Speaker 1 00:00:08 What's up, everyone. Welcome to the finance for physicians podcast. I'm your host, Daniel Raimi. Join me as we dig into what it looks like for physicians to begin using their finances as a tool to live better lives. You can learn more about our
[email protected] let's. Jump into today's episode. What's up guys. So we're having a great day. I have Jen with me today and we're going to be talking about home decisions and all the different sorts of things that might happen along the way of that sort of decision. So, Jen, thanks for getting on with me today to chat about this. Yeah, thanks
Speaker 2 00:00:43 For having me back.
Speaker 1 00:00:44 Yeah. So we're excited to talk about this. There's a little, uh, background noise. Uh, we have some, uh, major road construction happening. Hopefully it's not, uh, too distracting, but, um, they're working on the road behind us, so apologize for that, but
Speaker 2 00:01:00 Yeah, it's been great.
Speaker 1 00:01:01 Yeah. It's kinda fun to watch. Uh, we were, I talked with you on, uh, our last episode and, um, we were getting distracted by it, but, um, it's been kind of cool that you can't beat watching heavy machinery work,
Speaker 2 00:01:15 Um, breaking stuff off. Yeah,
Speaker 1 00:01:18 Right. I'm like, can I drive it?
Speaker 2 00:01:21 Can I have a drive?
Speaker 1 00:01:22 Yeah. So yeah, that the home decision is a big one. I would say. I'm curious what you think, Jen, but I would definitely argue that this is the number one error or the issue that the people that causes people, financial challenges that we see.
Speaker 2 00:01:41 Yeah. 100% I would say, you know, even more than income or anything else. I think the home that you choose is really the, um, I guess kind of the limiting factor in what else you can do with your planning.
Speaker 1 00:01:56 Yeah. It's, it's a, it's a pretty big deal. And the other thing about it is I think a lot of the people that slip up on it, they're, they're super smart. So it's, everybody's susceptible to, I think pushing this a little too hard, it's not always like logical, there's a lot of behavioral components that work into which make it especially, uh, challenging. So hopefully we can talk through some of those things. So you can kind of start to identify that in your situation and make sure you're staying on the right side of the tracks on this,
Speaker 2 00:02:33 Buying a home as a tricky combination of emotional factors and financial factors. And I think it's just important to kind of identify which of these things are we focusing on when, when we're buying the house?
Speaker 1 00:02:46 Yeah. So there's definitely some good things to look out for. There's some problem areas to watch out for. So that was kind of the format I thought we might take with this is let's talk about some of the let's let's with maybe like the wrong way to do it, or, you know, areas to look out for. Um, that might be a sign that you're kind of headed down that wrong path. And then we'll talk about the ideal or right path to take. And some of, some of what that might look like. So Jen, on, on your end, I know you've seen this firsthand with many of the people we work with. If we were to start kind of like listing out those factors, like the, you know, people that are starting to go down that wrong path, what sort of things come to mind as far as, um, factors that are starting to play in there?
Speaker 2 00:03:41 Yeah. I think the first main factor is approaching the decision without having a big picture plan in place, because I think it's, it's hard to on the front end of things, kind of imagine how that home decision is going to trickle down into everything else that you do. So I think it's really important to approach that decision. You know, one of the, the biggest purchases you're ever going to make in your life to really have a good plan for, you know, how, how do I want to fit this into my picture? Do I want this to be my number one priority? Do I want it to be my number four priority? Where does it fit into my list of, you know, what what's ultimately important to me?
Speaker 1 00:04:22 Right? And if you, if you want to know more about what that process looks like, um, Jen and I talked about that, um, in a few, quite a few episodes back we'll link to that in the show notes about what is an ideally, what does a financial plan look like? But the gist of it is by going through that process, it helps you really start to prioritize what's most important. And, and, uh, look at the big picture.
Speaker 2 00:04:51 I think that's why people reach out to us a lot to even begin working with us is they're hung up on this house decision and people usually come to us and they say, you know, how much can I spend on a house or what should I spend on the house? And things like that. So it's a, it's definitely a big decision. And one that often prompts people to start working with us in the first place.
