our budget to the breaking point. We took on a mortgage larger than we felt we could handle, and we were right. But then as any homeowner will tell you, a house can be a money pit. You want to make your house your home. That means paint. With new paint all of a sudden your furniture looks drab and sad (we waited 3 years before we bought a piece of furniture). You don't go to movies so you watch HGTV all day.

You think of all these little DIY project that don't cost much, but pretty soon every dollar adds up. The free piece of furniture you are going to refinish may look great, but when the supplies are all purchased - free is now $40 and you didn't have time to go grocery shopping so it's fast food for dinner. Paint may be cheap, but you have to buy supplies that go along with painting.

A yard is nice, but now you have to buy a lawn mower. How about a snow shovel and other yard implements so your neighbors don't report you to the authorities for yard neglect. What about the tools you have to purchase to fix things yourself so you don't have to pay someone to do it for you... it all costs money.

Does your budget have the room? What are you willing to sacrifice just to say you own a home?

ADVICEDon't buy a house before you start internship. WAIT. Move into a rental for 6 months. Get a feel for your new income. Get a feel for what your expenses will be in a new city/state. Get to know the area. Pay attention to the things that come up (car repairs, medical bills, etc). Monitor your expenses. If you feel your budget can handle buying a house and all the things that come with it, Great! And because you are renting you can take your time and find just the right place without being under undo pressure.

Next: How Much Does Buying A House Cost?

1 comment:

  1. WOW! This is what I preach to all my friends!

    We should have waited, and as you mentioned, fell into that lie!



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