By Allison Goodhart
ALEXANDRIA,VA- I read a great article in Newsweek recently, by Sallie Krawcheck whom I’ve had the pleasure of hearing speak. In the article, she writes about the inextricable link between money and power. For women to achieve more power, she believes they need to become more comfortable talking about money.
My favorite example that Sallie used in her op-ed piece is of Carrie Bradshaw in Sex and the City. Carrie was a smart, accomplished, successful journalist with an incredible sense of fashion and a closet full of amazing designer clothes and shoes. But when her landlord decided to sell, she didn’t have any savings to buy her apartment or any other apartment. All her money was hanging in her closet! Carrie was clueless about the basics of financial health.
Do it, and talk about it
This example resonates with me because I remember watching that episode and vowing that, even though I have a bit of a thing for shoes myself, I would never get into a similar situation. Immediately after college graduation, I met with a financial advisor who put me on the right track. By saving responsibly and having open discussions about it with my parents and financial advisor (like Sallie talks about in her article), I was able to buy my first condo at age 24 with an FHA loan. You only need 3.5 percent of the sales price as down payment with this type of loan.
Less than a decade later, I’m in my third home at a significantly higher price point. I made each move up using the equity I accumulated in the previous property combined with my dedicated saving habits. And yes, I still splurge occasionally on expensive shoes!
Real estate, to build wealth over time
Sallie’s article reminded me of one I wrote a few years ago about women being comfortable buying real estate when they’re single. It needed an update to go beyond talking only to single women. Why? Real estate is one of the best ways to build wealth over time and I believe it should be part of every conversation about money and power, whether you are single or in a relationship, whether you’re a man or a woman.
Why is real estate so consistently a wealth builder? There are many reasons, and I’ve run through some of the most important ones below.
When you pay a mortgage, your money pays down your loan, so you own more of your home every month. When you pay rent, your money pays down your landlord’s mortgage. Paying your own mortgage adds to your net worth.
Over time, except in the rarest of cases, real estate prices appreciate, building your equity, wealth, and net worth. Write-offs on property taxes and interest lower your tax liability come April 15th, which is not really a wealth builder per se, but a nice perk nonetheless.
On the road to your future
So how do you get into a position to buy a house, and on the road to building wealth for yourself (and future generations)?
First, open a new bank account now (or you’ll never do it), an account that is not linked to any other accounts. Commit to putting a set amount of your paycheck into it every pay period. Start with an amount of income you won’t miss too much,
but set yourself a reminder every three months to see if you can increase it. Trust me on this: watching the account grow over time gets to be fun (and a little addictive).
Next, audit your current financial situation to see where you need to start. Paying off student loans or credit cards? Reducing your shoe budget? Or saving to buy a house? It’s helpful to have an outside person—a parent, sibling, friend, or yes, a financial advisor—look at your debts and spending to see where you should start.
Then get your financial team in place. Your team could include a financial advisor, accountant (depending on your situation), lender and, of course, a realtor. We can recommend any of these providers when you want to start a conversation.
Understand that your first home is not your dream home. Rather, it’s a way to get your foot in the door to building wealth going forward.
We have a great financial guide for first-time buyers. It dives into some of the items covered here, to get you on the road to homeownership. If you’re ready, download our first-time buyer’s guide at thegoodhartgroup.com. Not a first-time buyer? We have several other guides that may interest you, too. That’s thegoodhartgroup.com.
Don’t hesitate to reach out to us if you have questions about buying, investing, selling, or just improving your financial IQ. We’re always happy to chat or to recommend other financial resources to you, even if you won’t be ready for several years!
Allison Goodhart partners with her mother Sue Goodhart in The Goodhart Group at Compass Realty, 106 N. Lee Street, in Alexandria. If you have questions about this article or any real estate matter, feel free to contact her, [email protected]