Speaker 1 00:05:10 And before we started recording, you brought up a question, I thought it was great that people that you kind of think of when that comes up,
Speaker 2 00:05:19 What do you want the purpose of this home to serve for you? Is it, you know, I think most people when they come to us and we start talking about goals and what we want to work on, most people will say, you know, I want to take care of my family and I want to be able to be financially independent at some point and send my kids to school and go on a vacation. Very rarely in those goals is I want to buy the most expensive house that I can, but when it comes to the house decision, you know, usually the question that we get asked is how much house can I buy? And I think the question that we would encourage people to ask themselves rather than how much house can I buy, is what purpose do you want this home to serve for you?
Speaker 1 00:06:07 And how does it fit in with all the other priorities in life?
Speaker 2 00:06:11 Yeah, and I think it's just kind of, I think a home, like we mentioned before is a really emotional decision for people. You know, you want to be in a safe area, you want to take pride in your home, but I think it's really good to just kind of acknowledge what, what you're looking for in a home. What's a non-negotiable what's negotiable and have an idea of how things are going to fit together as a whole and not just look at the home first and then fit the pieces around it. Just look at the home as one piece of your puzzle and make sure that it fits with everything else that you want to do with it.
Speaker 1 00:06:46 Well, another thing I think that happens is there's just, you don't have a lot of time for this, which, which is very understandable, I think, especially in training and especially if you have like a lot of other stuff going on, like if you have a family, even if you have kids, if they're, there's just not a lot of spare time to be going through a more thought out process. Um, I've seen a lot of people that have had a hard time making this a priority in terms of like going through what the house, how the house is going to fit into everything, or, you know, talking to a financial planner or doing a financial plan, but everybody's busy and, you know, it's, I think it's better going into it realizing that there's, there's just not going to be, it's kind of like savings. Like, you know, it's better to save first, spend the rest. So like when you're busy, you got to just carve out the time. Like it doesn't, this is not one of those things that tends to just happen.
Speaker 2 00:07:44 And there's, uh, you know, especially right now, we hear a lot of those struggles right now when there's, you know, bidding wars and things. But I do think it's really important to not feel pressured or rushed. Um, and I think there are some misconceptions around the idea that you have to buy a house and renting is bad, but I think it's more important that you don't rush into that and know if you have to rent for a year rent for a year and you know, we'll make sure that when you actually make that decision, that it's the right one for you,
Speaker 1 00:08:13 Right? Sometimes we create these like unnecessary boundaries in our head for whatever reason, it's like, I must buy a house or I must buy a house by X date. When in reality it's like, no, you don't have to buy a house. You could rent a house, you could go get an apartment. You could go live with your parents. You could go live in a van. I mean, like in reality, like you could do a lot of different things. You could have no home. I mean, like you don't have to buy a house by X date. Now that would be the preferred route in a lot of cases. But people sometimes establish these self-imposed boundaries, I guess, um, in this, especially in this sort of situation. So I think the number one time that happens is when you transition out of training and you're moving, so it's like you finished training while at the same time, you're moving, especially challenging, you know, maybe you're moving across the country. And especially when you're moving to a new area, you don't know, and you're busy and training. So it's like this decision gets like, come packed it into a small period of time. And so that tends to amp up this whole rush aspect of it. And I think makes you even more prone to failing, to consult your financial plan or bother with going through the exercise of creating a financial plan like we were talking about at the beginning.
Speaker 2 00:09:41 'cause I think when you're in a rush, you just kind of default to some rules of thumb or you listen to the realtor or the lender, and they really don't have an idea of what's going on behind the scenes or what you want to achieve. And, you know, rules of thumb, you know, like 2.5 times income. I hear that a lot, but rules of thumb don't apply to everyone there. It's just an average. And most of our clients aren't average, you know, they're, they're getting a later start, they have big student loan balances. They, we have less time to be saving. So there's rules of thumb are aren't always going to apply.
