Before you sign the papers for a large mortgage payment, you need to ask yourself a difficult question. Is it wise to buy the nicest home you can afford? For some people, the answer is yes. For others, it might sound like a good idea at first, but it becomes a major problem years down the road. With more competition in the employment market and wages not increasing as fast as housing prices in the area, you can't count on your income rising to match your future goals and priorities. Retirement, kids and college funds, a nice vacation -- these are some of the things that you could miss if you choose to spend the maximum amount you can afford on a home.
Planning for Kids and a New Home
If you are planning to have a family, keep in mind that kids are the single largest -- and most rewarding -- expense that you will ever have. College funds, doctor visits, school activities -- it all adds up. That's not even factoring in the minor day-to-day expenses like food, clothing, school supplies and toys. If kids are in your future, consider buying a home within your budget. It's a matter of deciding what means more to you -- that gorgeous house on the hill, warm family memories in a smaller home or maybe a home further from work but the space you want (and need).
Saving for Retirement
When it comes to retirement planning, home-buyers are prone to rationalizing. They often assume that they will advance to the next job with an even larger salary and huge retirement package. Other people put off saving, believing that they will be able to save more money later. The fact is that these things aren't guaranteed. Most experts advise that you should start saving in your 20s by putting back at least 10 to 15 percent of your income. That number goes up if you wait until later in life to start a retirement fund. But with a mortgage within your budget, a home is a piece of the financial puzzle that can help, as you look to the future.
Vacations, Toys and the Midlife Crisis
Even if you've decided to factor for kids and retirement, you may not have considered one of the most basic human needs: having fun. Do you enjoy expensive vacations, or dream of collecting classic cars? What about the day 10 years from now when you wake up and decide that your new life goal is to own a motorcycle? There's no shame in spending money on expensive pastimes -- most of us will do it at some point, provided we have the means. Just make sure to leave some space in the budget for when these needs arise.