Life can be full of financial changes that you must adapt to. One of the best ways to make the transition smoother is to try out your new lifestyle before you actually live it. Take, for example, the stories of two women, Jessica and Maureen.
Jessica wants to buy a house and plans to pay $1800 a month in mortgage payments. She also knows she will need to budget about $300 a month for repairs (she is planning to put aside 2% of the home’s value for yearly repairs) and $175 a month for yearly home taxes, giving her a monthly total of $2275. She is currently paying $1000 a month in rent, so twelve months before she plans to buy the house she puts aside an additional $1275 a month, to give herself an idea of what it will feel like to own a home and be responsible for not only the mortgage but also the repairs and taxes. She trims her budget to find the extra money, and at the end of 12 months, she feels confident that she can comfortably pay for a home. In addition, because she has put aside $1275 a month, she now has an additional $15,300 plus interest in her emergency fund.
On the other hand, Maureen would like to be a stay-at-home mom. She is employed full-time as is her husband. They each earn $50,000. Maureen is currently pregnant and plans to become a stay-at-home mom after the baby is born. Her dad tells her that she should put aside her salary to save and to also get a feel for what it will be like to live on one income. Maureen dismisses that idea. She is busy at work and buys lunches and dinners out and convenience items and services. She does not try to save her income because she thinks she is too busy now; she believes she will have more time when she quits her job and will be able to make more things from scratch and save money.
However, after the baby is born, she does not change her ways; in fact, as a stay-at-home mom, she often spends just as much money as she used to. She joins a mom’s group and spends money going out several times a week with the moms at events that cost money. Within two years, she and her husband are in debt because they have not changed their spending to match their new income level. Maureen has no choice but to go back to work full-time.
If you are facing a financial lifestyle change such as buying a house, transitioning to one income, or buying a bigger car, one of the best things you can do is behave financially as if you have already made the change. Try to do this for six to twelve months. Can you adapt to the new financial change? Is your budget strained? Are you comfortable scaling back your lifestyle in other ways to afford the change?
When people get the urge to buy a car or a home, they seem to want to own RIGHT NOW. Don’t rush the process. Instead, take the time to make sure you can actually afford the new financial situation you are considering. Doing so will save you from financial strain or worse, repossession or foreclosure. You will almost never regret taking the time to plan for a large purchase or change in lifestyle.
Great suggestion. I always tell clients who are looking to buy a house that costs more than their rent to save the difference each month. If they decide it’s not comfortable and they decide not to buy after all, they still have the money they’ve saved in the bank.
I also agree that this is good advice. If you’re going to have higher expenses or a lower income how do you know you can meet them unless you either do it or simulate it? Trying it out is a no-risk proposition that makes a ton of sense.
I’m trying to do this like Jessica since I’m looking into buying a home. I’ve also seen similar activities to Maureen with my current roommate, who just bought a car. I’m really curious to see how he handles paying for it.
Don’t just limit it to a new lifestyle. Whenever you can sample or try out the changes you are thinking about, it is worthwhile. I recommend to my students to volunteer or do internships to know what that career is really like before you actually commit to it.