In summary, the end result in making a decision to own a house that is too expensive in lieu of starting an investment portfolio impacts an individual in at least the following three ways:
- Loss of time, during which other assets could have grown in value.
- Loss of additional capital, which could have been invested instead of paying for high-maintenance expenses related directly to the home.
Loss of education. Too often, people count their house
and savings and retirement plans as all they have in their asset column. Because they have no money to invest, they simply don’t invest. This costs them investment experience. Most never become what the investment world calls “a sophisticated investor.” And the best investments are usually first sold to sophisticated investors, who then turn around and sell them to the people playing it safe.
I am not saying don’t buy a house. What I am saying is that you should understand the difference between an asset and a liability. When I want a bigger house, I first buy assets that will generate the cash flow to pay for the house.
My educated dad’s personal financial statement best demonstrates the life of someone caught in the Rat Race. His expenses match his income, never allowing him enough left over to invest in assets. As a result, his liabilities are larger than his assets.