Tempted to Buy the Big House by Jon Acuff

This article really jumped out at me because my wife and I are currently house shopping. Dave Ramsey publishes a monthly newsletter and here was an article in the most recent edition:

Tempted to Buy the Big House
By Jon Acuff

The television show, "International House Hunters," should actually be called, "30 Minutes of Television That Will Make You Hate Your Life." That's certainly a little longer than the original title, but I feel it's far more accurate.
The theme of the show is pretty simple. A couple looks at three homes in an exotic locale and then picks one to buy at the end. It's usually an attractive couple who tells this story:

"We're inexplicably wealthy and felt like we wanted to buy a house in Italy. We won't visit much, but will use it mostly as a place to store our shoes and go-carts. We both have jobs we can do remotely from Florence while we eat cheeses you can't pronounce, Jon Acuff."

They rarely use my full name to insult me in the show, but that's the gist. Having watched it for a few years, I've started to pick up on a common theme. I missed it at first, but now that I see it, it's so obvious.
In every episode, the couple is shown three homes. Prior to filming, they give the production staff a list of their needs. They specify how many bedrooms they want, how many square feet, where they would like it located and how much they can afford to spend.
Two of the three houses they are shown always meet that criteria.

But one house is always the "wild card." Sure, it may have a roof, but other than that, this house is nothing at all like the one the couple initially described they needed. If they specified two bedrooms, this one has five. If they asked for 2,000 square feet, this one has 4,000. If they said they wanted to be near the beach, this one is actually on the beach. And the kicker? This house is always at least $100,000 outside their price range.
Can you guess which of the three houses the couples tend to pick?

Can you guess which one of the houses "just stole our heart!"? If I put those houses in a police lineup, could you pick out which one closes the most deals?
You guessed it, the reach house. The stretch house. The "this is twice as much as we intended to buy, we'll have to sell plasma at blood donation centers," house.
It's amazing how elastic our budgets become when we go house shopping. Whether you're on a reality show or not, we all find ways to wiggle a little bit when it comes to picking out a home. And I'm just as guilty as anyone else.
As I write this, my wife and I are looking for a new home in Franklin, Tennessee. Over the last few weeks, we've really started to enjoy a new park. It's got soccer fields and playgrounds and miles upon miles of bike trails. There's even one portion where a friendly horse walks over from a local farm and will let you pet him while you pedal through the woods.

It's like Norman Rockwell meets Thomas Kinkade.

We love this park, so it makes perfect sense that my wife would say, "We should try to buy our house near here." That's not a bad idea, that's a great idea! Imagine riding our bikes directly to the park instead of jamming them in our car?
But even a great idea like that can warp your spending perspective.

My wife hasn't said as much and neither have I, but inside I can already feel a part of me thinking, "If we have to spend a little extra to be near that park, we will. Oh, we will." If I listen closely, I can already hear our budget expanding and stretching just a little bit at the very thought of having direct access to that park.
That's how it happens. You fall in love with an idea, or a detail or a view and bit by bit, all sense of reality starts to fade. Your price range, your budget, your ability to actually pay for that mortgage go right out the window.
Think of the sun-drenched trails through the woods. 
Think of feeding apples to a horse in the middle of a fall day.
Think of the memories!
Think of the foreclosure procedure and losing your house because the bills washed over you like a tidal wave. That's less fun to think of, but at the end of the day, that horse isn't going to help me and my wife with our bills if we decide to live outside our limits.
I've never seen a couple on "International House Hunters" say, "We really liked the house right on the beach, but we just don't have the money for that. We decided to live below our means."
That's something I've never heard on TV, but I hope that the next time you go house shopping you'll be bold enough to find a house you love at a price you love just as much. Because it can be done and it should be done, and you'd be surprised how many horses live in affordable neighborhoods after all.

Leading Change: The Budget

Well let’s be honest. You can have all the accountability and passion in the world but if you don’t have a starting point and some goals you’re not going to get very far. I know most of you read the word budget and immediately thought about flipping over to your favorite celebrity gossip site or ESPN. Budgets have some bad connotations – but bear with me!

While working on family budgets here are some statements that I have heard:

• Living on a budget makes me feel poor.
• I feel like living on a budget stifles my freedom.
• Why would I want more rules in my life?

To be honest guys – these are the same things I feel when I do my own family budget. But the reason we feel these things is because we need a mindset change. If you are going to successfully change your family finances it starts with your attitude. A budget is all about 3 attitudes. If you get these ideas ingrained in your psyche you will be successful.

