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Budgeting and Saying ‘No’ Equal Freedom

I love the lyrics to the new Meghan Trainor song “No.”

“All you gotta say is, my name is no, my sign is no, my number is no.  You need to let it go.”

That is my new theme song when I go shopping.  I have a little reminder sticky note on the outside of my wallet, “My Name is No!”  I know Meghan Trainor is not telling me not to shop, but I used to literally laugh at Nancy Reagan’s “Just say no” campaign.  I would think, “easy for her to say.”  Easy for me to say … until it comes to the actual temptation. So, I really like the empowerment of Meghan Trainor’s song, because I have embraced the words as my own.  “My name is no!”  It is a “no” to items I haven’t budgeted for.

When budgeting, you always want to include expenses you have specifically chosen to be your splurges.  The “no” is for the immediate gratification items not in the budget.  If you have and live within a budget, yay!  If your budget doesn’t include enough money for splurges, you need to recalculate your budget, either by taking away money allocated to another category, or earning more money.

Often I see the real budget breaking dilemma in housing costs.  Inevitably my friends and clients have taken mortgages (or committed to rents) without considering the splurge factor in their budget.

It kills me when people learn a lender has pre-approved them for a mortgage based on a high percentage of their current gross income, and they innocently believe it.  Once the would-be homeowner hears the number they can access, they have their housing budget, call a realtor to find their American dream home, with or without picket fence, and often blindly dive into their new role as homeowner.

Listen up: The bank does not know or care about your living expenses. The bank has made a calculated decision to lend you as much as possible to collect fees and to continue to collect interest on the money it is lending you. Are you planning to fill this new home with children?  Do you know the costs associated with children?  And if you have already calculated the costs of food and shelter for those children, have you also calculated the potential costs of reduced household income and/or daycare fees, medical/dental costs and educational expenses for those children?

Maybe children are not a consideration for you now.  Have you thought of the other expenses that will come with this new home that may not be in your current budget?  Will your transportation needs and costs change?  Are you prepared to replace major appliances?  Boilers break in the winter, air conditioners break in the summer.  Refrigerators, stoves and working toilets are necessities.  Dishwashers, washing machines and dryers are “wants” but most homeowners have them, and they break down.  And, usually not on the same day as your annual bonus comes in, if you’re lucky enough to get one.

Add in the monthly essentials of electric, internet, heating fuel, safety, lawn maintenance, pest control, and let’s not forget never-ending taxes and insurance, and your monthly nut may be a lot more than you understood it would be.

Now, of course you love this house, and you think it will make you very happy for years to come.  But aside from the children, the appliances and the maintenance have you considered where your splurge budget is going to come from?  With all of these newly accruing expenses that come with being a homeowner, have you accounted for the fact that now you may be  traveling further to and from the office, and you may not want to cook dinner every night?  Have you considered that you are going to want to go on vacation?  What about the possibility that your mother-in-law is going to expect you to make the holiday dinners in your new home?  That gets very expensive!

Are you going to feel pressure to fill your new home with new indoor and/or outdoor furniture?  Paint and stain?  Are you going to want to show off your new home?  Appearances are another costly commodity.

Before you buy the house that the bank says you can afford, please make a proposed budget of what you think living in your new house is going to cost you.  Envision yourself living there today.  Do not consider future raises and bonuses in your calculation because these days cost of living expenses rise faster than average incomes.  Do see yourself opening your wallet – a lot!

This one-time purchase is likely the biggest of your life and once you’re in, you want to be happy and comfortable.  You do not want to be “house poor,” with no money for anything else.  You do not want to feel trapped by this house.

Don’t spend money you don’t have.  Yes, you can borrow for a mortgage, but make sure it is realistically based on your current income, your personal goals (including your anticipated needs and wants, adding savings) and the unexpected as well.  Find a house that will cost you significantly less than the bank is willing to lend. 

By living below your means you can be prepared for rainy days and not worry about a leaky roof when they happen.

Enjoy the freedom saying “no” provides!

 

About Michelle Gershfeld

I’m a debt settlement and bankruptcy attorney who negotiates resolutions between clients and their creditors. I am also a real estate attorney involved in both sides of purchasing and selling distressed real property. I am passionate about teaching people about money and helping individuals of all ages achieve financial independence and success in a "no…

Read Full Bio »   •   View all articles by Michelle »

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