I paid off my school loans, my credit card, my ex-wife (long story), and even my house. By my 30th birthday, I was completely debt free and I vowed to never go back into debt…until now. I’m officially going into debt again…and yes, like the title says, I’m already freaking out…
I’m Officially Going Into Debt Again…and I’m Already Freaking Out
Liz and I currently live in the city. We look out the window above our sink and we’re staring directly into the living room of our neighbors. When we lay in bed, we see into the bedroom of our other neighbors. When I sit on the porch, I watch our rear neighbor cook dinner and do laundry…
Needless to say, things are pretty tight on our 0.2 acre lot, and my wife is pretty much over it. She would love to move out into the country again (it’s how she grew up). And, to be completely honest with you, I wouldn’t mind a little peace and serenity myself.
So, we decided about a year ago that we would start looking.
The Discovery, the Realization, and the Wait
About 15 seconds into the “search” (in quotes because we were just curiously looking and not ready to buy), we stumbled upon the perfect house (of course). It was a 3 bedroom, 1 bath farmhouse on 11 acres of property and it had a walk-in attic space that could be easily converted into another bedroom and bathroom… It was pretty much the house of my wife’s dreams.
The kicker…we had about $8,000 in the bank and the house cost $259,000…
The rest of our money was tied up in our project house. We sadly had to wave goodbye, walk away, and hope that something else would come on the market once we sold the project house and actually had some cash.
Months passed by…
I mean, properties came on the market…but they were either 20 miles out of our desired area or they were $350,000+. After the sale of the project house and our primary house, we’d have about $260,000. Soooo….by purchasing a $350,000 house, we’d basically be signing ourselves up for 3 years of grinding to pay the debt off, and then saving for another two years to build a barn for my wife’s future horses (did I mention that I, Mr. Finance was going to own one of the worst financial investments known to man?…yeah, horses…;)).
Waiting five years to fulfill my wife’s life-long dream just wasn’t going to cut it.
The House That’s Making Us Go Into Debt Again
And that’s when it finally came on the market – a 3 bedroom 2 bath, 1900 square foot house with 6 acres (and an unfinished basement if we wanted to add some more living space) for $284,900.
We looked at it on a Tuesday afternoon and put in an offer that night (we weren’t going to lose this house after our extended wait!). The roof looked a little old and the chimney was in need of repair, so we put in what we thought was a very fair offer – $275,000.
On Wednesday morning, our realtor contacted us…the sellers got another offer.
Ugh… Liz and I were both sick to our stomachs. Here we go again…yet another house that we like that we’re not going to get. Our realtor dug into it a bit for us and discovered that the offer was for less money…but it was a cash offer.
Annnnnnd guess what? The seller took the cash offer.
Over the next two days, Liz and I moped around, trying to stay positive about the next house that might even be more perfect than this one…but in reality, we were still just down in the dumps upset…
Then The Unthinkable Happened
This is where the story gets really crazy. On Saturday morning, we got a call from our realtor. She was upbeat and speaking as if she had a huge smile just plastered all over her face – quite different from her demeanor two days prior when she let us know we lost the house…
Could it be? Was this really happening? Did we get the house somehow?
“The buyers backed out of the deal. Turns out he was buying it for his dad, but when dad saw the house he didn’t want anything to do with it! The house is yours to buy!”
I couldn’t wait to relay the message to my wife. We were going to move to the country!! She was surprised, shocked, and stoked all at the same time. Lol. It was awesome.
We’re Going Into Debt Again…But By How Much?
“Alright, so what are the numbers Derek? I doubt you’re going into debt that much here.”
True, but it’s still killing me…
At this moment, we’ve got $100,000 to put down (thanks to the sale of the project house), which means we’ll need to borrow $175,000 to make up our $275,000 offer. Once we sell our primary house, we’ll get a check for about $155,000, which means we’ll still be short about $20,000. That will be our total mortgage debt at that point in time — $20,000.
“Derek….Really? You’re freaking out about going into debt again…by $20,000? You’ll have that paid off in 6 months…”
Put simply, yes, I’m freaking out about this. I’m trying not to, but I just can’t help it.
- What if I lost my job tomorrow?
- What if the house needs more repair than we think it does?
- If we wouldn’t be able to make the payments, the bank would have every right to take all of our payments AND the house…
…Let me try to explain my freak-out a little more elaborately…Who knows, it might make more sense this way!!
Have you ever read the Harvard business case about making decisions in reverse?
Typically, our decision-making goes something like this:
- We own a stock that’s worth 50% of what we paid for it two years ago
- We really don’t like the stock anymore, but we feel inclined to hold onto it because we don’t want to take a loss on the investment
- So, we do nothing for years and the stock continues to suck and severely under-perform the market.
According to Harvard, this line of thinking (even though it’s completely normal) is ludicrous. Instead of making decisions based on past loss, we should reverse our thoughts and instead ask ourselves, “If I had all that money just lying on the table right now, would I invest it in that particular stock?”
If not, then we should just sell it and move on with our lives. Every day that we decide not to sell the stock, we’re essentially buying it all over again.
