Don't Buy Stuff You Can't Afford

That sounds like advice your grandmother would give you, doesn't it? Maybe we should go back to living lives like our grandparents (or your great-grandparents if you're younger than I am). They sure lived in a different era and mindset. I know that after the stock market crash of 1929 many of them avoided any and all debt, even mortgages. That was a time when mortgages could be called in by the bank at anytime and the entire balance would be due immediately. We have legislation protecting us from that sort of thing now but we are also living in a era of cheap money and easy terms that let us think we can afford bigger and better houses. Do you think your grandparents would have thought it was a good idea to take on an "interest-only" mortgage? Or an "adjustable-rate" mortgage? Sure -- you can do something like that and plan to sell the house before the rate adjusts and just count on the equity in the house to help you at least break even. But what about the areas of the country where the values of homes were so inflated a few years ago? Those people are finding that their homes aren't even worth what they owe on them. It's one thing to be upside-down on a car loan but an entirely different thing to be upside-down on your mortgage. Counting on your equity is such a dangerous thing; tapping into that equity can be even more dangerous if your home loses value.

The moral of today's musings is this -- Don't Buy Stuff You Can't Afford. And for a good laugh about this lesson check out this video with Steve Martin from Saturday Night Live.