As a real estate broker, I’ve witnessed a lot of pain and suffering as a result of poor choices about home ownership. I often wonder how to help families take more control of their financial future to avoid that.
I sat down with Elizabeth Farrell to discuss this question. Elizabeth gracefully balances many responsibilities as a co-active life coach, yoga teacher, and a mom. She took some time out from these worthy endeavors to share a few valuable life lessons about choices, communication and, most importantly of all, values.
“We had to look at what we wanted in a house, and also look at the market and what we were willing to commit to,” she explains. “We wanted a house that wasn’t above our means. I didn’t want a home that was going to break us financially. And neither did he.”
She and her husband Eric found their own unique but effective method for determining exactly what that limit was for them. They created a shared spreadsheet in which they each tracked how much they spent every day over the course of a year.
“From there, we looked at what we spent and said: This is our budget.” Elizabeth feels that the process of creating this budget was instrumental in helping them determine how much they were willing to spend on a monthly mortgage payment.
For her, it all comes down to values.
“He and I value a simple house, a simple life,” she says. “I don’t want to live beyond our means. That doesn’t make me happy.”
She also alluded to the tension which can exist between spouses due to the financial pressures of home ownership where men feel pressure to pay for the house and keep up with repairs, while women just want to “nest” and create a home, leading to a disconnect between them.
In many ways, Elizabeth and Eric’s approach is the opposite of how most couples come into homeownership. Traditionally, couples will go to a bank first to find out the maximum amount that they can borrow, leaving themselves open to discover later what the impact on their daily life will be. Elizabeth believes that this is at least in part a generational issue. She cites the example of her grandfather, a successful executive who still chose to live in a very simple house in order to save money. “In our generation, we have a disconnect from that. We have become a generation that forgets about the future.”
Most people are not thinking about things like retirement, or what they’re going to do when they’re 60, 65 or 70, and whether or not they will still have a mortgage to pay. The truth is, that everyone will need a certain amount to retire. They often ignore details, such as investments or a realistic accounting of how much they will need to live on.
I agreed with her statement. My own grandfather was a successful banker who could have lived anywhere he wanted, but chose to live in a mobile home park in retirement. Although negative perceptions exist about mobile homes, he found it to be a way of life that was easy and affordable in his retirement. Often, people who have money don’t necessarily look like they have money because they don’t spend their money on showy things. They have money because they are selective about what the choose to spend on and otherwise choose to save it.
I asked Elizabeth how she might go about helping a family to connect with that perspective.
“You first have to ask: What is your perspective around money and saving? And then, what do you value?”
Elizabeth says that she and Eric often communicate about their values by listing them. She identifies healthy, organic food as one of her key values, because she considers it directly related to health and longevity, and she is willing to cut other things out of their budget to have that. Her daughter’s education is also an important value; she and Eric chose a home in a good school district so that they could avoid the cost of a private school.
She says that communicating about their daily expenses has necessitated honesty and transparency in their relationship. She admits that at first she didn’t like the idea of tracking every penny on a spreadsheet.
“I can’t hide that I spent $30 on a pair of shoes or $3.98 for a latte,” she says. “It was hard at first. We were both used to being independent. But I’ve learned a lot and I realize the value of it. Maybe the latte wasn’t necessary.”
She remembers that her mother used to hide purchases from her dad. “When you have a spreadsheet that you’re sharing with your spouse, you really can’t do that. It would create tension and arguments.” She says that sticking to a budget helps her keep her spending in check, and also reduces stress and tension around the issue of money.
But aren’t these issues delicate topics for couples? Is it hard to communicate about spending habits and accountability?
Elizabeth admits she had a lot of trepidation about that at first. But she has taken the opportunity to educate herself by reading blogs about money and saving.
She says that the shared spreadsheet system has worked well for her, and she has even recommended it to friends.
“I haven’t always been good about tracking my money or knowing where it was going. And that wasn’t serving me.”
She finished by an affirmation of the importance of looking at the family budget before buying a home. She even recommends seeing a financial advisor to find out what you want to plan on spending. This is something that families rarely do when considering the purchase of a home.
The purchase of a home affects every aspect of a person’s life: relationships, health, parenting, and retirement. But the majority of home buyers neglect to consider all these aspects when they make the decision to purchase. Instead, common practice is to ask a bank for the maximum amount that they are willing to lend.
But a bank will only consider a ratio of income to existing debt. It will not take into account personal values, relationships, and goals for the future. It’s really up to consumers to take control of these things and evaluate them before seeking a home loan.
A careful routine of detailed budgeting and transparent communication, such as that embraced by Elizabeth and Eric, can help couples determine what their values are and to make a more informed decision about this life-changing purchase.
Elizabeth can be found at www.SisterHawk.com