There’s the old saying of “putting the horse before the cart” where in it means you are trying to do something in the wrong order. In the sayings case you are trying to get a cart to pull a horse, an obvious mistake. However in life there are a lot of similar situations where although the result is the same (a mistake), it’s much less obvious.
In the case of someone’s house and their life I think there is a very similar relationship. Most people tend to put their “life” before their “house”. When I say this I’m referring to life experiences, wants, gadgets and so on.
“Should I pay off my mortgage or should I go overseas?”
“Should I put that extra $1,000 tax return towards the house or go shopping and buy a bunch of new clothes?”
“Should I use the raise I just got to buy a new SUV or keep my old car and put the difference into the mortgage?”
“Should I use the $20,000 inheritance I just got to pay off our mortgage debt quicker or redo the kitchen?”
Just as trying to get a cart to pull a horse is a mistake so too are the above scenarios.
Now I’m not trying to imply that paying off your mortgage is more important than eating or being clothed however there’s a line people cross and that line is often the “needs vs wants” line. If you have an old car you don’t need a new SUV. Few rarely need to go overseas and after seeing many people’s closets I’m quite certain that I can say the vast majority of people don’t need any more clothes. What people really want when they go and spend money most of the time is entertainment, reward or happiness.
You’re at home… it’s the weekend… there’s no parties on. You’re bored. Bored, bored, bored! So instead of finding something to do many take the easy way out and simply go and spend money. They’ll go out to dinner/lunch. They’ll go shopping. They’ll meet up with a friend over coffee. They’ll go see a movie. And then, over many years this habit gets ingrained in us that in order to have any sort of entertainment we MUST go and pay for it in some form. You come home from work exhausted. You’ve just finished a full week of really hard work and have done some great things, you even managed to get that raise. So you deserve a reward for all that hard work. Once again here we see people putting their life before their mortgage debt.
When you are in debt it literally means that someone has leant you their money so that you can have something without actually working/paying for it up front. In this case it is a house. So when you go and buy that new SUV or go overseas I’m inclined to ask why should that person that leant you their money be forced to wait longer than they should? They have obviously worked hard and given up present day rewards so that they can loan you their money… why should you get to be rewarded now whilst they have to wait?
The reality is that they still get partially rewarded in the sense that you pay more interest than you otherwise would have had you not flushed that money down the drain on needs but it still sounds a bit unfair to me.
The Delicate Balance
As everyone is different and has different values and thoughts it means that everyone has a different take on what a “need” is. Some believe Foxtel is a “need”. I’m not even going to go there…
As I’m also part of “everyone” and thus also have values and thoughts that are biased towards how I’ve been raised I’m going to default to what the Australian government classifies as “needs”. This typically I think is the poverty line and I think a good way of determining if you are lacking in “needs” is if you’re receiving some form of government assistance. If this is the case and you receive a raise or windfall then you might qualify to spend some of it on something productive such as qualifications to get a better job (or any job) or even a moderate and reliable car (think 5+ year old Mazda 2 or 3 say not a 2013 V12 Monaro).
If you’re NOT receiving any government assistance like youth allowance or whatever then I’d argue virtually all discretionary spending should be cut and diverted towards the mortgage. This might sound harsh to new people but after getting used to it most find that it is in fact a better way to live. You spend less, save more, use less, are more environmentally friendly, more resilient to financial and climate shocks plus you more often than not get more time to relax and don’t have to deal with as much clutter and “stuff”.
Unfortunately most people don’t know how to enjoy themselves without paying something to someone any more. Should we go to the park for a (free) picnic? No! Let’s go spend $20 on a ticket at the movies (plus $10 for popcorn and a drink). Should we all come over and enjoy a BBQ at a friends house? No! We have to all meet up at the most expensive restaurant we can find (in order to make a statement of how we’re the most expensive and thus the best in the group).
So next time you get a raise, an inheritance, a bonus, a tax return or simply find some extra cash and start to think “Boy! I should totally spend this on that awesome thing!” remember to stop yourself and just throw it at your mortgage instead. Putting your life before the house just doesn’t make sense as you’re digging yourself further into debt rather than getting out of it. Just like a cart pulling a horse, this path doesn’t lead to success either.