When Is Too Much, Too Much?
We are in the process of looking into buying a house. We found one and have been going over the numbers over and over and determining that our budget would stretch really tight. It would be doable, but our safety net would have to be used for a down payment and we would need to get every dollar to work for us. While we realize that our financial situation can only realistically go up from here, it is scary to think of how difficult and risky it would be in the short term.
So where is the line that you have to cut yourself off at? When you want something really bad, and not just a great house with amazing potential, but anything, you are amazingly able to figure out a way to make it work. Its a given this might be what gets a lot of people in trouble, but at the same time, your limit seems to become arguable. We boiled it down to our last couple of hundred dollars a month, after taxes, fees, mortgage, bills, car payments, credit card payments, just about everything. We even played it conservative and ignored interest deductions. It got right down to it and we took a hard look at what we were left with: it would be an amazing house with an outrageous amount of potential and resale value (feasibly hundreds of thousands) and very little money left over. It would almost be like camping.
That’s where things get sticky. Very house rich and very cash poor. Granted it would be temporary, and things would get easier as we altered deductions and got our regular raises, and my car was paid off, it just seems like so much. Are we spoiled by living in a cheap apartment? Is this normal, is it supposed to be a stretch?
We were discussing how difficult it would be and how we would have to cut out the TV bill and get an OTA (over the air tuner) and just watch local channels for free, and play a lot of video games (things we have already paid for) and read for entertainment. No more going out, no more restaurants, no more drinking adventures with friends, everything would be completely pared down to bare essentials. For a little while at least. But is that reasonable? There has to be some element of fun in your life, right?
I have stated on this site before that it is possible to save money and use it wisely and not have to live like a monk. I still believe that. I do have another side, albeit perhaps a more crazier side, that gets a look at the future and sees payoff for hard work and “zealous” discipline though. It could be just a matter of me only doing things because they are difficult or challenging, because maybe if they are simple, then they’re not worth it, but I need to be reasonable and realistic here. If it were up to me I would rarely go out (driving range maybe) and eat rice at home every night. Might change it up with oatmeal every once in a while. (I sound REALLY boring but I promise I’m not.)
In the end it boils down to risk. By really pushing the limits of our money now, there might very well be an incredible amount of money to be made. But there is a price. Risk can only be accompanied by reward. By liquidating ourselves to the point where we are at zero and/or unhappy AND something comes up where we need money, we will be toast. Its tough to say what any of that might be but the possibility is there and its such a difficult question to answer. How far do you take it? What if something happens? What if something doesn’t and you have regrets for not taking the leap? Would the feeling of security outweigh the disappointment for not landing a whale?
What sacrifices are you willing to make? When is too much just too much?
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Comments
It seems that, at least for me, it has always been a stretch. That to me is normal. The best laid plans of mice and men…Something always comes up when I have decided to save or invest. Right now my refrigerator has stopped working and the airconditioner has decided to sound like train going through a small tunnel. So whatever you decide remember that life can have other ideas, i.e. a wedding…or children or family, and simply try to budget that in from the get go. I have started way behind the eightball and wish I had your wisdom when I was your age.
Since we don’t want to stay in this city for much longer, we haven’t been tempted by trying to buy a house. Plus, we don’t have any money saved for such a purchase.
I’d rather have plenty of extra money and not feel pinched and stay renting than be house rich and cash poor.
Plus, one little financial setback could quickly turn into a disaster without proper savings in place.
@Frugal Urbanite: Isn’t it just the most on the fence type of decision you have ever been in? Its awful, especially since you are so easily able to convince yourself that you can MAKE it work, that things can only go up and everything will be ok. A saving grace might be though that there are more foreclosures in the sea. And fish.
@Land of Entrapment: I think I know where you are coming from…If saving and investing weren’t such a high priority, things would definitely be easier. Enhancing finances is such a granular game where you really have to fight for small things over and over until it begins to add up. AC is a train? Is it cool at least?
@Kacie: We were told right off the bat, don’t look for any zero down loans anymore. The banks are just too strapped for cash and the lowest you can get is a 3% down. Once you bump that up to 5% you are allowed a little more wiggle room for PMI and things like that. Closing costs are also incredibly rediculous so if you can get the seller to go for that, its a huge help. I haven’t talked to any banks that would spring for closings but you never know. I try to keep my hopes up regarding buying from a bank by thinking that they have this on their books as a liability and its hitting their asset column. They have to pay the taxes and utilities as well while it sits, so older foreclosures are more apt to be unloaded then fresh ones. Just remember that banks are cold and really give a hoot who buys it, just that they get their money. I could probably go on and on about this but will save it for later 
We are in a similar position, after having twins 3 years ago the present bungalow is starting to feel a little cramped. We have seen a house in the same village for almost 100K more than ours. Do we try and sell ours, rent out or what?. I am of the opinion that, all things considered, to string yourself out a little focuses the mind and you find that you are able to afford the thing you wanted…all things considered. Yes you will go through some lean times, but in the end life is about risk, so once I have considered the impending recession a bit more and considered house prices to be as low as they are going to get, I will make an offer, string myself out, but move into my dream house.
@jason cook: I am of the mind that if DO decide to sell, be sure that you are not just going back out into the market to get another place that eats into whatever equity that you may have gained. If you were to siphon that profit off and get a place that is perhaps further away from work you would be better able to reap the benefits of the equity. Otherwise you are just buying a more expensive house. Which might have merits as well, but could be less of a sure thing.
No matter what you do, you will almost always find a way to spend all your money. Its natural to do that and takes an enormous amount of discipline…just be sure to automate your savings and keep a strong pulse on your budget/cash flow.
I think stretching yourself can be a good thing in terms of realising dreams. But as buying a home is an emotional process for most people I think.
You can’t over-estimate talking through with a ‘good’ independent mortgage broker, or even better still friends. The falling point with friends though can be peer pressure to better yourself and/or keep up, so choosing the right friends to discuss finances is sometimes tricky, but well worth it as you get the real truth of the family struggle.
Mr. and I are going through this right now.
The house that we fell in love with is right at the max of what we’d be willing to spend. On one hand, we’ll be really stretching the budget for a few months (but we’ll do much better the year after thanks to the mortgage deductions.) On the other hand, the house is in foreclosure and we’re essentially getting a huge bargain on a house we couldn’t afford at market value.