Speaker 1 00:10:17 Right. And then the other thing is, do you want to be average? Like, do you want to be the average American family? Are there my average American physician and family, or, you know, does that, should that apply to you? I don't know. Maybe, maybe so. Maybe not. Uh, but you know, rules of thumb is, is there are definitely 2.5 proceeded with caution, correct. That's, that's a slippery slope because it's just, it's not at all customized to what your values are what's most.
Speaker 2 00:10:50 Yeah. And I think, I think that's exactly where having a plan in place comes light comes in and we're in really shows the importance of it is, is how does this one decision affect everything else in the house? You know, we see it all the time. The house affects absolutely everything else.
Speaker 1 00:11:07 The other one I, I think of is kind of a error that happens is letting the emotion drive the ship and then justifying it with logic. Yeah. I think everybody's fronted this when they're in that kind of sure. Maybe I'm making a poor decision or, you know, I'm not sure, uh, we all kind of justified our actions. And so the, especially with this home decision, it's an emotional decision and it's always going to be emotional. But I think the problem there is like when you mix it with failing to have like a good, solid values based plan. So when you go into it without a good plan, and then you get into this emotional roller coaster of looking and then you start to justify with logic, that's, that's where I think a lot of issues happen.
Speaker 2 00:11:58 Yes. I agree. I can't tell you how many times we, we have conversations and kind of decide on the, maybe this is what our ranges and, you know, they come back and it's twice the range and they're like, oh, but it was in this good neighborhood. And, um, you know, this is a really high, high demand area and my house is really just an investment. So there's, you, there are lots of reasons that people tell themselves to justify spending more than, than they probably should.
Speaker 1 00:12:30 Yeah. It's always it, we can justify, we can convince ourselves of anything at the end of the day. So it's yeah, you definitely have to be careful with that. Any other thoughts on, uh, things to look out for or hints that people might be headed down the wrong path?
Speaker 2 00:12:45 Yeah. I, I think, you know, just how to plan and then recognize what your priorities are for the house. You know, I think of a home can be a status symbol for a lot of people and you know, that's okay. You know, you want to have something to show for your hard work, but I think it's important to acknowledge a need versus a want, you know, maybe you, you need a house for X, Y, and Z, but is the house that you need a million dollars or is it a house that you want a million dollars? And I think it's important to just draw the line there and, you know, kind of call it what it is. One of those, this is a lifestyle choice and then that's okay. But don't, I, I, wouldn't try to justify that with trying to back it up with financial things that don't necessarily make them
Speaker 1 00:13:31 A couple other things I'm thinking of that we see sometimes is not building in any margin. So that's the classic mistake that like analytical people, like really, really analytical people, I think make this mistake a lot or engineering minds because you budget, you know, you have good intentions and you look at all the bills, you're thinking you're probably going to have to pay. But the thing about life in general, and especially with a home purchase or owning a home is it's always more expensive than you expect. And on top of that, it's just kind of stressful to not have any margin built in. And so it's rare that I see people building in margin into their budget. Most of the time, people haven't even looked at a budget. So that's another mistake really is like, we haven't even looked at cashflow. Like if you haven't even looked at what you're taking pay is going to be and have an idea of where it's going to go. And this ties into like having a good financial plan. But if you haven't looked at where your money is going to go, how much you're going to have to work with. And, you know, and then on top of that, how much margin there is going to be like, do you have any wiggle room? That's a problem.
