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To Your Success!
Ericka Young

How is Your Home Invested?

Your home is an investment; only not in the way most people think today.  An article in a recent (4/7/07) Arizona republic newspaper by David Cook suggests that there are two schools of thought on this topic. 

First there is the big spender.  These home owners are thinking about right now as opposed to later.  And it appears there are more of these types of home owners today than ever before.  “… houses have become substitute credit cards, as owners borrow their equity to finance everything from cars to vacations”, according to Cook.  This is extremely dangerous.  As a result of the recent roller coaster ride in the housing market, many homeowners have pulled equity out of their homes and now the home is not even worth the total of what they owe.

Secondly, there is the conservative skeptic home owner.  They feel that later on they will need to use their equity to simply have a retirement.  Cook states  that “… the equity built up in the family home has become a vital part of retirement planning – a ‘fourth leg’ of the now unstable ‘company pension / personal savings / Social Security’ stool that was long the model for a financially secure future.”  Although there is some truth to the idea that these other sources are not as stable as they used to be, I suggest that there should be a third school of thought.  It is similar in concept to the conservative home owner mentioned above, but the principal behind it is different.

No matter what anyone else says, your home is an asset.  Over time, no matter how much time that turns out to be, your home will go up in value.  A home is not like a vehicle which goes down in value as soon as the tires hit the pavement.  In most American neighborhoods, you can purchase a home and see it go up in value over time.  For some neighborhoods this can take much longer than others, but that’s OK.  Generally speaking, appreciation in some form is better than renting your entire life.

With that being said, the appreciation is not the only part of your home’s value you can count on.  You should also be able to count on the fact that one day your home will be paid for in full.  At retirement, you don’t need the hassle of a large home payment along with your normal day to day living expenses.  This is especially true because most of the time you aren’t bringing in as much income in retirement as during your working years.  And you have worked for 20, 30, or even 40 years to reach the point where finances should be easier to manage.  So why not strive for a paid for house as the main goal in your home investment strategy?  Once your largest monthly expense is paid off, your living expenses are drastically reduced and the amount of funds needed to maintain your household is minimal.  What would you do with your time if money were not an issue?  That answer is the key to a true retirement.

Therefore, the big spender and the conservative skeptic are both wrong.  The big spender is reducing their ability to pay off their mortgage in a timely fashion by increasing what they owe on the home as time goes on.  And the conservative skeptic will be wrong later because using the home as retirement income doesn’t work when you will still need a place to live.  This strategy only works if you sell your home and downsize.  But, the catch here is that homes today are more expense than they were 30 years ago so the “retirement” money built up in the home is not worth as much today.  Basically, you’ll need to use more money to buy a smaller home.

The bottom line is that your retirement strategy should be balanced.  Don’t think that you can buy your way out of your current mess by using your home’s equity.  Get on a budget, reduce your living expenses, and save for tomorrow.  Also don’t limit your retirement strategy to your home because market fluctuations do occur.  Invest your money in more than one place or diversify so that you can get the maximum benefit from all your investing tools.  The stock market, businesses, your home, pensions, 401Ks, mutual funds, social security (Ha!), etc. should all work together and bring you to a solid retirement.

Now go pay off that home!

June 2007

New Classes Fall 2007!

Ericka Young will be teaching several classes this fall!  If you are looking to go to the next level in your finances or have some financial goals you want to see accomplished check out the following classes being offered.

Gilbert Parks and Rec:

Run with Your Vision, 9/17/07

Count the Cost - Your New Home, 9/27/07

Registration begins later this summer…    

Chandler/Gilbert Community College:

Setting Financial Goals, 9/22

Get Out of Debt For Life!, 9/22

To register go to: www.cgc.maricopa.edu/ss/registration/

Chris and Ericka Young are Dave Ramsey Certified Financial Counselors! 

Call (480) 200-2516 today for a free 30 minute consultation to see how they can help you achieve your dreams and goals!

Anyone who refers a new client to Tailor-Made Budgets will receive a $20 gas card or movie passes.  So get the word out and enjoy free gas or a night out on me!