Home Buying Decisions: Impact on Long-Term Wealth

Manny the Mutant wisely invests in an affordable home, building a substantial net worth while Average Allen becomes house-poor.

### The Impact of Home Buying Decisions on Financial Future
* 🏡 Buying a home is often the **most significant financial decision** people make, especially in a post-inflation housing market where prices have **surged**.
* 💰 Many financial experts have historically insisted on a **20% down payment**, but data shows that most first-time buyers typically put down only **3-5%**.
* 📊 The average American homeowner allocates **33.5% of their income** to their mortgage, which can **severely limit their ability to save and invest for the future**.
* 📉 The Money Guy Show advocates for a more manageable housing expense of **25%** to avoid a "**house-poor**" lifestyle and encourage **financial stability**.
* 🔍 Tools like the home buying checklist and affordability calculator at money.com/resources can help prospective buyers **make informed decisions** about their purchases.
* 👥 In a case study, Average Allen, who buys a **$443,000 home** with a **3% down payment**, ends up with a mortgage of **$2,783**, while Manny the Mutant, who buys a **$321,000 home**, pays only **$2,083**.
* 📈 Over 30 years, Allen's home appreciates to **$1.1 million**, but Manny's disciplined investing leads to a total net worth of **nearly $1.9 million**, highlighting the **importance of financial discipline**.
* 💪 Ultimately, the choices made in home buying can significantly impact one's **financial future**, emphasizing the need for **careful planning and investment** to achieve **true wealth**.

[Music] All right, so BR. We've talked about student loans, and we've talked about automobiles. Now let's talk about what's probably the single most expensive asset that anyone will buy throughout the course of their life. For most people, this is the number one thing that they will spend their money on, and it's buying a home. Yeah, and buying a home. But we came through post-inflation. Housing has gotten very expensive. But here's the good news, and this all my financial mutants already know this. We've always been big on the grace for your first home purchase here at the Money Guy Show. There's been pundits forever that are telling you, Hey, you can't buy a home unless you can put down 20%. Those people have been left behind to the point that they've even had to update their rules because they realize, Yeah, with housing going up as fast as it did, we have to amend our rules. We never had to amend because we knew. We asked all our financial mutants that are financial advisers and even looked at

our own lives, and we realize most people who are even financially minded on their first house put down 3 to 5%. So that's what we tell you, Financial mutants, is okay on that first house. Not only that, we don't say you have to do 15-year mortgages. We're okay with a 30-year mortgage. We want you to make sure that you're making wise housing decisions, but the average American's not doing that. The average American right now, the average homeowner's putting 33.5% of their income towards their mortgage. That means that 13% of their pay is going towards their housing. Well, you can imagine when your housing is sucking away that much of your resources, it does not leave a ton for all of the other areas and goals that you may want to pursue. That's why we take a little flack for the 25% housing expense, but it's so you don't end up with that house-poor life where all your money is going towards housing, and then we've

even seen when you get the bigger homes, it's going to have more property taxes, it's going to have more homeowners insurance. We're trying to protect you so that you can actually have margin to enjoy your life, but also have the margin to save and invest for the future so you actually own your time that much sooner. And I know that that takes a little bit of discipline, it takes a little bit of sacrifice for a period, but that's why between the 3% down payment and then giving you this guidance, we've tried to give the best of all the worlds. And that's why if you're not taking advantage of our home buying checklist, go to money.com/resources. We give you all the steps so that you can figure out and run it through the filter of our questions to make sure that this is really what you need at this point in time. And not only do we have the checklist where you can actually make sure, is this the right time for me to buy a home, am I thinking through all the

things I'm supposed to think through. We actually have a calculator you can use. You can go to money guu.vn. Okay, how much home can I afford when it comes to making this huge life decision based on my age, my income, my circumstances? What's the right amount of home? And this single decision can have huge impacts. Let's go back to our case study. Let's think about our two individuals, Brian, we have Average Allen, and we have Manny the Mutant. So, let's assume that Average Allen is going to do exactly what the average American does. So, Average Allen is going to put 3% down on a $443,000 home. Remember, the average American is putting 33% of his income towards his housing. So, 3% down is going to get him in a $442,000 home. Manny, on the other hand, recognizes, Hey, there are some home buying rules that I should follow. There's a checklist I should look at. I want to make sure I keep everything inside the guardrail. So, I go out to

money.com resources. I use their affordability calculator, and I determine that I can put 3% down on a $321,000 home. So, when you look at Allen, he's going to have almost a $2800 mortgage. It's $2,783, which represents 33% of his gross income. When you look at Manny the mutant, his mortgage is only going to be about $22,100, $2,083, which is 25% of his gross income. Again, we assume they both make the same incomes; we assume they're both $100,000 income households. One is just making the decision to buy a more affordable home. Well, Allan, because so much is going towards his house, he has no margin to save, no margin to invest for retirement. But Manny, recognizing that, I bought an affordable home; I still have an extra $700 a month that I can begin putting towards my future, that I can begin investing. Now you got to figure out, Okay, which one made the better decision? And again, just like when it was the car, you

