Why Start with the House?

by Tom Tousignant

in Blog, Financial Safety, Wealth Building

I came up with the idea for “Start with the House” a few years ago after looking at financial profiles of several hundred home buyers and home owners.  I realized that people have a much greater chance of getting ahead financially when they ‘Start with the House”.

What does it mean to Start with the House?  It means that financial success becomes a lot easier when decisions about home ownership and home financing are made first, then other choices close to home are made next, and lastly financial choices unrelated to where you live are made.

Financial Priorities:

The “Start with the House” idea has financial priorities that give you a specific order for getting things done financially.  The big picture is to protect what you have and want to have, then save some money, and lastly, to grow your wealth.  No sense trying to grow your wealth if you can’t protect what you already have from loss.  For example, what use is a $15,000 stock portfolio with no home owner’s insurance if a tornado destroys your house?  $15,000 won’t be enough to rebuild a lost house.

Turn your home into your castle:

If you were going to turn an ordinary house into a castle, you would have to do some renovating.  First, you would dig a moat around the house. Then, you would make sure there were no tunnels under the foundation of the house that could allow an enemy to sneak in unnoticed.  Third, you would build walls and towers that were strong enough to withstand rocks shot from catapults.  Fourth, you would hire some castle guards with fancy uniforms, but no too many – just a few.

Emergency Cash

Think about it – what could happen to you – good or bad – that wouldn’t be better if you had some cash readily available?  Here are a few ideas to get you thinking – water heater explodes and needs replacement, a tree falls on your house, you get a chance to buy a beautiful Harley Davidson at half of the value, but you need to buy it today.   Good or bad, issues that turn up in our lives are easier to deal with if you have some cash readily available.

Cash is like the Moat around your castle – you can use it to slow down an attack – like paying cash for a new hot water heater rather than using credit cards, or, you can use it when you aren’t being attacked – simply get some water to wash your car or take a drink.

Credit Cards

Credit Card Debt and credit card payments are like tunnels that drain the water from the moat around your house.  It is really difficult to build real wealth while transferring most of your excess money each month to the credit card companies to pay for yesterday’s memories.

As soon as an emergency fund is established, paying off and never carrying credit card debt is the next highest priority.

Real Protection

People know they need home owner’s insurance when they have a house, but their are 3 important things you need to protect:

  1. Your Current income
  2. Against Lawsuits
  3. Your future Income

If you own a home, you need to protect the physical structure with Home owner’s insurance, but, you also need to protect your current and future income so that the mortgage payment is never in doubt, and protect your home against a frivolous lawsuit.

Save for Long Term Goals:

Someday, everyone wants to retire, or at least have more freedom to choose how they want to live.  This takes money, and bad home owning decisions make it harder to save.  The key thing to saving money is to start now!  Paying off a mortgage loan first, then starting to save money is never as powerful as saving money right now while keeping your mortgage current.

Start the habit of saving money now, and your home loan will pay itself off over time.

Pay off your house when you feel like it!

When you have an Emergency Fund, no short term debt, Proper Protection, and savings for other goals, you will pay off your house on time, when you feel like it.

By Starting with the house, and having sound financial priorities like I outlined above, you will succeed financially and be able to take care of the important things in your life!  Let me know if these priorities are valid for you, and share your successes with me, too.

 

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