Welcome to my blog! In October 2024, I celebrated the one-year anniversary of purchasing the most expensive house I could afford. Leading up to this significant decision, I grappled with uncertainties about whether buying such a home was the right move. Purchasing a home is a big milestone for many, evoking a mix of excitement and apprehension.
Some individuals are so anxious about making the wrong financial choice that they end up renting forever. It’s similar to those who, out of fear of stock market risk, keep too much cash for years, only to regret not investing more later on. Consulting with a trusted advisor can help in making better financial decisions.
In this blog post, I delve into the question of whether buying a house I didn’t necessarily need was a wise decision. My goal is to provide insights that can help you decide whether purchasing a nicer home might be the right or wrong choice for you as well.
Why I Bought A New House I Didn’t Need
We decided to buy our current home because I believe that owning the nicest house you can afford is most beneficial when you have children. With more family members residing under one roof, the home’s value increases as it benefits more individuals. Additionally, the cost of the home is spread out among more people. Once the children move out, the desire to upgrade to an even nicer home diminishes, with downsizing becoming a potential option.
Another reason for this purchase was my intention to focus more on decumulating wealth after turning 45. After 23 years of saving and investing over 50% of my income, I wanted to shift towards intentional spending on things that may not yield immediate financial returns.
In this post, I share my candid reflections on the purchase, divided into financial and lifestyle aspects. If you’re contemplating buying a home you don’t necessarily need, these reflections may aid you in making an informed decision.
Financial Repercussions Of Purchasing A House You Don’t Need
Let’s first examine the financial implications of buying a home you don’t necessarily need.
1. Missing out on tremendous stock market gains
One issue with selling investments to purchase something is the risk of missing out on potential future gains. Assets like stocks, real estate, and alternative investments tend to appreciate over time. In the second half of 2024, we used a significant amount of stocks and Treasury bonds to make a cash purchase for our home. The stock market and tech stocks have performed exceptionally well since then.
The thoughts of missed opportunities for investments, such as a new car, family vacations, and college tuition, crossed my mind. However, strategies like delaying the purchase of a new car and utilizing existing educational savings plans helped ease this opportunity cost.
Always consider the potential opportunity cost of purchasing a new house and be prepared to forgo future gains.
2. Potential appreciation of the house
I purchased the house when mortgage rates were high, and the real estate season was slow. Subsequently, mortgage rates decreased, and household wealth rose due to a robust economy and stock market growth. Based on observed bidding wars in 2024, I suspect the house’s value appreciated significantly, offsetting some missed gains in the stock market.
The dilemma of acquiring a home lies in hoping for a thriving economy post-purchase. A growing economy may benefit other investments more than the appreciation of your home. However, in a slower economy, lower mortgage rates could help support home prices. Ultimately, a strong economy is favorable post-home purchase, despite potential higher rates.
3. Retirement portfolios continue to perform well
The decision to purchase the home did not involve tapping into retirement accounts. This allowed the retirement accounts, such as IRAs and 401(k)s, to continue compounding as intended. Building a taxable investment portfolio alongside retirement accounts is crucial as the taxable portfolio can fund home purchases or generate passive income for early retirement.
When investing, it is essential to categorize investments based on specific goals and avoid borrowing from retirement accounts for non-retirement purposes.
4. Finally used up my remaining capital losses
Having experienced significant swings in the stock market over the years, I utilized remaining capital losses to offset future gains when selling stocks. Keeping track of these losses can offer tax advantages and reduce taxable income if no capital gains are realized. This strategy can be beneficial for overall tax planning.
5. The stress was intense for the first three months after purchase
During the initial months following the purchase, I faced high levels of stress, leading to unease and tension within the household. Worries about potential maintenance issues and financial burdens were prevalent. To cope with these stressors, I took on additional work opportunities to boost cash flow and savings, showcasing the impact of increased financial responsibilities.
