The best test out there to tell you if you should buy a home.

Screen shot 2013-04-30 at Apr 30, 2013, 10.57.57 PM

My hunch is that most first-time homeowners buy their first place with the best of intentions. They imagine spending decades in their future abode, establishing roots, and engaging in their community.

But then life happens.

They have more kids than they originally thought they wanted (or discover they can’t have any kids), they get a job offer somewhere else, a loved one gets sick and needs constant care, or maybe they still love their house but hate their neighbors and decide to move. The statistics don’t lie, most people in their 20’s and 30’s, who buy homes, don’t live in said homes long enough to realize much of a financial benefit.

The average length of homeownership is hovering right around seven years.

Many of these homeowners kiss any potential profit goodbye when they pay nearly 10% in commissions and fees. At the end of the day, these homeowners were nothing more than glorified renters who could paint their walls.

So how can you determine if you’ll be able to make homeownership profitable?

Introducing my patent pending Vehicle Litmus Test.

Unless you live in the heart of a major metropolitan area (San Fran, LA, or NYC), I’m going to assume you own a car. (If you don’t, this whole post is pretty much a waste of your time). If you own a car, you should take the test below. If not, then this entire blog post is irrelevant.

/Begin Test

How long have you owned your current car? And how long did you own your previous car?

/End Test

It seems about 99% of people who buy new, or even new-to-them, cars always say something like “Oh, I’m going to drive this car in to the ground. I’ll have it at least 10 years.”

You probably said, or thought, something similar. Didn’t you? DIDN’T YOU!!!!!

But did you actually follow through with that promise?

How you answer that question says a lot. You bought a car thinking you would drive it in to the ground, but then made a total 180 and justified a change for something more fuel-efficient, more modern, larger, smaller, newer, cheaper, faster.

I get it.

Your priorities and desires changed. This is why the vehicle litmus test is so important.

Are you really going to stay in the house long enough to make buying worth it? You like to think you will, but does your track record say otherwise?

Drop a comment below with your answers to the litmus test. Be honest 🙂

My answers to the vehicle litmus test…

Car 1: Bought my Scion tC in 2006 brand new. Eight years later, still love it and have no plans to sell.

Car 2: Our 2006 Honda Pilot purchased in 2012 with 70k miles on it. Bought with intentions to drive to 150,000 miles.

Previous car: Girl Ninja’s 2005 Corolla she bought in 2006. Sold after six years so we could buy the Pilot. An upgrade that was totally unnecessary.

That time being responsible was dumb.

For three years Girl Ninja and I worked diligently to build our savings account up to $100,000. If you didn’t know, we picked $100,000 for two reasons. First, it sounded super sexy. Second, it would give us the ability to put 20% down on a home priced up to $400,000 (leaving $10,000 for closing costs/furniture and $10,000 for our emergency fund).

By April 2013 we hit our $100,000 savings goal. Two months later we put in our first, and only, offer which resulted in us buying our current $350,000 house. We locked in at a 4.125% interest rate, have a reasonable PITI payment, and a renter that pays us $400/mo to live in our basement.

Being responsible came with the following benefits: 

    • We don’t have to pay private mortgage insurance
    • It made our offer very competitive since sellers like cash
    • We had immediate equity in our house the day we moved in.

That said, I’m not convinced responsibility is necessarily the best choice. What would have happened if we started our house hunt when we would have had less than a 20% down payment?

Well…

We could have taken advantage of what pretty much everyone knew were the lowest interest rates we’d ever see. Somewhere around 3.3%. Instead, we locked in at 4.125% which means we pay $120/mo more in interest than some of our friends who bought in 2012.

We could have taken advantage of better inventory. By August 2011, we had $50,000 banked. Had we started looking then we would have had 4 months of inventory to pick from. When we actually started looking in early 2013, there was only 1.5 months of inventory. Meaning we had a SIGNIFICANTLY smaller selection of homes to pick from. Which in turn meant every home that we did look at went for OVER asking and had multiple offers on it (including the home we bought).

We could have taken advantage of lower prices. Between 2011 and 2013 prices jumped 10%+. This means we could have gotten a $350,000 for about $315,000 back in 2011. Normally calling the bottom of a market is pretty sketchy, but just about every one and their mother knew in late 2011 early 2012 we were virtually bottomed out.

 

So as you can see, being responsible is not always the responsible thing to do. In our case, it’s literally costed us tens of thousands of dollars.

Long story short: Being irresponsible isn’t always a bad thing.

