GMR 135: Financial Choices with Long-Term Negative Impact
Making smart financial decisions will ensure you maintain long-term financial health. Unfortunately, with the lack of basic financial education, that’s easier said than done. In this episode of GMR, we look at those financial decisions that have the most impact on our finances and give you some specifics on how to make better financial decisions.
Show Notes
Choices that can have a long term negative financial impact
Buying a home too soon
Borrow more than financially healthy (high percent of net income).
Housing expenses should not exceed 35% of your Net Income.
Putting less than 20% down - higher payment makes it more difficult to cover other costs for the next 30 years!
Not taking into account closing cost, maintenance cost, upgrades to the home, furnishing and decorating.
Not seriously counting the cost on these will cause you to buy too much too soon. Waiting is hard when you want really bad to have your own home, but the stress that comes with financial obligations that are too heavy to carry is very painful, and we want to spare you from that pain.
Buying too much car, on payments, and doing in over and over
Pay off and save for the next car so you can pay cash for a used car.
Transportation expenses should not exceed 15%
However, you do not need to drive a beater! If you prioritize saving for your next car and drive the one you own now for a longer period of time, you can purchase a very good car, in the future.
Repeat this process and you might eventually buy a brand new car with cash.
Making purchases on payments
Furniture
Electronics/ phones, TV, Gaming hardware, and software.
Monthly services (home security, pest control, pool service, lawn service, etc.)
Costs of Home Ownership
Yard Maintenance
Home Depot
Furniture
Art
Sprinklers
Counter Tops
HVAC
Hot Water Heater
Trying to Maintain Parents Lifestyle
First home, want to imitate parents 20-30yrs of growth in lifestyle.
Expecting a lifestyle early in life that it takes more people their whole life to achieve (entitlement).
Why do you want to buy a house? Is now the best time to buy your first house?
Don’t buy it because someone told you you should or because someone told you paying rent is “throwing money away.”
Don’t buy it because all your friends are doing it.
Don’t buy it because the interest rates are low or because it’s a buyers market.
Buy it because you’re settling down and need a place to live for a minimum of 5 years.
Buy it because a house would meet your family’s needs.
Buy it because you’re financially ready.
Determine how much house you can afford
Industry Standard
Price of home 2.5X - 3X your annual gross income.
$50,000 Annual Income = $125K - $150K house
$80,000 Annual Income = $200K - $240K house
Principal + Interest + Taxes + Insurance (PITI) payment 28% of gross monthly income.
For an $80K combined gross annual income, the mortgage should not exceed $1866.
Getting Money Right Standard
30% of Net “Take Home” Pay.
$80,000 Gross = $65,500 Net = $1640 total for housing.
$170,000 Loan
Mortgage = $861
Property Tax = $340
Insurance = $110
Other Housing Expenses = $329
Electricity
Water
Gas
Internet