The Financial Rules for New College Graduates by Michael C Taylor

Author:Michael C Taylor
Language: eng
Format: epub
Publisher: ABC-CLIO

1Incidentally, the only relevant way the car dealer should be able to beat your bank is through the interest rate, in other words the “price” of the money loaned. Do not be fooled by some different monthly payment based on an “extended loan,” because your bank could also do something like that as well.

CHAPTER TWELVE

On Houses

No other single decision encapsulates the financial opportunity, longing, and anxiety as much as the move from renter to homeowner. That’s my excuse for why this is one of the longest chapters in the book.

On houses, everybody has an opinion. Everybody has experience. Everybody is an expert. This is the best financial decision you’ll ever make. Houses are a terrible money pit. Buy the biggest amount home you can afford, and you won’t regret it. Do not go into too much debt. Borrowing against your home is a savvy financial move. Never treat your home like an ATM.

These contradictory expert opinions are simultaneously correct and true while also being confusingly insufficient. As is the pattern of this book, we need simple rules. We also need our consistent financial attitudes of optimism, skepticism, and modesty to reduce anxiety and do the right thing for the long run.

I will return to the idea—which I deeply believe—that homeownership is the single greatest tool for wealth creation to which a middle-class person has access. An optimistic thought.

I will return to that idea only after first discussing reasons why we should remain skeptical and modest in our beliefs and expectations around homeownership.

You see, homeownership represents at least three functions: necessity, consumption, and investment.

Shelter is of course a necessity, in that we seek a roof, protection from the elements, and a place to store our stuff. A house also represents consumption, in that we can find necessary shelter in a 400-square-foot efficiency apartment, a 4,000-square-foot mansion, or a 40,000-square-foot palace. The differences there partly represent differences in consumption. Finally, a house may be an investment, in which money you put into it may return to you in the future, as more money.

We may muddle these three different purposes of necessity, consumption, and investment when considering a home purchase, but keeping this muddle in mind may help us think more clearly about our decisions.

When you say, or someone says to you, “Well, you have to have a house, so you might as well buy one,” that confuses the issue of necessity—the need for shelter—with the choice to invest. When you say to someone, or someone says to you, “Well, I must be in this particular neighborhood or I must have this extra space,” that confuses the issue of consumption—a pricey neighborhood or generous square footage—with the issue of investment.

I bring up the necessity and consumption aspects of a housing choice—as distinct from the investment aspect—really to make the following point: you can rent a place to live to satisfy your need for shelter and your need for comfort, and that’s a fine choice. You don’t have to buy your shelter. For some people and some situations, renting for a lifetime is perfectly fine.

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