Lessons learned from the housing crisis
14 comments so far
If the housing crisis has taught me one thing, it’s how important it is to live within our means. A lot of people are in trouble because their eyes were bigger than their wallets, a common problem here in the United States.
Years ago my in-laws were looking to purchase their first home. After some searching they found a place they were interested in. However, their Realtor did something odd: she told them not to buy the house.
"You could probably qualify for this house, but then you wouldn’t be able to go out for ice cream," she said.
That wise (and kind) Realtor understood the concept of being "house poor".
"When we make purchases on credit, they give us only an illusion of prosperity. We think we own things, but the reality is, our things own us." (Joseph Wirthlin)
An extreme example of "house poor" is owning a house at the very edge (or outside) of your price range, but not being able to afford to put furniture in it. The result? A home that may look great from the street but once you get inside you find owners who are constantly worried about how they’re going to make their next payment with no place to sit down.
I’d be willing to bet that the owners of such a home aren’t as happy as someone with a smaller home who aren’t worried about making payments (and who have furniture).
"All too often a family’s spending is governed more by their yearning than by their earning. They somehow believe that their life will be better if they surround themselves with an abundance of things. All too often all they are left with is avoidable anxiety and distress." (Joseph Wirthlin)
There’s a principle there. Is having more really bring more fulfillment? No. If so, only the richest 5% of the population would lead fulfilling lives and the rest of us would be miserable. That being said, why do we allow ourselves to fall into the mindset that we need more?
Of course, many are already in debt and don’t know how to get out. In addition to a fundamental shift in the way we look at our wants and needs, here’s a practical suggestion from Seth Godin :
This is an emergency. It’s an emergency because every single day you wait, the problem gets worse. A lot worse.
My suggestion: Go to DefCon 1, and do it immediately. Shift gears to live well below your means. That means:
No restaurants
No clothes shopping
No cable TV bill
No Starbucks
It means:
Take in a tenant in your spare bedroom
Carpool to work
Skip vacation this year
Eat brown rice and beans every night for dinner. Act like you have virtually no income.
The result? You’ll save $5,000 to $20,000 a year. Send all of it to the credit card company. Do this until you’re debt free, the faster the better.
It’s not sexy. It’s not glamorous. But it’s worth it. And once you’re accustomed to the lifestyle, you can begin to save.
If there was ever a time to take the opportunity to learn from others’ mistakes, it’s now. By shifting our mindset, and simplifying our "requirements" for happiness and fulfillment, we can avoid the insecurity, fear, pressure and stress that come from living beyond our means.
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Thursday, June 12th, 2008 at 3:55 pm and is filed under Finances, Home. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
Great post. Ironically I just wrote a post on my blog today regarding a similar theme. I included a link for a simple Gasoline Calculator I created to help focus the impact of our driving habits.
Great post. I’m only wondering why we’re supposed to eat brown rice to save money. It’s a lot more expensive that white rice is, even if you get the very best white rice. Let me know where to find cheap brown rice! I love that stuff!
I recently read an article that said younger baby boomers were blaming their parents for their debt, that parents didn’t teach them how to save or work. It is sad if true. I feel my parents taught me. Did I teach my children? I hope! If you don’t learn the value of a dollar you will have a hard time in this life being happy. Good advice to get out of debt and stay out! Learn the difference between wants and needs and have the courage to stick to it!
Brown rice is more filling than white rice (anything with whole wheat will always leave you more full, like spaghetti). It might be more expensive initially, but in the long run, you won’t go through as much food as you would if you were full rather than still hungry.
And rice is a great staple. Goes with everything.
For a lot of people in my stage of life, this means delaying buying a home and continuing to rent. So we just signed another year on the lease of our tiny apartment. Hopefully by next year I’ll make enough to move to a larger apartment, and then eventually a house.
Thanks for this. We just paid off our credit cards, allowed ourselves one splurge, and now it’s back to living frugally to put money into savings. We’re finding that delicate balance between living in the now and saving for the future.
My house has always been one of the smaller ones in the area. It never bothered me because I didn’t associate the size of my house with my value. My hub has a more difficult time with that idea.
I live in the #1 most in debt county in the USA. There are more huge homes here and more indebt folks here than anywhere else. I don’t know how that many people can get into those houses. I wouldn’t want to have to pay the utilities on those monsters. People around here spend money like it was nothing. It you go to the local high schools, the parking lot is filled with high end cars. We all drove the family junkard in high school, not Porsches! But there are a lot of foreclosures available here as well. When you need to keep up with the Jones’ you might be following them into bankruptcy!
My mother works in the mortgage industry and was seeing the types of loans that were getting approved and just shook her head with disbelief. She continued to live her modest lifestyle and follow her Dave Ramsey like principals, then when everything hit the fan, she was laid off and was able to coast along and not change her lifestyle in the least until she found another job 3 months later, thanks to her emergency funds. I learned a huge lesson from her!
I can only guess that Laurie lives where I do. Orange County CA.
If not then we would have to fight for the title of, “The most expensive suburban county”. Unfortunately, we are one of the casualties of th mortgage crisis. We not only lost our home but my husband lost his job in the mortgage division of a Wall Street bank. We have learned the hard way that spending it as fast as you make it does not work. We take the blame and do not blame our parents or society. We got ourselves into this and we are getting out. Needless to say our children are learning a much bigger lesson. We have three teenagers who now have no cell phone and no internet. I am on my laptop at the local Starbucks for my two free hours of Wi-Fi.
I just hope the next generation will not spend as carelessly as we have. I am teaching my children how to budget, and they are realizing that they don’t NEED all the stuff to be happy. Their friends still accept them, and we are still here for them. Those are the important things in life.
Thanks to everyone for your comments.
Peter – we’re in the same boat. Hooray for apartment dwellers. :)
Margi – congrats on getting the credit cards paid off. That’s a big accomplishment!
Christa – wow… keeping the same lifestyle for three months with no job is quite the testament to simple living.
Pamela – Thank you so much for sharing your story (I’m sure it’s not an easy thing to do). I’m sorry about your home and your husband’s job. Also, I admire you for standing up and doing something about your situation. It speaks to your character!
I wish you the very best and hope your husband is able to find work quickly. Thank you for writing.
No, I am actually from Collin County, a suburb north of Dallas. We are also the faster growing community in the nation.
It really is amazing to think about how many people made the same darn mistake of overspending on their first home. A worldwide lesson has surely been given, only time will tell if people have learned from it.
Great article! ;-)
When house prices kept going up, very few people had seen anyone get into trouble by buying the most expensive house possible. That is changing now. If it injects a bit more realism into the way people approach credit it will be a good thing.
I really appreciate this post. Though we bought our small house for dirt cheap 10 years ago, we now have 3 kids and 1 income. We are learning that we should be extremely thankful for what we have, and that we can live simply.
We also drive the neighborhood junkyard cars, but at least we own them. I try to remember that when I get a little envious of my friends/neighbor’s cars.
I love the brown rice suggestion, I’m going to go out and get some. If only I could get my kids to eat beans….