 

Screw being a millionaire

Ninja Mansion

When I graduated college, at 21 years old, I really only had one goal for myself in regards to my personal finances.

GET FILTHY FREAKING RICH

But here I am, seven years later, realizing that I don’t actually care about being wealthy.

I know, I know. You’re probably thinking, “Ninja, you’re a hypocrite. Some of your posts definitely seem like you’re all about building wealth.”

After all, I haven’t been shy about sharing how we’ve…

…averaged a 50%+ savings/investing rate since we’ve been married.

…rented out a room in our home to help bring in extra income.

…increased our net worth a silly amount each year (up $70k in 2013)

Meh, you say tomato, I say to-MAH-to.

You see, we aren’t saving an obscene amount of our income, living frugally, or investing in our retirement accounts so we can reach the coveted millionaire status. That couldn’t be further from the truth. 

AN EXAMPLE:

Instead of talking about money, let’s talk about physical appearance as related to fitness. At 6’2 and 175-ish pounds, I tend to be a little leaner than most other men my height.

But make no mistake, I don’t ski, take Nova on walks, or coach high school tennis so that I can be in better shape. Instead, I’m fortunate to be in decent shape because I have a proclivity to do active things; like ski, go on walks, and play tennis.

I care more about the cause, less about the effect. 

The same is true for our money. I never want to lose sight of what is important. I have an innate desire to live well below my means, and save or give away my excess. This was true when my household income was $38,000 a year, and is still true today at $120,000. I don’t measure my value by my net worth, square footage, or income.

So while yes, I do think I’ll be a millionaire one day, please let me make it clear: I don’t care to be a millionaire. 

I just want to be a good steward of the resources God’s given us. It just so happens stewardship often begets wealth building.

Don’t avoid risk, embrace it.

How many of us are guilty of allowing fear to keep us from doing potentially great things?

 

ME! I’M GUILTY OF THAT!

 

I wrote last week about my desire to add a two bedroom rental unit to the side of our house. About 10% of you thought it was a good idea in theory. The other 90% of you thought it was too risky.

 

  • What if I couldn’t find renters?
  • How would this effect Baby Ninja if he is raised in a major construction zone?
  • Where would we get the money?

Of course, these are all things worth considering, and believe me I have. It is my families well-being on the line after all. There is definitely risk in adding a $100,000 addition to our house

But there is also risk in NOT exploring this idea.

  • Our cash savings continues to depreciate since the interest it earns wont keep up with inflation.
  • I forfeit the potential to earn $700/mo profit on a $100,000 investment.
  • Our house will remain less marketable since we only have one bathroom.
  • Etc, etc, etc.

You get the point. 

Whether my accessory dwelling unit idea comes to fruition remains to be seen. I got a ton more calculations to do and people to meet with before I can fully wrap my brain around it. But I’ll be darned if I’m going to let some risk paralyze me from doing potentially great things.

A reader of MMM said it best…

Risk cannot be completely eliminated and trying is a fool’s mission. Focusing on eliminating it in one area pushes it into another. I can completely eliminate the risk of flying by never getting on an aircraft (unless one then falls on my head). But that elimination shifts the risk to train, boat, car or bicycle risk. Eliminate all of those and I’m stuck at home, statistically the place most accidents happen. Life is not certain. Ying and yang are the norm. Understanding the risk inherent in anything and that of the alternatives can then inform our choices. That’s about all you can do.

Preach. 

How do you account for risk when you make your financial decisions? 

Try to be not broke.

Over the last two weeks I’ve purchased six round trip plane tickets. It’s insane. Between baby showers and weddings, we knew we’d be dropping some serious coin on flights this summer. But dang, $1,600 disappeared from our bank account faster than a Twinkie at fat camp.

Fortunately being not broke is pretty awesome. It allows you the ability to take advantage of incredible deals when they pop up. It gives you peace-of-mind in the event of an “Oh $#@!” emergency. And it gives you the freedom to experience things you may have otherwise missed out on like weddings and graduations.

There really is nothing else to be said besides…

Financial freedom rocks my face off.

Don’t be discouraged if you aren’t there yet. Stay the course. Work hard. Focus on the end goal. You didn’t get in debt overnight, and you probably wont get out if it overnight. Patience and perseverance is the name of this game.

Being not broke is awesome. I hope you are either right there with me, or plan to join me soon.

On a scale of broke to loaded where do you fall? Has your financial freedom allowed you to take advantage of any incredible deals or opportunities lately!?

A lot can happen in 12 months.

