Every now and then you see one of those news stories that make you shake your head and say…
CNN ran an all too common story today about a family who is, sadly, about to lose their $800,000 home due to foreclosure (see video below).
Such stories are becoming commonplace and subsequently losing their newsworthy appeal, but a “small detail” stood out in this story that seemed to be quickly passed over.
This “small detail” that stood out like a jalapeno pepper in my Cheerios is that one of the co-owners of this $800,000 home is actually a school bus driver (the second family member’s profession was not disclosed).
Maybe I’m wrong, but I was under the impression that anyone who drives a big yellow bus full of screaming kids is a few pay grades below a cardiac surgeon that invested 10 to 15 years of their life learning a highly specific tradecraft or a successful small business owner who busted their hump for 15 hours a day after 10 years of hard work.
I say this from a tough love standpoint because when I think of homeowner who has an $800,000 mortgage, I generally think of someone (or a dual income family) that does very well for themselves by bringing home a home a sizeable six figure income. You know — someone who can actually afford to pay the mortgage and real estate taxes without having to rely on credit card debt to pay for everything else.
To be fair, CNN didn’t delve into the specifics of this couple’s finances, so it’s entirely possible that my hawkish criticism has led me down a path of unfounded speculation. Maybe the husband (who was not interviewed) had an excellent paying job and was recently laid off. Perhaps there were unforeseen medical expenses that took priority over the mortgage payment. Many things could have happened after they signed on the dotted line and put them on the foreclosure chopping block.
Regardless, as I sat incredulously watching this video I’m thinking… just what in the world were these people thinking?
Anyone who drives a bus can’t afford a $800,000 house! Right?
We are beginning to see more and more reports of this sort of financially irresponsible behavior where an unknown percentage of the U.S. population bought entirely too much home than they could afford, and only now have they figured out that it was a huge mistake.
I can empathize with those who say “why shouldn’t we have nice things like everyone else?“. Then again, you could argue that this is the typical rationalization every 17 year old kid justified to himself before dealing drugs. He knew it was a risky decision, but he just wanted to have some of the finer things in life.
Just because you see everyone else making a bad decision, that isn’t the green light for you to make the same bad decision. This is where prudent judgment and sound financial planning should help you put on the brakes, assess the situation, and accurately gauge just how much home you can afford.
On a more macro scale, once you begin to multiply this family’s mistake a few million times over, you begin to see more dark clouds on the horizon for the U.S. economy. Hence the reason why the stock market is down ~50% from its highs.
My grandfather, who actually lived through the Great Depression, frequently used the idiom “don’t let your champagne taste ruin your beer budget”. As a kid, I couldn’t fully grasp the wisdom of this message but I practiced the message because it made sense. After all that has transpired, I give a little smirk when I watch the doom & gloom news reports because now, I fully understand what he was trying to convey.
So while mainstream media and the never ending stream of ridiculous TV shows (e.g. MTV Cribs) were hyping lavish lifestyles saying it was your God-Given, American right (not privilege!) to own a home, it was actually the equivalent of a carrot being dangled in front of a horse just to make him continue pulling the wagon.
The truth is that most of that message was complete bologna made to cloud your rational brain from asking if you could really afford it. That’s common knowledge to most everyone now, but it is important to highlight the distinction between what you want versus what you can afford before you make the decision to buy a big ticket item… like a $800,000 house!
So the next time you see that monstrosity of a home that you’re just dying to own, that $70,000 Escalade or maybe even a pricey bottle of bubbly when all you can afford is cheap domestic beer, maybe you’ll think twice before being suckered in and living beyond your means.
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Photo by kippefinger