Are you looking to buy a home in the near future? Buying your first home can be a stressful process. But you know what sounds more stressful? Living in the home you recently purchased and regretting your decision to buy the very thing you put a ton of sacrifice into acquiring. In a recent Bankrate.com survey, 63% of those between 23 and 38 years old expressed regret about their recent home purchase. Common factors cited in the survey say millennials failed to account for maintenance costs, high mortgage payments, and location.
In my opinion, the findings in the survey points to a lack of purchasers' having a robust money management program in place before and after the purchase of their new home. Having a money management program in place provides you three important things: Clarity, Control, and Confidence.
A money management program provides clarity because it will provide you the understanding of what it costs to live your life. It will also provide you the tools to see what your financial life looks like before and after you purchase a home. It brings you clarity to what your future life may look like.
It also provides control. The foundations from a money management program are used to improve your finances so that you can afford to purchase a home. It allows you to see the levers you control, and what levers you can pull to get you where you want to go. It provides you the means to "live" your future life, before ever taking any action. With a money management program, you can forecast what your future budget will be with the expected costs. And, you can manipulate the forecast for the "what ifs". With this tool in your hands, you can also see if you are leaving enough room in your budget for your values-based goals. You gain control because you understand what strategy you will execute when purchasing and living in your new home.
And lastly, it gives you confidence. With a money management program, you now know what you can and cannot afford to purchase. It will help you, and if you are married, you and your partner, have a clear understanding where you stand. This will help you be better focused in your home purchase goals and remove the stress of being pressured into a new home you may have future regrets about. Your confidence is built because there is less ambiguity in your plan.
So, what does a good money management plan look like?
First, it starts with you values and goals. Take the time to list out your values. Then write down your goals. Connect your values to your goals. Connecting your values to your goals will help you better define your goals, and it will help provide you the motivation to live the life you desire to live.
Next, you need a budget. This is the tool used to understand what it costs to be you, and to forecast your future life. Everybody has an opinion (including me!) on how to set the right budget. Ultimately, you want it to be easy to understand, attainable, and realistic. And of course, when setting a budget, your income needs to be greater than your expenses!
Third, you need to be continually providing yourself feedback. You need to understand if you are at or below target to your budget. Let’s be real, most of us just pay off the bills each month, and we don’t take the time to look closely at the bigger picture. Looking at where you spend and save each week, we find is a good feedback frequency for building good habits and staying the course.
And last, you need a banking structure which supports you in achieving your spending goals. We look at banking as three buckets, spending, storage, and savings. You have your spending accounts to support your day to day living. You have your storage accounts for your annual / short-term goals or lifestyle wants. This would be like you vacation spending or big purchase for a hobby. And last you have your saving and possibly investment accounts for you medium and long-term goals. This would be for your emergency fund, down payment on your new home, sabbatical, maternity leave, and retirement.
We believe 50% of your financial independence comes from your money management program. Having real numbers, in real time, so you can make the real decisions will provide clarity and confidence to your pursuit. 40% of your financial independence comes from the right strategies, or how best to allocate your savings toward your goals. And the last 10% come from using the right tools.
At Pursuit Planning and Investments, LLC, we believe a solid money management program is essential for building your financial independence. Although we help clients with more traditional financial planning topics, such as investments, we start with a money management program first. Our money management program consists of the items previously discussed: first, goals and values, then the budget, third the banking structure, and last the reporting.
Schedule your commitment free values and goals planning session today.
Disclosure: Pursuit Planning and Investments, LLC (referred to as "PPI") is a registered investment adviser offering advisory services in the State(s) of Oregon and in other jurisdictions where exempted. Registration does not imply a certain level of skill or training. The presence of this website on the Internet shall not be directly or indirectly interpreted as a solicitation of investment advisory services to persons of another jurisdiction unless otherwise permitted by statute. Follow-up or individualized responses to consumers in a particular state by PPI in the rendering of personalized investment advice for compensation shall not be made without our first complying with jurisdiction requirements or pursuant an applicable state exemption. Additional disclaimers.