A recent story in Money on CNN Money is of a school psychologist that jumped into a $600k mortgage on a $77k/year salary; a mortgage that severely hampered her ability to save for retirement. The mortgage, combined with the loss in equity as the value of the home fell, prompted her to stop contributing to her 403(b), essentially trading in her retirement for a home. The reason she bought? “.. she kept thinking to herself: Isn’t owning a home the right thing to do?”
No. There are rules of thumb that may help guide you to the right decision but you have to do the math and decide whether it’s the right thing to do for you. If you were to review Hillary Clinton’s financials, you’d see that she has a tiny retirement account (tiny for someone with millions in income!) and you’d probably surmise that she was in tough financial shape. However, then you see her income and how she and Bill get hundreds of thousands of dollars to appear and give speeches. For her, a retirement account is not as important because of her massive income. The rule of thumb, that you should save for retirement, doesn’t apply because of her specific situation.
So, the lesson of the day is that you should consider rules of thumb, like how owning a home is the right thing to do, along with your specific financial situation. I could’ve told you, without any math, that $77k/yr would be hard pressed to service a $600k mortgage and I think most individuals would agree with me.