One-Off Purchases Today Could Change the Course of Your Life
The individual decisions you make today will impact your financial health for the rest of your life.
For anyone who knows us, we are planners and at times plan too much even though we realize life gets in the way and most of our plans do not come true. Fortunately, better things seem to happen to us than what we had planned for, so we feel extremely grateful. That doesn't stop us from planning for our future to determine how each major purchase we make may affect the rest of our lives. Let's go through some key purchases and how they changed our life, one way or another.
Our "Nothing Special" House
We love our house, it's clean, spacious enough, in a safe neighborhood, and it works for us. However, most family and friends wonder why we didn't choose something nicer, newer, and bigger. That's hard to hear sometimes to be honest, since our house cost over $500,000. (We live near NYC, so this is a very average home and over 100 years old.) With our salaries approaching $400K, one web site says we should able to afford a $1.5 million home. We think $500K is a lot of money, let alone $1.5M!
Now that we have this "cheap" $500K house, we built some room for ourselves for the rest of our lives. How? Here are some options that now are open to us: 1) We have extra money to pay off the house in 8 years if we'd like, or 2) We can purchase more rental properties since we have extra cash laying around, 3) One of us could lose a job and we can continue to live in this house, 4) We can retire earlier if we wanted to, 5) We can take more family vacations, and 6) We may not have to figure out how to pay for multiple daycares should our family expand.
All of these options are now available to us because our mortgage payment is $3,500 a month instead of $10,000 a month for the next 30 years. This equates to $2M in cost avoidance over 30 years, which would be enough to retire on. Wow! This one decision to purchase a house starts to really make an impact on the rest of your life real fast, plain and simple. Do your house payments feel like handcuffs to you?
I suppose we could have some nice BMWs or a Porsche, and I'd love that as a former military pilot. I love to go fast, but I also hate to work even more, so we own a five-year old Toyota Camry and a ten-year old Nissan Versa. The Nissan was just purchased for $3,500 to get me to the train station for my daily crappy commute. Again, we didn't win any compliments from our family and friends over this purchase, that's for sure! What do we do with the money we aren't spending on nicer cars? We purchased our fourth rental house in less than two years, threw an extra $10,000 into the S&P 500 index during the COVIC-19 pandemic, and continued to set ourselves up for financial success.
Before we get into bonus money, let's talk about money we were fortunate to receive from selling our townhouse in DC a couple of years ago. We made $50K profit from the townhouse and instead of going on vacation, buying a fancy car, or having fun with it, we immediately put it into a 529 for children that we don't even have yet. We never had that $50K, so it was no big deal to invest it into the 529 and now the pressure is off of us for saving a ton of money for our child's college someday. When we made this decision, we didn't even know what the FIRE movement was and expected to work until we were 60. This decision now allows us to retire earlier and not worry about saving so much for college.
Any money we receive in bonuses each year at work is put into the stock market or the 529, put towards another rental home, or anything that can make us more money. Yes, we do have fun, we go on two international vacations per year, but use travel hacking to pay for 90% of the trips. We've hit up Patagonia, Tanzania, Iceland, Faroe Islands, Israel, and Spain over the past few years.
When we purchased our first car and invested $50K into the 529, we didn't think we'd retire before 60. When we purchased the $500K house instead of the $1.5M home, we knew we wanted to retire as soon as possible. All of these individual choices collectively make up our financial health, even though we really don't know what the future has in store for us. What we do know is that these types of choices above will most likely open more doors for us and give us more flexibility than we can even imagine. It's too easy to just say, "we'll just make more money as you get older, so we will figure out how to pay for day care and a new car when the time comes." Life just doesn't always work out that way, so start taking control now with these individual purchases so that you remain in the driver seat for when the day comes you can buy that Porsche.