Attitude 1: A budget is a plan for each dollar you have at your disposal.

You only have two choices, you can manage your money or you can let your money manage you. There is no in-between. It is not about rules or restrictions it is a self directed plan for how the month will progress financially.

You create the budget, if you don’t like it, change it!

I recently heard a personal fitness trainer say “The best exercise plan is the one that is completed.” Guys, it’s not about the number of reps or how many miles you ran. It’s about finishing the workout. Your budget is the same story, it’s not about how many dollars you allocate to saving or how much extra debt you paid down this month – it’s about taking the time to complete the plan.

Attitude 2: Living with a budget creates wealth, living without a budget wreaks havoc.

The first few months will be hard. I can’t soften the blow or sugar coat it, you are embarking on a lifestyle change. But time and time again I hear it from the people we work with. When you get the budgeting process figured out, it will feel like you got a pay raise. Suddenly you won’t look back and wonder where that annual bonus went, or wonder why there is more month left at the end of your money. You already had a plan for the month and you controlled where the money went. As you gain control over the money you can put it to work by paying down your debt and then investing for the future.

Attitude 3: True freedom comes when you are no longer living paycheck-to-paycheck.

Financial freedom is not when you work for your money. True freedom is when your money works for you. Until you take control and put together a plan for your finances you will not find the freedom you’re looking for. The only way I know how to take control is through the budgeting process. Whether you make $1,000 per month or $20,000 per month a budget is essential. It’s not something you do only when you’re broke – it’s a lifestyle!

Winning the Lottery – Not All That It’s Cracked Up to Be.

I love to share articles with you guys. Laura Rowley writes for Yahoo Finance and puts out some interesting articles. Ronny and I have talked about winning the lottery several times in various presentations and now there is finally some research to back up our assertions! Check out the article.

Jackpot Winners Just as Likely to Go Bust

by Laura Rowley Wednesday, September 1, 2010

In the new movie "Lottery Ticket," the rapper Bow Wow plays a sneaker salesman from a poor part of town who has to survive a three-day weekend after his neighbors find out he's holding the winning numbers.

But for financially troubled consumers, the size of the jackpot may not matter: Five years out, people who win $150,000 are just as likely to declare bankruptcy as those who win less than $10,000.

That's according to a new study by researchers at the University of Kentucky, the University of Pittsburgh and the Vanderbilt University Law School. The paper appears in a forthcoming issue of the Review of Economics and Statistics.

"I've always been interested in whether you could solve people's problems to some extent by giving them additional cash," says Mark Hoekstra, assistant economics professor at Pittsburgh, who co-authored the paper with Kentucky's Scott Hankins and Vanderbilt's Paige Marta Skiba. "And anecdotally you always hear these things about lottery winners -- someone wins a bunch of money and the story doesn't end very well. But we weren't aware of any real empirical evidence on whether this was true."

The researchers identified 35,000 people who won between $600 and $150,000 in Florida's Fantasy 5 lottery game from April 1993 through November 2002. (They eliminated the 153 people who won more than $150,000). They cross-referenced that list with people who filed Chapter 7 or Chapter 13 petitions in Florida five years prior to winning the lottery and five years afterward. Then they compared people who received $50,000 to $150,000 to those who won less than $10,000.

They found 1,943 winners -- or 5.5 percent -- declared bankruptcy within five years of taking home the jackpot. While the bigger winners were 50 percent less likely than small winners to file for bankruptcy within 24 months, they were more likely to file for bankruptcy three to five years after winning. The net result is that within five years, large winners were just as likely to file for bankruptcy as small winners.

'Found Money'

Moreover, when people who won $25,000 to $150,000 did file for bankruptcy, their net assets were just $8,000 higher than those who had won less than $1,500. Bottom line: The median big winner took home $65,000 in cash. That would be enough, on average, to pay off all unsecured debt or to boost the equity in new or existing assets. Instead, the big jackpots simply evaporated.

"The fact that winning a large sum of money only postponed bankruptcy rather than prevented it didn't surprise me too much," says Hoekstra. "But I was struck by the fact that when the recipients of large sums did file for bankruptcy, they didn't have much of anything to show for the winnings they had received. It didn't go toward a house, paying down debts or buying assets that were worth something a few years later. We couldn't find any evidence that five years earlier, these people had received what would be, for many people, a life-changing amount of money."

What happened? Hoekstra says he can only speculate. "We know quite a lot about lottery winners' finances once they file for bankruptcy, but we certainly don't know what they were thinking when they won the money," he says. "It's possible that people in our sample weren't used to dealing with large sums of money, and thus they may not have used it wisely."