Speaker 2 00:14:49 And I feel like people don't always to hear that homes are more expensive than you think, but I think we have a handy that mortgage calculator that we use, you know, a lot of times we'll hear, you know, I spend $2,000 a month on my rent, so I should be able to buy a $400,000 house. And it'll just, you know, it'll feel the same, but there were so many costs associated with keeping up your home and all your taxes and your insurance is in your lawn. And you know, all the things that just kind of add up that make owning a home really. So, so much more expensive than renting
Speaker 1 00:15:23 From a cashflow standpoint. Yeah. Yeah. Long-term, you know, owning a home, you know, most of the time is going to be better than renting, but, uh, from a cash outflows
Speaker 2 00:15:35 Standard,
Speaker 1 00:15:37 It's definitely can be very expensive. It's better to run the numbers. We'll link to that. A spreadsheet captain, you know, calculator that will help you kind of look at all those home cost numbers. There's another kind of, this, one's a little harder to quantify, but like I've seen people, I think this especially happens when you're buying like maybe older homes or homes with land is the failure to consider like the time you're going to have to spend on it. Or I guess the money you'll have to spend hiring people to help with stuff. So if you have, this is probably for more like, I don't know what the right word is complex or like stuff on the property. Like if you have a pool land fences and you know, nice kitchen and, um, three kitchens, three bathrooms, lots of stuff that could break those kinds of things, extra fixtures, like just the more stuff that can break, I guess, is what it comes down to are they, it has to be kept up like hot tubs, steam room, you know, all that. Stuff's fun, but like, that's also stuff that's going to break. So you either are going to have to spend time and some money or spend more money to kind of pay people to come take care of it or, or weed the lawn, you know, weed, the garden, that kind of stuff. And so that's a hard one to quantify sometimes, but
Speaker 2 00:17:02 The extras are
Speaker 1 00:17:05 Right. And I think another thing that happens too, is assuming that the homes will always go up in value at,
Speaker 2 00:17:13 Yeah. I think people, our age have recency bias. Every everything's really gone up since we've been in, in the workforce and owning homes and
Speaker 1 00:17:23 The recency bias is like, we're locked into this. We're bias towards thinking everything goes up all the time, home prices wise because the past, you know, all the years, we kind of think of it has gone up. Uh, the biggest, the last big downturn in home prices was what, 2008. And it's been a while. Okay. So let's talk about the right way to do it. That's, that's all the kind of things to look out for your issues to, to keep an eye on. But let's talk about like, what is the ideal way that you should go about doing this and start to iron that out?
Speaker 2 00:17:57 Yeah. I, you know, it just, it keeps coming back to that plan and that sounds so self-serving, but even if it's not a plan with an advisor, it's a, it's a plan that you've outlined for yourself and just making sure that you have the resources to do what's most important to you. And, you know, usually some sort of living space is going to be in there. Some sort of saving for goals is going to be in there, make sure you can pay your taxes and make sure you can go on a vacation so you don't burn out at work and just make sure you're able to accomplish all of those things when you build the house into it. And you know, the, the more how Seattle, the less you're going to have for the other things. So it's all just kind of give and take, um, figuring out how to balance those.
Speaker 1 00:18:37 So it's like life and values first house second, or that's, which is kind of backwards from how often times it happens. But it's like figure out what needs to be saved, figure out how much you need to do what you want to do. What's most important. And then see what's left over and then that's how you, so people always ask how much I spend on our house. That's like Jen was saying, that's one of the number one reasons people actually hire us is to help them figure out how much to spend on a home. And they tip, I think they typically are expecting us to like run a calculator or something.
Speaker 2 00:19:13 Maybe give them a number. Yeah.
Speaker 1 00:19:15 So they're like, you know, let's run the spreadsheets and figure it out. But, um, that's not actually what we do, what we do is we say, okay, let's understand your values. What's most important. Where do you want to go in your life? What is your good grade life look like? And then how much do you have to work with what all the numbers look like? And so we take all those factors, like what's most important, where do you want to go? What are the numbers look like? And then we start to carve out, you know, within the numbers we've, we've got to work with, we start to carve out like what's most important, let's make sure that's happening. What are the goals? Let's make sure that's happening. And then we back into how much home can be, you know, can you afford, so that's oftentimes the reverse of how people go about it.
Speaker 2 00:20:04 Yeah. Ultimately we just want to help you get a plan that avoids the scenario where we're in the house and there's limited resources to do the other things that people say are important, which generally tend to rank above the house when we actually have conversations with people about what they value. And what's important to them, you know, very rarely is a specific item about your house. It's usually, you know, have a secure place to live. But beyond that, it's how do I take care of my family? How do I have work-life balance and, you know, making the wrong decision with the house, just trickles down to everything else.
