Episode 89: Can You Afford A Big Purchase?

Welcome to the Create youe Laptop Life podcast, where entrepreneurs all around the world come to learn how to market and grow their online business right from their laptops, wherever they are. We don't have traditional nine to five jobs and we don't want them because financial and lifestyle security and freedom is too important to us. We know the world is changing for the better and that the freelance and entrepreneur economy is the cleaner, greener, smarter way to work for both families and businesses. My name is Julie, and this podcast will teach you everything you need to know about creating and growing your laptop life. Hey, everyone, what's up? This is Julie. Today I want to talk to you about making decisions, specifically making decisions about big purchases. Now, whether this is in life or business, all of us have opportunities to make big purchases, right? Whether it's, should I take that vacation, should I hire that coach, should I do that mastermind, should I buy that house? It is hard to make decisions about whether or not you can afford something big because we all don't have a crystal ball of what's going to come in the future, what kind of contingency plans we need, what's a safe amount, your risk tolerance. There's just so many caveats and variations. And I've been thinking about this because I've been sort of on a money bender here talking about 2020 and money advice, and now Alex and I are house hunting and the question has been sort of thrown around, how much can we afford for a house? Now, keep in mind that in 2016, I made $325,000 and it's now 2020 and I made 2.2 million. So there's a big jump between in those last four years and the last time I tried to buy a house, we got pre approved for a $400,000 mortgage. At the time, in 2016, that seemed really high. It also meant that when we did buy a house, which was at the time 350,000, a 20% down payment was every penny we had. It was, I believe I had 80 or 90,000 in a savings account and we had to put down 80. So we had like $10,000 for, you know, closing costs or, you know, that kind of thing. And it was a lot of money. It was a lot of what we had. I haven't done anything like that since 2016. Now, there have been a few big purchases I've made, investing in Coaches, Masterminds, Travel experiences, purchasing Club 33 for my family, which is the most ridiculous, non financially savvy purchase you can imagine. But I Have not really had anyone from the outside come into my life in my world and say this is what you can afford. And keep in mind that when a mortgage company or a coach or a financial advisor says this is what you can afford, what lens are they looking through it for? Right. So that's important to ask yourself. So we went through the pre approval process again and we were pre approved for a 3 million dollar home which completely caused a whole identity crisis moment for me because I could not imagine living in a three million dollar home. It took me a minute to grasp that that's how far I had gotten because I have just been sort of focusing on my customers, focusing on my clients, delivering value, putting money away and living within my means. And so to be told you can afford a three million dollar home and then going on Realtor Zillow and looking at what three million dollar homes can do created this gap for me of like that's not who I am, but that's who they're telling me I am. Now another thing I want to just make mention here is that mortgage people, they want you to take out a big loan, right? So I'm aware that like just because I can get a $3 million loan doesn't mean I should. So you know, a lot of us have, you know, these kinds of experiences in life. So here are five questions that I recommend you ask yourself when you're trying to make a big purchase home business. Otherwise doesn't matter. The first question is, can you afford the initial investment? Can you pay it in full? Can you pay it over time? Do you put it on a credit card? Now the reality is that for each person that risk may be different. So for some people, putting something on a credit card is not a bad decision because they know that the ROI and the return is going to be there. For other people who are more conservative, putting it on a credit card is not going to feel right. It's going to cause them a lot of stress, they're not going to be able to focus and then it's going to return their performance. So you need to make the decision, what does a forward mean to you? The risk gets higher obviously, but that's different strokes for different folks. Asking myself this question, paid in full, paid over time, put on a credit card. Can we afford the initial investment of a $3 million home? The answer is yes. Do I want to spend that kind of money? No. But of course, as life would have it, Alex and I found a home. It's listed at 2.2 million and so I was crunching the numbers. Can we put 20% down on a $2.2 million home? Yes, we could be about $450,000 down. So we could afford that. And we would want to put 20% down so we wouldn't have to pay primary mortgage insurance. So the second question you're going to ask yourself when making a big purchase is can you afford the ongoing investment? Right. So if it's a mastermind, maybe the initial investment's 5k and then the ongoing is 2k. Can you afford that? And that really boils down to a percentage. And you can find percentages for every benchmark ever. Again, it's very personal. But you know, for home buying, for example, they say that your mortgage should not be more than 30% and your mortgage should include