Mental accounting may also play a role. "We treat 'found money' differently than money we earn. So if you find $20 on the sidewalk, you may decide to blow it on a nice dinner, whereas if you earned it you wouldn't have done that," Hoekstra says. (And lottery winnings are the ultimate "found money.") Other possible suspects: A lack of financial literacy or a surplus of impatience -- some people would rather have fun today than be financially secure five years in the future.

The researchers also found that while large winners lived in somewhat more expensive houses than small winners, they were no more likely to own a home outright, and had no more equity in their homes than small winners. This suggests that larger winners were not strategically planning their bankruptcies and gaming the homestead exemption in Florida bankruptcy law, which allows filers to keep their primary residence. If this were the case, winners would have bought a home for cash or paid off their existing mortgage prior to filing, in order to keep some of their assets out of bankruptcy.

What Policy Makers Can Learn

The study has policy implications for governments deciding how to help heavily indebted people who are struggling during economic downturns, Hoekstra says. It appears the simplest solution -- giving them cash -- doesn't enhance longer-term financial stability, and only postpones, rather than avoids, bankruptcy. The lottery findings are consistent with a 2007 research paper that showed consumers initially used their 2001 federal rebate checks to reduce debt, but eventually debt returned to its pre-rebate level.

"Our research suggests that perhaps there is something more systematic about the types of people who get themselves into financial trouble -- and the appropriate policy prescription for helping them out is going to be considerably more complex than giving them additional resources," says Hoekstra.

In addition, the findings challenge the assumption that bankruptcy is caused primarily by major financial shocks.

"Winning the lottery undid any negative shock (that previously occurred) for the large winners, and they still ended up filing for bankruptcy," Hoekstra says. "That is inconsistent with the idea that the only people who file for bankruptcy are those with negative shocks such as divorce, job loss or health issues."

Finally, if you're one of those people who fantasizes that winning the lottery will fix your financial woes, it's time to stop dreaming and get a real handle on your money. "Our results suggest that people in financial trouble shouldn't expect that winning $100,000 will cause a lasting impact in their finances," Hoekstra says. "On average, that doesn't appear to happen."

Leading Change: Passion Required

“Not until the pain of the same is greater than the pain of change will you embrace change." – Dave Ramsey

I am a passionate person, there are very few things that I do not have an opinion about. Ask my wife.

In my experience the largest hurdle to implementing financial change in your house is getting passionate enough to start. Let’s be real, it is usually not a lack of knowledge that keeps us from changing – it’s the lack of motivation. Dave put’s it best with the quote up above. You will simply not change if your current situation doesn’t hurt bad enough. That’s why people talk about  hitting “rock bottom” before they change their lifestyle.

I am not here to tell you that you need to hit the lowest of lows before you will be able to turn things around. In fact my goal is to help you avoid getting there. I have seen rock bottom, it’s ugly, that’s probably why I am passionate about helping you change.

Passion is a large factor in what drives motivation. You don’t see too many pro athletes hitting the gym in their late 30s without some serious passion for their sport.

Brett Farve doesn’t need the money, he needs the game!

It is not something that comes to you because you think about it all the time. Passion doesn't hit you because you read the latest motivational book. It’s not from a weekend conference or a guest speaker at work. It comes from discipline and success.

I am a terrible golfer but I really like to play. I wouldn’t go so far as to say that I am passionate about the sport but I am certainly motivated to keep trying. If I am terrible why would I still want to play? It’s really a simple answer – it’s because of that one good shot I had last round. That one good shot is all I need to be motivated enough to keep coming back.

Let’s pull it all together here. Passion is what is going to motivate you to change your family. You do not get passion through osmosis – you cannot absorb it! You will find passion by starting your journey and your passion for change will increase with each success that you have.

True story:

We work with a man who filed for bankruptcy 15 years ago. He would be the first to tell you that he certainly was not passionate about his finances when he hit “rock bottom.” That bankruptcy is what changed his motivation. Our friend changed his life, he adopted habits like maintaining an emergency fund and living with a budget.

Today, he has a credit score in the high 700’s and is a model of financial turnaround. More importantly, he is changing his family legacy. Not only has he impacted his nuclear family but now he is reaching out to his extended family to teach them the lessons he learned the hard way. Passion oozes from his body– even his co-workers notice that he is different.

You can find the passion to change your financial future. The first step is simply to get started. Ask your accountability partner to help you make a verbal commitment with you to take the first step.