Don't Buy Stuff You Cannot Afford

I keep hearing again and again silly advice like "Buy the biggest home you can get a loan for since homes tend to appreciate over time". But I say stick to something you can afford, a house is not really an investment. Median home appreciation historically over decades, is only about 5-6%. If inflation is 4%, and you are paying 2% in real estate taxes, you are basically braking even (usually losing money after maintenance and improvement costs - not to mention transaction costs and insurance). Don't base your appreciation expectations on what has happened in the last 5 years. To me, investment real-estate is something that is cash flow positive after all expenses, and since your personal residence has no cash flow (unless you have tenants) it isn't an investment. A house is a lifestyle choice. Don't sell your future short because you are sinking everything into a house you cannot afford.

Don't Buy Stuff You Cannot Afford
Scene: a typical American kitchen. A husband (Steve Martin) and wife (Amy Poehler) are puzzling over their finances.

Wife: Oh, I just can’t get these numbers to add up
Husband: Like we’re never going to get out of this hole.
Wife: Credit card debt, does it ever end?
Salesman: [entering from who-knows-where] Maybe I can help.
Husband: We sure could use it.
Wife: We’ve tried debt consolidation companies.
Husband: We’ve even taken out loans to help make payments.
Salesman: Well, you’re not the only one. Did you know that millions of Americans live with debt they can not control? That’s why I developed this unique new program for managing your debt. [Holds up book] It’s called, “Don’t Buy Stuff You Cannot Afford”
Wife: Let me see that. [Reading from book] If you don’t have any money, you should not buy anything. Hmmm … sounds interesting.
Husband: Sounds confusing.
Wife: I don’t know honey, this makes a lot of sense. There’s a whole section here on how to buy expensive things using money you’ve “saved”.
Husband: Give me that. And where do you get this “saved” money?
Salesman: I tell you where and how in Chapter 3.
Wife: OK, what if I want something but I don’t have any money?
Salesman: You don’t buy it.
Husband: Let’s say, I don’t have enough money to buy something. Should I buy it anyway?
Salesman: No.
Husband: Now I’m really confused.
Salesman: It’s a little confusing at first.
Wife: What if you have the money, can you buy something?
Salesman: Yes.
Wife: Now, take the money away. Same story?
Salesman: Nope. You shouldn’t buy stuff when you don’t have the money.
Husband: I think I’ve got it. I buy something I want, then hope that I can pay for it. Right?
Salesman: No. You make sure you have money, then you buy it.
Husband: Oh, then you buy it! But shouldn’t you buy it before you have the money?
Salesman: No.
Wife: Why not?
Salesman: It’s in the book. It’s only one page long. The advice is priceless and the book is free.
Wife: Wow. I like the sound of that.
Husband: Yeah, we can put it on our credit card.
Announcer: So, get out of debt now. Write for your free copy of “Don’t Buy Stuff You Cannot Afford”. And, if you order now, you’ll also receive, “Seriously, If You Don’t Have the Money, Don’t Buy It” along with a twelve month subscription to “Stop Buying Stuff” Magazine. Order today.

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There seems to be a whole new generation of people that have not had this timetested advice passed down to them from their parents. The latest incredible example is Casey Serin a 24 year old real estate guru with over $2 million in debt he cannot possibly repay. Greed makes you stupid.