Roadblock #5 - Expensive Mortgage & Car Payments
People tend to roll out of and into another car every 5 or 6 years these days. It’s not uncommon for a household to lose well over $1 million of wealth due to car buying habits.
When you think about the money allocated to car payments, there are a few points that stand out:
- Your money is going to an asset that’s
going down in value.
- There is interest attached to those payments that’s nondeductible which accumulates when buying a new car every few years over and over again for 25, 30, 40 years.
It all adds up.
The payments themselves are substantial and the lost opportunity or time value of money cost on having lost those payments, ends up being considerable.
So what should you do?
You don’t have to a buy a new car. The better solution would be to have a car with a few miles on it rather than one that’s brand new. Saving $30 or $300 dollars per month, per year, per car over your wealth building years could have a significant cost recapture result.
You often hear the advice that as much as 30 to 35% of your gross income can be used for your house payment. But you must keep in mind that in addition to that 35% you also need money to:
- Pay Taxes
- Live your Life
- Save for Tomorrow
- Protect against what might happen today
How does this all add up with what you make?
You want to have a financial picture where your home is not crowding out and taking up too much space on your balance sheet.
The Living Balance Sheet® offers a unique and important game rule around home ownership.
Here’s the rule: The annual cost of your home should not exceed 15% of what you make. This creates a balance in your life, so that your house payment is in proportion with your overall financial picture.
My payment is too high, what do I do?
There are many remedies to having a mortgage beyond your means:
- Refinance your house.Take advantage of a new mortgage altogether or perhaps even a lower interest rate on the mortgage. Spread that remaining mortgage balance
over a longer period of time, lowering your payment, creating space and establishing Financial Balance®.
- Sell the house you’re in. Start over with something smaller and more appropriate.
- Just stay put. Stay in the same house for an extended period of time. As your income rises you’ll find that the percentage of your income going to your house payment will fall into a more appropriate level. A house payment that might be taking up 30 to 35% of your income today as your income grows might someday fall to a 10 to 15% level in the future.
So, next time you talk to a real estate professional, tell them, “Show me houses that fit into my overall financial picture, so I can have balance and be able to address future financial needs like college and retirement. I need to surround my balance sheet and my life, with the protection that is so important for today and tomorrow.
Check Out the other Roadblocks below!
Guardian, its subsidiaries, agents and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation. Guardian does not issue nor advise for mortgages.