If the recent housing problems hasn’t woken many Americans up to the idea that your home isn’t you nest egg, perhaps a recent article to The Mole, Money Magazine’s undercover financial planner, will. In it, a reader asks if they should invest their entire net worth into a half-million dollar home they intend to live in – essentially tying their future into their home. Five years ago, that would’ve seemed like a decent idea. Home values were skyrocketing, the future looked great, but nowadays the climate might give one pause to take such a route. The Mole does identify that the question is more than just money, it involves happiness as well since home is where the heart is, not just the money.
The Mole’s advice is to stick with your current home and not to invest all of your capital into a home. Me? I am with him or her. Ignoring the valid points that construction costs are difficult to estimate, the lack of diversification, and a few other valid financial points – the fact of the matter is that you shouldn’t ever have everything in one thing. It goes beyond diversification, which says you should have your eggs in different types of baskets, and speaks to having everything in just one basket! I think a home is a beautiful thing and that it’s tempting to put a lot into it but ultimately it’s just a building and the happiness comes from the people inside of it, not the walls that contain it. Live within your means and putting all your money into a new home is not within your means (and it’s dangerous).