Let's face it, we live in a get-rich-quick, happiness-chasing time. We often permit those around us to determine how "successful" we are based on what we drive, where we live, and our job title. Yet this is terribly misleading and often the wrong way to look at the situation.

How often we permit others to dictate our level of success has a direct correlation with our sense of joy in life. If we constantly use others as a barometer for our success and performance we will inevitably fail to meet the expectations of the only person who matters, yourself through God.

So where do we go wrong and how do we fix it?

In modern day culture, your net worth or financial earnings are often how others determine your level of success. Perhaps you even have judged your level of success based on your earnings or financial worth only to realize you are further behind than you originally desired. Money is tricky and not off limits for determining your level of success, but only if used wisely.

Money can certainly be an indicator of success if used as a small indicator of how valuable your time is to others. However, what about a hedge fund manager focused on tobacco interests? Sure, you could earn a lot of money but would the world really miss you if you were gone? Likely not. In contrast, take a community leader who earns income coaching individuals to value discipline, consistency, and faith and were paid well to do so. Perhaps you have the same earnings as the tobacco investor, but the service you provided to the community was more than just value from a monetary perspective.

Ultimately, using money as an indicator of success works best if you are positively impacting the community with your time and skills. Otherwise, the amount of money you make is irrelevant and will be a misleading measure of success. 

If money is not a perfect measure of success, then how about happiness? Happiness is often the pursuit of "feeling good" which is much more difficult to quantify than your financials. Happiness is often fleeting and requires persistent pursuit to feel. This means the pursuit of happiness can also be synonymous with the race to decay.

So why is happiness another imperfect measure of success? Shouldn't I get to choose if I am successful based on a day-to-day sense of happiness? Not entirely.

Again, happiness is a pursuit. Feeling joy however is a choice. Joy for the opportunity to wake up again. Joy for the ability to hug a loved one or call a friend one more time. Joy for the ability to lend a friend a hand or hold a door for a complete stranger.

The ability to feel joy is a door that opens outwards, towards others. The pursuit of happiness however, is a door that opens inwards or implies selfish tendencies. Experiencing joy on a day to day basis is a much better measure for determining success for yourself, but again, is hard to quantify. 

So if not money, and if not happiness, then what should one use a measure of success in life?

I have heard it said many times, and it bears repeating, "how you do anything is how you will do everything". 

In recent times, attainment of success and the pursuit of the American Dream are a centerpiece of Western culture. If the journey continues this way, we fail to recognize what matters most on a day-to-day basis- our habits.

Our habits are really what defines us. Your neighbor is not somebody who loves to go to the gym; rather she is an individual who goes to the gym everyday. Your cousin is not somebody who eats healthy; rather he is somebody who fresh prepares vegetables everyday. A close friend is not just financially wealthy; rather she is someone who regularly stays abreast of her personal finances.

We are creatures of habit. Our habits define us thereby defining our level of success. If you are someone who does not have any positive habits that contribute to your ability to give to the world, then you must start building them. 

Look first to build habits that help reconstruct yourself. 50 pounds overweight? Time to start becoming the type of person who puts out running shoes everyday. Up to your eyes in debt? Time to get to work and start tracking your money and maximizing your effort towards debt payoff.  Feeling foggy and having difficulty with cognitive performance? Time to up your game on learning and self-improvement.

One you begin feeling like you are building momentum and reconstructing your own abilities, now you can look to develop outward habits that impact the community. For example, start a blog and educate others with quick reads on what you have learned. Start a community walking group with your newfound exercise habits. Call a friend, or even a group of friends, and show them how to start making healthy recipes. The sky is the limit.

"Success is our ability and efficacy to help others on a consistent basis."

Our individual habits permit us to improve our effectiveness in helping make the world around us a better place. Ability and efficacy. It takes both to be truly successful in our endeavors. We need to care for both ourselves and others in a continuous process, similar to the idea of sharpening the saw. Simply put, you are either using the saw (helping others) or sharpening it (helping yourself).
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Not sure where to start? Perhaps assess what you love to learn about or love to do and see if there is a way to teach it to others. If you do this consistently (i.e. build a positive habit) you will be well on your way to a fulfilling and impactful life.

​Until next time...

My last post discussed the wonders of using the 20% rule as a guiding principal for determining a purchase price of a house. Now it's time to investigate the flipside of this argument.