Sorcery

Yesterday, I went all “Who wants to be a millionaire” on you guys and asked the audience a question. It was a simple question:

How has your financial situation changed over the last 12 months?

Of the 333 of you that responded, 240 said things have gotten better. Only 44 readers said things have gotten worse. I wasn’t surprised by the results, considering anyone who voluntarily reads personal finance blogs in their free time, probably tends to care about their finances more than the average joe.

I liked my question because it was intentionally vague. I left it up to the respondent to decide what an improvement in one’s financial situation meant. Maybe that meant getting a fat raise, maybe it meant your retirement funds have appreciated, maybe you moved out of your parent’s basement, or maybe you’ve finally started knocking out that consumer debt that’s been hanging over your head. It was awesome to see the additional insight some of you provided in the comments section, so thanks for that.

While not much has changed in the Ninja household over the last year (expenses and income are pretty much the same), we’ve seen a pretty incredible increase in our net worth.

In fact, I just ran the numbers and it looks like we’ve shot up $55,454 in the last 12 months. In-FREAKING-sane. I honestly had no idea we made that much progress. That works out to a $4,621 increase each month… for twelve straight months.

What’s more, we dropped $12,000 cash on a car upgrade and another $7,500 on MANteresting during this time.

How the heck did we swing this?

I really don’t know. I mean, obviously the markets are responsible for a big chunk, but it really just comes down to boring ol discipline. Investing in our future, saving aggressively for a down payment, not being consumer whores, blah, blah, blah.

Being intentional and proactive with our finances in our 20’s will hopefully set us up for continued success in our 30’s, 40’s, and beyond. I’m taking the words of Spock seriously and doing my best to…

Live long and prosper

My friend is the 1%, but not the 1% you’re thinking of.

I’m on a business trip right now with about 50 of my colleagues. Since I typically work out in the field (by myself for the most part), I don’t really know these people. I mean, I talk with them on the phone every once in a while, I see them at occasional meetings, but for the most part I don’t know them. Many, not even their names.

I do, however, have one coworker I’m really close with. We worked together in San Diego, found out we both were involved in Young Life, and he transferred to the Pacific Northwest two weeks after I did (albeit he transferred to Portland… which if you didn’t know is like the Junior Varsity version of Seattle). We’ve been spending most of our free time together, and since he knows I have this personal finance blog, a good chunk of our conversations are about money.

I discovered something very interesting last night. Even though my friend and I make the exact same salary – weird part about working for the fed is you know pretty much how much everyone makes – he happens to be part of the 1%.

No, not the 1% you’re thinking. 

I’ve always given him a hard time about saving for retirement. The government fully matches up to 5% of an employee’s gross salary in the Thrift Savings Plan (our version of a 401k). I learned last night, my buddy is only contributing 4% to his TSP.

FOUR PERCENT!!!!!!!!!

I about ripped my hair out when he said it. I stopped him and was like “What the heck man? Four percent? What is keeping you from upping your contributions one more percent and getting the FULL match?”

He didn’t know what to say. While he was thinking, I started punching numbers in to my calculator watch (yes I really do wear a calculator watch). I interrupted his thought process and told him that increasing his contributions from 4% to 5% would cost him roughly $25 per period.

Now if my friend was scraping by, adding the 1% to receive a full match could be difficult. He’s not, and he knows it. He actually started laughing when he thought about just how silly NOT receiving the full TSP match is. He has LITERALLY been passing up free money for the last four years.

Needless to say, I got him to pinky promise me he would up his contributions to 5% when he got home. What’s that popular saying? Every time someone contributes to their 401k an angel gets their wings?  Yeah…. that sounds right.

I rarely tell people what they should do. If you like car loans, get a car loan. If you want to buy a house that stretches your budget thin because it’s “an investment”, be my guest. I wont stop you.

But hear this: If you aren’t taking advantage of a 401k type match at your work place, you are probably failing at personal finance (this is obviously directed to people whose company offers such a benefit, which I realize your company may not). You literally can not beat a 100% guaranteed return on your investment.

No. Seriously. You can’t.

You think you should pay off your student loan or credit card bills before taking advantage of your companies match, don’t you? You need to think again (seriously click that link… I explain why investing in a 401K is a higher priority over paying down HIGH interest debt). 

Fortunately, last night I was able to nudge my friend in the right direction. But it makes me wonder, how many of you ARE NOT taking full advantage of a company offered match (be honest, no judging here)? What’s keeping you from doing it? Can someone tell me why the majority of people DON’T take part in such programs?