What This Has to Do With the Debt on the House
As I said earlier, we’re going into mortgage debt by approximately $20,000 after the sale of our current house. I would love to say that we’re going to start tackling that debt immediately, but there are a few other things we need to take care of first:
- We need to paint the interior of the house – we’ll likely hire some of this out
- The chimney needs some repair – this could easily be a few thousand bucks
- We may have to spend some money on the boiler to get it working properly again (for some reason, the upstairs is disconnected…and we’re really not sure why)
Granted, yes, we’re going to pay cash for all of these repairs…but we’re doing it while we’ve got mortgage debt…. If I flip my thoughts and start thinking in reverse as Harvard suggests, this is just like having no mortgage debt (since we technically still have our emergency fund in the bank and could use it to pay off the house), but then deciding to put our home remodel on a credit card! Which of course, I would NEVER do.
Would You Have the Freak-outs?
First of all, I hate debt, so this whole “going into debt again” thing is super hard for me. But secondly, I’m the sole provider of a family of four! I was pretty conservative when I was single and only had myself to worry about, but now that I have a family to provide for, these sorts of things REALLY freak me out. I mean think about it, one wrong move in the stock market and our lives could be sent into a tailspin!
- The down economy could reduce spending of consumers
- The company I work for could struggle and need to institute layoffs
- I could be one of the unlucky souls that is let go
- Our income would drop by 70%
- And suddenly, we’d be struggling to pay the mortgage each month…
For those that have piles of cash during a recession, they’re licking their chops while reviewing dozens of investment opportunities out there. But, for everyone else that owes money to a lender, they’re left worrying about making payments and staying afloat.
I don’t know about you, but I’d rather be the wealthy man sitting on top of a bunch of cash, building my net worth with ease even when times are bad…
So Why Did We Do It? Why Did I Agree to Go Into Debt Again?
If going into debt freaks me out this much, why did we move forward with this house?
Quite a few reasons actually:
- We technically have the cash, but we want to hold some back just in case of an emergency (after all, this house is totally new to us – who knows what could happen! Ever watch “The Money Pit”?)
- We’ve been looking at houses for eight months and this is the first one that my wife and I both gave the head nod AND that was actually in our price range
- The house is perfect. It’s a solid 1970’s build, it has plenty of space, and it has an attached garage, which is going to be AWESOME during our harsh winters.
- It could be our “forever” house. The location is great, we’re on 6 acres, and it’s totally private. You couldn’t ask for much more!
Overall, I couldn’t be happier about the house. I just have to get past my mild freak-outs from time to time. More than likely, we’ll get our minor repairs taken care of in the first month or two. Then, we’ll start paying down the mortgage by $2,500+ a month. The debt will be gone by summer and we’ll start making plans to clear some trees and put up a barn. Dang, this is going to be fun!
So What’s the Point? What Can You Gain From This Post?
Did I write this post just to ramble on and on about myself and the future house we’re about to buy? Or was there actually a point to this whole emotional account? Well, for the most part…it’s rambling (let’s be honest with ourselves here), but there still are definite takeaways for you, the reader.
1) Personal finance is more than just numbers
I could have crunched the numbers, proclaimed to my wife that we would not be buying that house because we couldn’t pay for it with cash, and then stomped my way out of the room to signal that there would be no rebuttal to my statement.
…This style would not illustrate a partnership. Instead, it would more resemble an 1880’s model of man’s authority and dominance over women. In a marriage, there should be give and take: for date nights, in child rearing decisions, and yes, with money – in fact, especially with money.
Our lives without acreage would have been okay – I mean, we would have easily survived and enjoyed the city life – but the excitement of owning property and the options that were laid before us outweighed the financial risks that we would take for this transaction.
In short, this property added more potential joy than the debt took away. Net net, we’re ahead emotionally (and soon, we’ll be ahead again financially).
2) When you make a decision, own it and keep moving forward
This post will be the last time I ask myself if this was a mistake.
I have actually convinced myself in this post – it wasn’t.
If I keep looking back and second-guessing this decision, I’ll probably take a misstep going forward and accidentally smack my face on something else. Instead of trying to walk forwards by looking backwards, it’s best if we just let the past stay in the past and start mapping out our fantastic futures instead.
Life’s too short. Make a decision, own it, keep driving forward.
3) There’s no one-size-fits-all plan
Dave Ramsey has his infamous baby-step plan, and he uses the exact same template for every single caller that presents a question.
“Oh, you have a 0% personal loan and you want to invest with your employer that matches up to 10% of your income? Nope, sorry, you should wait to invest until you’re completely out of debt.”
Ummmm…that doesn’t make a whole lot of sense. There’s just no one-size-fits-all plan for personal finance.
Each decision has differing cash flows, varying levels of emotional attachment, and different future projections! No personal finance situation is the same, and at some point you have to decide for yourself what option is best for you and your family.
For us, we decided that a 1970’s home on 6 acres was perfect for our present and our future, even though we have to take on $20,000 of debt to do it. Write me all the hate mail you want, Dave Ramsey, but we made this decision and we’re sticking with it. And likely, we’ll be glad we did.
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