thought man. Allen's looking pretty good. He was in the nice fancy car, looking better than Manny. The same might be true when it comes to housing, 'cause Brian Allan bought the nicer house, and we know that houses are appreciating assets. So, if you buy a more expensive house and that house appreciates, surely Allen's going to end up in a better spot, right? Yeah, I mean, this is the part where debt is such a mirage, because in the beginning, it actually lets you look like you're more successful than you actually are. It does look like a bridge towards all your dreams, all your wishes coming available, and that much sooner. But here's what we know: when you make this decision and you're not disciplined, you're not going to financial mutant, 'cause remember, once again, same dollar amounts are going out. We did not give one more money than the other. It's just the choice, the incremental decision. One spent their money this way, the other spent their money this way, and I think a lot of people, even the person who bought this

big house and spent a third of their income towards the house. They're going to feel good, maybe even in the future. Oh yeah, because that house, if we appreciated it just at traditional appreciation of inflation of 3%, that house that they bought for over $400,000 now 30 years in the future is worth close to $1.1 million. Hot Dog Millionaire right here, net worth millionaire for average Allen at this point. Yeah, but it's all in their house. Yes, it's a paid-for house. It's a millionaire. They are a millionaire on paper, Manny the mutant. And we're going to be honest. We're going to tell you, hey, because it was a smaller home, it didn't appreciate. It's just the law of numbers. This is the way math works. That house is only worth about $800,000. So you're looking at this, an average Allen is feeling pretty smug and feeling really good. Now here's where the difference is. Manny has been letting his

army of dollar bills building the background. So, not only does he have a paid-for $800,000 house, but he has slowly but surely been investing that $700 a month. And guys, that money is now worth over a million. That's incredible. So then, when you think about their total net worth, when you add, you just take average Allen's valous home. Yes, he's a millionaire, but it's all in his house, and you cannot eat the house. When you look at Manny's terminal net worth here, not only does he have an $800,000 house, but when you add that to his million-dollar portfolio, his terminal net worth is almost $1.9 million. That difference, that million-dollar difference by the time that they got to retirement, can be huge when it comes to what their retirement lifestyle actually looks like. Well, you think about it because even though Allen is a millionaire on paper, his net worth statement, if he wants to start eating the house or living off the house, he either has to take off more debt or he

has to move and downgrade into a smaller house so he can actually start consuming that equity. That's not a great decision, and those are all hard decisions because change is hard. Meanwhile, Manny, because he's built up a million, almost a $1.1 million portfolio, could actually perpetually for the rest of his life generate $43,000 a year of income off the $1.1 million. And then when he passes away, he's still going to be able to pass away $1.1 million of assets to people he loves, plus his million-dollar house, because that $800,000 will eventually become a million-dollar house. Guys, this is why we want your money working for you, because when it's all just use assets, it's hard to actually get off the labor train where you actually own your time. You want your assets actually working harder than you can. I've said it before: your back, your brain, your hands, but you at some point have to actually start making the behavioral decision of investing to

create that automatic millionaire status so your money and your army of dollar bills can do that heavy lift. But all of these decisions are difficult; they require discipline. That's why one of the three ingredients of wealth creation is discipline. It's something you have to exercise in terms of your consumption behavior. You make a decision to consume one thing instead of another.

How a $700 Extra Payment Could Cost You $800K: (True Cost of Your Dream Home)

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The Money Guy Show

Buying a home is the most significant expense for most people, especially in the current post-inflation era.

The traditional 20% down payment rule has been amended due to rising housing costs, with many financially-minded individuals putting down only 3 to 5%.

The average American homeowner is currently allocating 33.

5% of their income towards their mortgage, leaving less for other financial goals, which is why the Money Guy Show advocates for a maximum of 25% housing expense.

Buying a bigger home leads to higher property taxes and insurance, making it important to have a financial margin for enjoying life and saving for the future.

The 3% down payment and provided guidance aim to help individuals own their time sooner.

Utilizing the home buying checklist and calculator can assist in making informed decisions about the right amount of home to buy.

Allan and Manny, both with $100,000 incomes, make different homebuying choices, leading to varying financial outcomes.

Allan's $2,783 mortgage for a $321,000 home consumes 33% of his income, leaving no room for savings or investments.

In contrast, Manny's more affordable home results in a $2,083 mortgage, allowing him to save an extra $700 a month for his future.

The Impact of Home Investment on Net Worth

Investing a third of their income in a house, Average Allen's property appreciates to $1.

1 million over 30 years, making him a millionaire on paper.

However, Manny, with a smaller home, also invests $700 a month, building a million-dollar portfolio alongside his $800,000 house.

By retirement, Manny's total net worth reaches almost $1.

9 million, highlighting the significant difference in financial outcomes between the two.

The Importance of Asset Management for Wealth Creation

Moving to a smaller house to access equity is a tough decision, while Manny's $1.

1 million portfolio can generate $43,000 a year and provide assets to his loved ones.

It's crucial to have money working for you to achieve financial independence and create an automatic millionaire status.

Discipline in consumption behavior is key to making the right investment decisions for wealth creation.