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Know What You're Getting Yourself Into

homeThe Wall Street Journal has a great article by Neal Templin on homeownership and the true value of owning a home.  Many people believe that owning a home is a way to get rich.  We can learn a lot from looking at the people who believed that and are now coping with the fact that they over extended themselves to buy a home, refinanced excessively and/or have watched the value of their home plummet.

This article reminded me of some advice I received when I first moved to New York City.  I love New York and despite the fact that it is one of the most expensive cities in the country (if not THE most expensive) I knew I wanted to live here.  I came to New York knowing that I had to be careful with my finances.  I had just graduated from law school with debt in the six figures.  I had a great paying job at a large law firm, but knew that I had to be careful not to dig myself into a financial hole.  Dinners out, nightclubs, bars, cabs, shopping – they all had the potential to suck my bank account dry. I was going to be a responsible young worker.  I would have my fun, but I would pay down my debt and save for the future.

So, I was surprised when two of my friends suggested that I buy a home as soon as possible  Here were two well-educated professionals who were telling me to incur more debt when I barely had my first paycheck in hand.  I didn’t have a down payment.  I didn’t have a real job history.  So why did they recommend I buy a home when I wasn’t prepared to do so?  They were under the assumption that real estate was the best investment you could make.  They believed that the value of real estate was going to continue to increase.  You’ll get tax breaks!  You can’t lose!  Get in while you can and watch your investment soar!  Needless to say, I did not buy a home and I am grateful for that.  It didn’t make sense for my situation.  They more research I did, the more I realized that I wasn’t prepared to buy a home.  I knew it wasn’t a foolproof investment and it didn’t make sense for someone in my situation.

There are many lessons that can be taken away from Wall Street Journal article but the one that I think is most useful is a lesson you can apply to many parts of your life.  It’s a general lesson that says that you must understand what you are getting yourself into.  It’s the old adage of look before you leap.  Don’t just put your money somewhere because someone else says you should.  With all investments, you must understand what you are investing in, why you are investing in it and what you will get in return.

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