Don’t Let Others Manage Your Money
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One of the best ways you can protect your finances is by running your own numbers.
Certified Financial Planner and author Carl Richards opened up about his money mistakes, including how he lost his home.
“The Lender Approved Us”
At first I read the article it hard to believe that he, as financial adviser, bought more house then he could comfortably afford.
Couldn't he have seen how the numbers didn't add up?
I then came across this –
We borrowed 100 percent of the purchase price. In fact, I was told I could borrow even more if I wanted.
I had perfect credit and a solid income that was growing. But even so, when the lender approved us at 100 percent, it was more than I had expected.
I remember thinking something like “Wow. I guess if they’re willing to lend it to us it must be O.K.”
Carl trusted other people to run the numbers for him.
He's not alone, many people trust others with their financial decisions. It's easier and we think that they have our interest in heart.
By the way, I think a lot of lenders do this. When we were house hunting we got approved for an amount much higher than we were comfortable with.
Sure we could afford the house in theory, but that meant we had to forfeit other goals like saving for retirement, family vacations, and having a bit of a buffer in our budget.
We instead kept our search for homes within our self imposed one income budget limit.
Two years later we're happy with our decision and we managed to have some equity in the house.
It can be hard to ignore what the ‘financial experts‘ say, but at the end of the day, you have to live with the decision, they do not.
Empower Yourself By Educating Yourself
Just shows you that no matter what your financial background is, you have to be on top of your own finances.
You don't have to be a financial whiz, but you should understand what your goals are and how you plan on tackling them.
Ask yourself a couple of questions to get started:
- How much money do we spend a month? If you don't want to keep a notepad on you for an entire month (most people don't), then use Mint.com. It's free and within 15 minutes you can have your spending history up and sorted for you.
- Where do you want your money to go? The two of you can sit down and discuss what you;d like to do in a couple years and beyond. Do you want to buy a house? Do you want to start a business? Do you want to travel?
- How do we get there? No that you where you are financially and where you want o be, set realistic goals. Work on it piece by piece. Focus on getting a cushion for example or a vacation fund in place. Build on your wins.
Keep It Simple and Automate Your Finances
If you create (or follow) a complicated system for your money you won’t keep up with it.
Don't make your budget or spending plan hard, just make it realistic. I'd also recommend automating it as much as you can.
Automating your bill payments and savings isn't fancy or exciting, but it works.
Test it out by starting small and automating a regular transfers into your savings account.
As you adjust your budget, increase the amount you save. Try it out with investing, allocate a transfer into your IRA and start funding your retirement.
Use low cost index funds and keep your system simple and effective.
Thoughts on Managing Your Money
How many of you run the numbers yourself when making financial decisions? How many of you delegate it someone else – your financial planner, a friend, or spouse?
How do you keep each other on the same page as a couple?
This podcast episode was originally released January 2023. The show notes have been updated March 2023.
I’m 37. I have purchased a home twice in my lifetime, and both times have put down 20% at closing. I know many my age and younger would give me a million reasons why this is an out-of-date practice, but I truly believe if we hadn’t gotten away from this practice (which was standard until the 80’s or 90’s), we never would have had the mess of the real estate market that we’re in. True, less people would have been able to purchase homes, but it also means a lot less people would have lost them, too.
Great job on putting 20% down! I do think many people jumped in without running the numbers for themselves. Owning a home is not the same as renting – there are more obligations, more expenses.
What’s kind of crazy is that everyone seems to just ignore that this personal finance “expert” completely f’ed up his housing lol
Notwithstanding, his book looks really entertaining.
Yeah, when I first read the article, I was stunned that he messed up so badly with his home. However it shows that personal finance is beyond just the numbers. We’re not as rational as we think we are. Being aware of it and taking steps to minimize those ‘behavior gaps’ can be the best move.
I couldnt agree with this more – just because someone is willing to do something, doesnt mean they are making a good decision! Also, I agree with evan – I read an excerpt from his book and he doesnt really sound like an expert at anything but keeping up with the jones’
I think this could be another case for the importance of budgeting. I’ve always be aware of what the “monthly squeeze” feels like when taking on bigger expenses. When we were searching for a home, I had a very good feeling of what sale prices would mean in a mortgage payment and actually found a great house below my comfort level.
The happiest people are those who give away their money and the saddest are those who hold their possessions in their hearts instead of their hands, or who hoard because they fear what the future may bring.