Speaker 1 00:20:42 Yeah. So yeah, most people say, you know, or the more common things people think about in that conversation is like you said, family relationships taking care of others or saving for long-term in spending more on the house. It's not always, typically not like the top of the list. It's I don't know that I've ever seen it, like the top of the list. And so really we're just trying to help people live that out. So the trick is, well, I guess the first part, you know, part one is going through the financial planning process where you clarify goals, values what's most important and the numbers. And then the second part, which for some people is harder than the first part is actually doing it. And following the plan, because I can think of, although I would like for this to happen, there has been occasions where people don't follow our advice.
Speaker 2 00:21:36 Yeah. And, you know, unfortunately it's, it's not always gonna work out the way that we want, but you know, we, we try to give unbiased opinions and just make sure that we're aware of the implications that the house was going to have on the big picture. And, you know, ultimately people are going to do what they're going to do, but I think if we can just make them aware of how that decision impacts everything else. I think it's important to go through that exercise.
Speaker 1 00:22:04 Yeah. And the people we were talking about this before as well, the people that we love working with people that, uh, have yet have not bought, you know, the forever home yet, I guess. Yeah. Because of really, because of all we're talking about, I mean, it's just so often like a crutch and there's a lot of times we talk to potential clients and it's just, we know it's not going to work because they just don't have, uh, the house is kind of taking up too much of the resources. So it's kind of a hurdle. So our, uh, favored time to work with people is prior to making the big decisions around the house, uh, that way we can kind of help them navigate it. Uh, and people that take our advice on that decision and that, or even if you're not working with a planner, when you go through the right process, those people just have all sorts of a lot, a ton more margin and they, they seem to be much more flexible. It's much easier financially. It seems like they're happier.
Speaker 2 00:23:12 Yeah. I think you've mentioned margin a couple of times, and I think the value of having flexibility in your day to day and not have to feel like you have to penny pinch because of this house. I think that's a really valuable for people
Speaker 1 00:23:25 And yeah. Uh, the white good investor, Jim, Jim wrote an article recently about, um, taking home equity and using it to pay off student loans. Did you see that Jen? Yeah, I did. Yeah. And I, I was, um, I think I commented on it, but
Speaker 2 00:23:46 You did. I thought,
Speaker 1 00:23:48 Well, I couldn't help myself. So this article, um, for those that didn't read it, it's a good read. I would encourage reading it. But the part that I thought was missing was the emphasis on how many people may not have the right home. So he talked about how important, you know, it was really good that he emphasized how important it is to have a plan around your home or a financial plan that drives your home decision. And then in that case, if you have the right home, it doesn't make sense to sell your home and cash it out and pay off, use the equity to pay off student loans because you already have the right home. Like why would you do that? But my point when I, you know, what I brought up is that there's a whole lot of people that either aren't sure what the right home is. Maybe they think they know what a rule of thumb is or whatever, but they've not applied it to their situations. So they're not sure what the right home is, or they know they're not in the right home. Like they have too much home, at least that's what we see. I think there's a ton of people that are in that situation. I think there might even be more people in that situation then that are in the, you know, ideal home setup.
Speaker 2 00:24:59 Yeah. Cause I mean, you don't, people don't want to say or admit, you know, maybe I didn't make the best decision here. You know, I think that they, that's a challenging thing to admit and it's a challenging, it is a huge step to change, you know, to, to sell your house because it was, it was too much, you know, that's a really big change for people to make. So if you can go through the process on the front end and make sure you're in that right house, so you don't get yourself in a position where you have to make that choice or change your goals to accommodate
Speaker 1 00:25:36 So much better. Yeah. It's very difficult once, once people, once you're in it and it's very expensive to sell homes and transaction costs and all that. But if you are in, if you're either not sure that you're in the right home, usually like the symptoms of it, or you feel pressure like to earn money, like you feel like there's pressure. Like you don't have any money left over. You. Maybe you just started in practice and you're like, there's supposed to be money left over. Like I'm making good money now. Like there's supposed to be money left over, but there's not. That happens a lot. And I think most common reason that's happening is because the home maybe you've pushed the envelope too much on the home, but it's a it's okay. Like, that's okay. Like you can at the end of the day, uh, ideally you make it on the front end, but people make mistakes and that's okay too. And you can always make a change. So it's never too late to like plan and, you know, re visit the number, you know, look at the numbers and come up with the, what is the right house for your situation, you know? Or maybe you go through the process and confirm that are in the right house. But I think the biggest takeaway is going through a more thoughtful approach to make sure you have a plan for the home that you own or the home you live in, even. Yeah,
Speaker 2 00:26:54 I think going through the process to make it, uh, to clarify your values, your goals for the house, to make it a cashflow decision, rather than an, an income based decision or a rules of thumb based
Speaker 1 00:27:07 And incorporate all the other competing values and goals, sometimes even much higher priority goals. Like, you know, maybe you want to travel. Maybe you want to travel more than you want to have a nicer house. So like, you need to remind yourself that before you get into this emotional rollercoaster of deciding on a home, because I guarantee like if you look at a half million dollar house and then you look at a $800,000 house later on in the day, you're going to like the inner and thousand dollar house more, and you're going to start like telling yourself out. Yeah. You know, it's a better neighborhood. It's safer and better schools.