Reaching the maximum limit in house-buying expenditures can result in significant stress, especially if financial burdens fall solely on one individual. Establishing clear financial boundaries and following guidelines can help alleviate these pressures.
6. A nicer home is a meaningful way to decumulate wealth
Investors and savers may find themselves accumulating wealth consistently, which could lead to a fear of hoarding too much money. Oftentimes, purchases of material possessions may not provide lasting satisfaction. However, investing in a nicer primary residence can offer both personal enjoyment and serve as a means to utilize accumulated wealth. Maintaining a balance between financial growth and expenditure on personal assets is crucial for long-term financial well-being.
Example of Missing Out On A Promising Investment
With the purchase of a larger home, financial priorities may shift, impacting investment opportunities. The necessity for increased cash reserves for home expenses can limit participation in high-growth investments. Although missed investment opportunities may arise, alternative strategies such as diversified funds can provide favorable returns while accommodating lifestyle changes.
7. You will get motivated to make and save more money
Major life events, such as purchasing a home, can serve as powerful motivators for increasing earning potential and savings. Financial pressures associated with homeownership can propel individuals to explore new opportunities and investments to bolster financial stability. The drive to enhance liquidity and security can lead to innovative financial strategies and a renewed sense of financial independence.
Lifestyle Repercussions Of Purchasing a House You Don’t Need
Transitioning into the lifestyle aspects, let’s explore the benefits and challenges of purchasing a home you may not necessarily need.
1. Feels good to provide during a small window
Buying a home, especially with children, can offer a sense of security and fulfillment as a provider. The availability of adequate space and safety features can contribute to a positive living environment for children. However, the window of enjoyment for children may be relatively short-lived, emphasizing the importance of considering long-term benefits versus immediate needs.
2. Easy to reminisce about how easy things used to be.
The pursuit of acquiring a nicer home can lead to reflections on past accommodations and lifestyle choices. It’s essential to differentiate between wants and needs when upgrading living spaces, as the desire for continuous improvement may not always align with practical considerations. Additionally, managing previous properties after upgrading presents its own set of challenges that should be carefully considered.
3. Once you buy a nice house, your vacations won’t feel as nice
Adjusting to a higher standard of living can impact expectations for vacations and leisure activities. Hedonic adaptation may lead to a preference for maintaining a similar level of comfort during travel, necessitating additional expenses for accommodation upgrades. A nicer home can influence perceptions of vacation experiences, potentially prompting increased spending on travel amenities to match established lifestyle standards.
4. You’ll gain satisfaction from not wasting time
Parenting and family responsibilities create a sense of urgency and appreciation for time spent with loved ones. Making decisions that prioritize family needs over financial gains can lead to enhanced satisfaction and fulfillment. Balancing financial stability with quality time spent with family members is essential for a well-rounded lifestyle and long-term well-being.
Poorer Financially, But Richer In Satisfaction
In weighing the financial and lifestyle implications of buying a house that may not be a strict necessity, personal priorities play a crucial role. While financial considerations carry weight, lifestyle implications, such as satisfaction and quality of life, hold significant value.
For individuals prioritizing financial growth, continuing aggressive saving and investing strategies may eventually lead to more comfortable purchasing opportunities in the future. However, those valuing present experiences and quality of life may find value in stretching for a nicer home. Balancing delayed gratification with current enjoyment forms the core dilemma of long-term financial planning.
While the decision to purchase a home may lead to missed investment opportunities, the fulfillment derived from providing for family and enhancing lifestyle satisfaction can overshadow these financial setbacks. Ultimately, it’s a personal choice guided by individual values and priorities.
If you’re interested in real estate investing without the hassle of managing properties, consider platforms like Fundrise. With a focus on single-family and multi-family properties, Fundrise offers a hands-off approach to real estate investment, providing opportunities for diversification and passive income generation.
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Thank you for reading this post on purchasing a house you don’t need. If you have any reflections or realizations from a similar experience, feel free to share them in the comments!