your taxes and your insurance. It shouldn't be about more than 30% of your monthly budget. Right. And so if you're thinking about a mastermind, that percentage might be different. So for us, I was like, okay, 20% down, 18,000 a year in taxes, insurance, that would cost us between 8 and $9,000 a month at 2.2 million. And I bring home between 30 and 40. That puts us right at that percentage mark. So, okay, we're okay then the third question you want to ask are what are any additional costs associated with the investment? And so this is, these are like hidden costs, right? So if you're in a mastermind or coaching, are you going to need ad spend? Are you going to need to hire people? Are you going to need addition tools? Right? You want to ask yourself those questions not because you want to like be a Debbie Downer, but because you want to just know. For us we need to know, like closing costs are going to be 30,000. It's probably going to cost us $50,000 to hire movers and to buy some new furniture because that house is big. So we need to think about that, right? And then we also need to think about things like how much higher is the electric bill going to be? Do we need to hire, you know, stable hands and lawn care people and all those expenses, you just want think about them before you make a big decision. And then you get to do the fun questions, the questions that are really important because between time and money, time is far, far, far more valuable. What are the ongoing benefits of your investment and what is, and can you get the money back in some way? I always like to do the benefits one first because, and try to think of non monetary benefits because we can always come up with the ROI type stuff. But what are the non monetary benefits? And when I think about people who've joined my mastermind, they don't see it until they're in it. But things like, oh my gosh, when that happened and shit hit the fan, I didn't quit because I had a coach and I had a team behind me, right? Or I got a new referral relationship, I got a connection, I got an open door that I couldn't have gotten opened on my own. Things like that, that you know, really do have a monetary roi, but, but they're not at first glance but are incredibly important. So sit with your benefits and then ask yourself, will this help me create new money, saved money or found money? And new money is, you know, new customers, new revenue streams. You know, buying a home isn't going to create new money for us, unless of course we were going to, you know, rent out an in law apartment or something. Saved revenue would be things that are now more efficient, right? So let's say you join a mastermind and that coach helps you avoid mistakes and lost opportunities and not hire people that are going to cost you a lot of money. So saved money and then found money, which means making more with what you've got, right? Getting your customers to spend more, buy more, that kind of thing. So you know, obviously for us personally, real estate's a pretty safe investment over time. Now of course you'll find plenty of people who say otherwise, but most of the wealthiest people on planet earth own real estate, so there's that. In a worst case scenario we might not get all of our money back, but we could at least get our original investment back, right? So if we put $450,000 in, we probably would get it back even if we had to sell. So you know, you want to ask yourself that question and the last question you want to ask is what' stage of life or business are you in right now and is it conducive to what you want to do? And this is really the time money question. And I'm reading a book called Die with Zero. It's a very good read. I will warn you that if you are a spender, be careful reading it. I am not a spender, I am a saver. So this is really helping me to see how important it is to not over save. So anyway, the question for us is like well if we're not going to buy a big farm now, when are we? We're not going to buy it in our 60s. So if we don't do it now it's not going to happen. And so I'm sitting with the idea of, am I okay living a life where that never comes to fruition? And if I say to myself, gosh, I'd be really sad that I didn't get a chance to experience what that was like, then that's my answer, you know, and that ultimately kind of trumps all the other ones because you find when you have that question before you, you know, it's sort of that life or death question. You find your decision making completely changes. You just can't live there 100% of the time because otherwise we'll all just spend money like, you know, like, like it's going out of style. So those are the questions when evaluating a big purchase, right? Can you afford the initial investment? Can you afford the ongoing investment? What are the hidden costs of the investment? What are the benefits of the investment? Can you get the money back? What is the roi and what stage of life or business are you in right now? And it, is it, is it conducive to what you want to do? Lots of people have been asking and by the time this gets, gets published, I'm sure we'll have a bigger update. We decided to go ahead and put an offer in on the home. We will see what happens. We did not offer 2.2. We offered considerably lower. So they may reject our offer. But it has been a really fun exercise and quite an identity shift to start thinking about these questions. So appreciate you all. Talk to you soon. If you're ready to create, grow, scale your online business, you can go to Create Forward Slash Podcast and get a free plan on how you can get started today.