Speaker 2 00:27:40 Yeah. There's always a way to tell yourself that it's the right decision for you.
Speaker 1 00:27:46 Oh yeah. So you gotta like
Speaker 2 00:27:49 Set your goals before you go and look at the $800,000 house, unless the $800,000 house is the one that you're targeting for your goals. People who are helping you buy a house, usually are incentivized to put you in a more expensive house. So I would have your budget that ahead of time and anything that's outside of that don't even look at it. Cause it's going to the million dollar house is going to be cooler than the 500,000
Speaker 1 00:28:16 Guaranteed. But,
Speaker 2 00:28:18 But do you need it? Right?
Speaker 1 00:28:19 And, and even don't, don't even look on Zillow or online or whatever, like nowadays that's gotten to where you can do a 360 video or whatever.
Speaker 2 00:28:29 Oh, I'm guilty of that. I'm not even moving and I'm on Zillow all the time. I just love looking out.
Speaker 1 00:28:35 Yeah. But what you have going for you is you, you know, know your complete financial pictures, so it's, you can kind of bring that into the equation. And it's kind of like the voice of reason people sometimes need.
Speaker 2 00:28:49 Yeah. And you know, my husband and I go through that all the time. So it's not just a, a client situation. I see myself doing it. I say, oh, you know, I have my, this person just bought this new house and it looks so nice. And maybe my house isn't that nice. But if I upgrade, I have to give up my vacations and am I willing to do that? And I think that's a good process to go through is what's the trade-off for this house versus this house.
Speaker 1 00:29:14 Right. Yeah. Think about trade-offs and think about how it affects other things in life that are important, like finance, you know, financial independence or traveling or whatever is important to you and take those things into consideration. And then you'll, you know, doing it before you actually start seriously looking it's um, you're going to be way more likely to make a solid, balanced decision that won't, that you won't regret in the future. Yeah.
Speaker 2 00:29:41 It won't be your limiting factor. It'll let everything else play out the way you want.
Speaker 1 00:29:45 Right. Awesome. All right, Jen. Well, I appreciate it. Thanks for coming on as always, hopefully
Speaker 2 00:29:52 The machinery wasn't too bad in the bathroom.
Speaker 1 00:29:54 Yeah. And I don't think it was, but hope, hopefully not one little quick note before we jump off, if you guys have, uh, or know of, or maybe, maybe you yourself have had like a, uh, interesting story around the home purchase decision, I would love to potentially have you on or at least hear about it. I think the one type of situation I'm really looking for is the situation where someone has realized that maybe they spend a little too much on a home and they went through the process of figuring out what the right home is and they made the decision to downsize. I think that's very rare. And I would love to hear somebody that had the courage to do that. And that went through that process that downsides the home and what that's been like for your financial picture. So if you know, people that have had that happen, or if you yourself have gone through that, I would love you.
Speaker 1 00:30:49 All right. Appreciate it, guys. We'll talk to you next time as always, thank you so much for joining us today. If you found this valuable, please give us a review on iTunes and share with a friend. Also check out our
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