Owning a home has long been the American Dream. But, apparently, not just any home will do. In a new study by Discover, American homeowners said that in order to feel successful, they'd want a home worth roughly twice the value of their current one. Specifically, the average respondent's home was worth just over $203,000, yet his or her dream home was valued at over $408,000. Some people, in fact, said they needed a home worth almost three times as much as their current property to feel like they've made it.
Clearly, this line of thinking is problematic on several levels. From a philosophical standpoint, whatever happened to being happy with what we have? But I'm not here to talk philosophy or gratitude -- I'm here to talk money. And the fact of the matter is that there are 39 million Americans out there who can't actually afford their homes.
How they did get there? It could be that some bought properties and fell on hard times, but a more likely explanation is that they got in way over their heads from the start. In fact, maybe they were so desperate to feel successful that they stretched themselves thin to buy homes they hoped to afford someday, and figured they'd wing it in the interim.
Speaking of winging it, an estimated 52% of Americans had to make major sacrifices between 2011 and 2014 just to keep up with their housing payments. And we're not talking trivial stuff -- we're talking about things like cutting back on healthcare to cover the mortgage or forgoing retirement savings. In other words, these are decisions that could have a long-term impact, and that you can't easily undo.
All of this bring me back to one key point: A large house doesn't define success; financial security does. And the sooner more people realize that, the better off they'll be.
How much house is too much?
It's one thing to dream about buying a mini mansion and living a life of luxury, but it's another thing to put yourself in a compromising financial position to attain that reality. Yet that's what millions of Americans do -- not the mansion part necessarily but the overextending part. The problem, of course, is that many of those who take on hefty mortgages and high property taxes don't have a dime in the bank, so that when a financial emergency strikes, they're out of luck.
In fact, 37% of homeowners claim that their housing payments have had a major impact on their ability to save money, according to Bankrate. This means that they're not only putting their present finances at risk, but are also putting their eventual retirement on the line. And that's a decision they're likely to regret when they're older and at risk of running out of money.
Rather than compromise your immediate and long-term financial stability, here's a better idea: Keep your housing costs as low as possible so that you have more flexibility in other areas of your life. Specifically, make certain your housing costs, including your mortgage, taxes, and homeowners' insurance, don't exceed 30% of your take-home pay. Better yet, have that 30% threshold encompass peripheral costs like maintenance and repairs so that you leave yourself with an even greater cushion.
Not only will keeping your housing costs down buy you a larger degree of financial security (something you technically can't put a price on, but is crucial for your peace of mind), but it'll also help you enjoy other aspects of your life. Think about it: If you overspend on a home, you'll have less money for other luxuries, like vacations, which can add to your quality of life in different ways.
Finally, don't let peer pressure play a role in your homebuying decision. If other people want to overspend on housing, let them be the ones to make that mistake. But don't get suckered into the myth that you need a large house to enjoy your life or feel successful. There are other things you can, and should, be doing with your money, so rather than focus on what you're missing, try to work on appreciating the roof you currently have over your head. You'll be happier for it in the long run.