Close Friends and Money Advice
Growing up in a small town gives you the opportunity to know everyone you grew up with by name. I graduated from a high school with a graduating class fewer than 100 people, I knew everyone’s name and as we all went our separate ways had a pretty good idea what their plans were going to include. Most of my close friends chose to head off to an in-state university, while a few chose to head off into the working world. It has been 15 years since I graduated, but with the internet it is much easier to see what others are doing with their lives today, most actually post it on Facebook. It takes all of 2 or 3 minutes to find out girl 2 lockers down from me in high school is married, currently pregnant, works as a teacher, and lives in the same state as we both grew up in.
My close friends are different. What is great about the guys that were my close friends 15 years ago is we are still close friends today, I consider them my best friends, they even stood up in my wedding for example. Being such close friends, it also causes me to know more about their financial lives, also a little funny is that my close friends make up a modern day version of the YMCA. We have a doctor, lawyer, banker, construction worker, fire fighter, and for good measure we can add a fisherman. Off track on the topic I that always makes me smile. As someone who reads and lives personal finance I really enjoy learning what challenges and decisions my friends face, I’m not there to judge, far from it, but rather as a friend I tell them what I would do in their situation. It’s what being a good friend is all about, there is trust there that one cannot earn in the matter of a blog post, and it was earned throughout the years of knowing one another.
During a conversation with my friends I heard some interesting personal finance matters, ones that I don’t necessarily see in my life. For example, a close friend has moved in with his girlfriend of many years into his future mother-in laws house to save money for a down payment so they can have a house of their own. The plan is fantastic, what a great way to save money by eliminating one of the biggest expenses you have, rent. I personally found by essentially eliminating my mortgage payment I was able to take that extra money and eliminate my student loans. The plan is great; the execution itself is what worries me. Both individuals work extremely hard and make good money from what I can see from the outside and what my friend has shared with me. Here are a few things that caused red flags to come up for me:
- Vehicle Rich, Means Poor. Currently they have 3 vehicles, one of which was purchased via loan during the same time that they were saving money for a house.
- Only the Best. My friend has a tendency to want the most expensive item because it is the best, for example he does not purchase a sweatshirt, instead he purchases a $140 hooded sweatshirt from the best clothing store with the best brand that only the NFL players wear.
- Sports Memorabilia. My friend attends many charitable functions to support causes he believes in, for example in a charity event I attended with him last year, he bid hundreds of dollars on a beautiful framed picture of one of the professional sports stadiums.
- Dream House. Over the weekend my friend shared with us he was looking at a house that included a 5 car garage and his girlfriend kept using the term, finding our dream house. I asked one simple questions: What are you going to do with a 5 car garage? Answer 3 cars, boat, and storage or a man cave of sorts. I also couldn’t stand hearing the term “dream home” being thrown around when looking for your first home, I had to mention something.
- Price. I’m sure they make good money together and they assured me that they had a large down payment for the house, but what I worry about is at what cost? Are you putting all of you savings into a nice house just to become house poor? Will this big purchase force you to use your credit card more often or take vacations you can’t afford because you are stressed?
All of our conversation was over a few beers and I only brought up matters up that really concerned me. My casual mention of having too much home was mentioned twice, but it was not meant to judge or give advice, I was hoping this would trigger them to think out the process in more detail. The thing is we are all different people who have different wants and needs, I don’t expect my friend to yell at me for blogging for free about personal finance and nor would I expect to listen to my 10% rule on cars and paying off debt.
Friend, if you are reading I love you like a brother and I hope nothing but the best for you. If I was in your situation here is what I would do:
- Downgrade my vehicle to something that is paid off. If you own a 2015 Ford F-150, get it down to a 2005 Ford F-150 that’s paid for.
- Limit Yourself. Getting the best and most expensive may seem great at the time, but when you are looking at houses and rings for your future wife, take a step back and consider those as your only priorities for getting the best. Cut back on a few things for now, until this is accomplished.
- Ease up on Charity Purchases. Until your house is purchased let’s not buy another auction item at a charity, let’s make it the rest of 2015 without buying any of it.
- Budget Dream House. Let’s set a price 20-30% below what your mortgage broker says you can afford in your pre-approval and look at houses in that price range. This will prevent from being “house poor” and still get a house that fits into your budget. You guys are young and should enjoy yourselves; I just worry that if all of your money is in the house you will put yourself in a situation to get into debt.
- Less Price, More Future. As we all know we can have a job today and gone tomorrow and one way to prevent ourselves from emergency situations is to live below what we make. This can be done by not getting the biggest and most expensive house on the market.
Do you have any suggestions for my friend? Think you would handle the situation differently?
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