We All Have Bruises
On Monday I spoke about financial bruises and how they leave a mark on us that is fortunately not a permanent one; however, some are certainly worse than others. Yesterday, I had a guest post from Zillow about looking out for closing costs when buying your home, and I included that post this week because for me, my biggest financial bruise developed as a result of our home closing two years ago.
Rented Before Buying
In 2008, we moved to New York from Florida and since we had never lived in this part of New York, our son was only two, and we had the potential to live on campus at FB Hubby’s school, we decided to rent for two years to get acclimated with the new environment before we jumped head first into another home. After those two years, we were given the opportunity to live on campus very inexpensively, so we moved to campus housing with the plan of saving even more for our future home in New York.
We knew that none of these living arrangements were permanent; however, we knew that home prices would be significantly higher in New York than Florida and we wanted to make sure that we took the time and saved for this “forever” home or at least the one our son would grow up in. When my son was accepted to kindergarten at the private school where my hubby teaches and where we lived, we were beyond ecstatic for not only the convenience of commute for the boys but for the potential to save even more money for our forever home.
The Best Laid Plans…
As life would have it, two months into my son’s year in school, we were a family in crisis because he was not adjusting well and the school (at least his two teachers) was not patient for him to get adjusted. After a very traumatic evening where I could tell my son was an emotional mess, I declared that we were moving and taking him out of the school. I just could not imagine putting my son on a bus from one school to send him to another. Within the month, we were in a rental home in a community that we knew had great public schools that could help my son who has ADHD.
The new school and environment were just what we all needed and within the year we determined that we would buy a home in the community. We pooled all of our resources, got approved for our mortgage, and went through heck with the mortgage process, which changed dramatically since the last time we purchased a home in 2006. We were all ready to go a week before the closing when our attorney contacted us and informed us that our closing costs were going to be $10,000 more than we had budgeted for. WTF!
You see, up until this point, we had only purchased homes in Georgia and Florida and in those states the escrow companies handle everything and give you a very accurate indication of closing cost expectations. In New York, there are so many mouths to feed at a closing table and we had not planned accordingly. The biggest mouth was our attorney’s, which you need to buy a home in New York and yet I couldn’t see the value she provided except in taking our money.
Financial Sin Committed
This extra cost left us scrambling and in a panic and we went to the only place we could think of for that kind of money, our IRAs. Yes, I committed an awful financial sin and took money out of my retirement account to pay for our home, and before you say anything, we had already taken out the allowable amount for the home purchase. You don’t even want to know how much cash we needed at the closing table for this home. I think it was somewhere around John’s total mortgage.
Anywho, yes, we took the money out, which was painful enough and left a massive bruise on my financial picture, but the worst was not over. Even though we had taxes withheld and paid the 10% penalty for an early withdrawal, come April of the following year, we learned that we did not withhold enough and ended up with a larger than anticipated tax bill. This bruise would just not go away.
Of course, hindsight is 20/20 and I have reflected on this financial bruise more than I care to, but as I mentioned on Monday, these things happen for a reason and as painful as it was a lesson for me, I am taking that pain and channeling it into something positive. So here are the lessons I learned to help other people:
1) Don’t keep too much of your money in retirement accounts
I wrote about this on Young Adult Money and I advise my clients about this all the time. Retirement savings are important; however, if you have large cash needs in life for events like a wedding, a home purchase or education, make sure that you are saving enough cash for these before you think about retirement. John recently wrote on Daily Finance about the numbers of people taking money from retirement accounts and it is specifically for this reason. They did not plan enough for near term events and planned too much for a long-term event.
2) Expect the unexpected
We assumed that we had 3-4 more years of saving and planning before the home purchase because of our son’s school situation, but life does not always turn out how we plan. I hear all the time about situations that people didn’t “plan on” and the reality is that those events should just be planned on because they seem to happen more often than not. We should have had a better plan B for our future home.
3) Over budget for a home purchase
Buying a home requires a lot more than just the down payment for the mortgage. There are not only the closing costs to consider, which could be dramatic, but there are home repairs, moving costs and home necessities like garbage cans or towel racks that may need to be purchased. The best way to avoid a large financial bruise is to make sure that you have budgeted more cash than you think you need when you buy your home.
4) Beware of emotional spending
My largest financial bruise should not surprise me or anyone else because it is the result of a combination of the two most emotional areas of your financial life, your child and your home. I look back and don’t imagine that I would do anything different because any financial bruise is worth is to avoid emotional bruising for my child. That being said, we do need to realize that some financial decisions in our lives will be more emotional than others and the best way to not get out of hand is to plan in advance. The more planning we can do without emotion, the better our financial health.
5) Forgive yourself and move on
I love my home, I love coming home everyday and I love that my son is happy and in a place that he loves. That being said, for the first year I probably hated this home because of the financial bruise it left on my financial health. I just had to get to a point, though, that I forgave myself for not planning enough and move on to a positive place. My bruise was painful; however, I have helped many of my clients and friends avoid the same bruising. If I can help other people and turn my bad into a good for others, then it is worth it for me.
Gif Source: Giphy