Practically speaking, the 20% down payment rule on a house is mostly meant to serve as an affordability indicator. There will be many times however when a full 20% down payment is unnecessary and borderline dangerous. 

As you will see at the end, I still believe in having at least 20% down in cash reserves or paper assets as a starting point. Once you have the 20% saved, only then can you make a decision if any of the exceptions below actually apply. 

1. If you have significant repairs to make.

If you believe you will have significant costs associated with renovations or refurbishment of existing structures, consider that having additional cash on hand might be better off. When mortgage rates are low, it makes more sense to avoid paying more interest for a construction loan. Keep in mind that construction loans seem to run around 1% higher than the prevailing mortgage rates over a given time.


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2. If you anticipate needing cash for a large event.

Paying for your own wedding? Perhaps putting 20% down is not such a great idea after all. You will want to have additional cash on hand for flowers, décor, and whatever else comes your way.



3. If you are living a F.I. lifestyle

In this case, eliminating a significant amount of your capital might hurt your overall rate of return. If you are expecting an 8% yield from the stock market, then why take this money out of the market and put it into a house that typically only increases by 1% in value per year after inflation? If mortgage rates are high, this might make sense. But if mortgage rates are low (3% as of this writing), then you are likely better off leaving your money invested long-term in index funds. 



4. When your mortgage payment is still less than 25% of your take-home pay with less than 20% down

If you made a sensible purchase, and after only 5 or 10% down you still have a mortgage payment less than one-quarter of your after-tax household monthly pay, then I admit you have some wiggle room. You should never, and I mean never, use this formula to purchase more house than you can afford. In other words, don't put less than 20% down just to purchase a home that is more expensive. 



5. If you value having months or years worth of expenses saved in cash over equity in your home

This one is self explanatory. Would you lock all your hard earned savings into a home in the form of a down payment or have several years worth of expenses saved in a cash account. Put differently, would you rather have $60,000 in home equity via a down payment or 2 years worth of living expenses saved up in cash (assuming $3,000 a month in expenses)? The choice is yours. 

I still suggest saving at least 20% down of your expected purchase price in cash. After that, you can decide if you want to put more or less down based on the criteria above.

Utilizing the 20% rule allows you to keep your purchase price realistic when shopping for a new place to live. It also demonstrates that you have the ability to save money consistently and diligently. It is a valuable rule to live by, yet can be flexible once you have attained it. 

Leave a comment below if you believe you have another valid different reason to save less than 20% down.

Many loan products in today's marketplace offer as low as 0% down when purchasing a home. For conventional loans, typically the buyer is required to put at least 5% down. Regardless, using anything below 20% as a down payment when shopping for homes is a big mistake. 

Generally speaking, a 20% down payment should be the norm when purchasing your home. Here are some reasons to put as much as possible down on a home:

• Lower monthly mortgage payments
• Better mortgage interest rates - sometime 
• To avoid monthly mortgage insurance (PMI)
• Lower origination fees (they are typically a percentage of the total loan amount)
• Improved chances at qualifying for a mortgage in the first place
• Flexibility to save more money each month due to the lower mortgage payment
• Less interest paid over the total life of the loan

These are some of the most noteworthy reasons to put 20% down on a home. Mortgage interest write offs are a thing of the past and should not be a reason to borrow more money. Remember, large interest payments are the enemy of debt elimination. Having significant amounts of interest is indicative of high principal balance that is ultimately still owed. This is never a good thing for those on the path to financial independence.

However, there is still an even bigger reason to put 20% down on a home.

The most significant reason to put 20% down on a home is to keep you honest with your home search. If you stay within a price of homes that still permits a comfortable 20% down payment, it will prevent you from living above your means. Using 20% down is a an excellent way to figure out how much house you can truly afford.

As a general rule of thumb, I still like to have 6 months worth of savings in an emergency fund along with at least $2,500 in my checking account after making a down payment and closing costs. Working backwards to figure out how much you need saved would look something like this:

• (6 months worth of expenses in emergency fund) + ($2,500 in checking or savings) + (20% down payment based on maximum budgeted housing price) + (5% of maximum budgeted housing price for additional closing costs) = minimum amount necessary to fully fund a housing purchase 

For example, say you have $3,000 a month in expenses and you are seeking to purchase a home below $275,000. Using the equation above, we can find out the minimum amount necessary to fund the purchase of a $275,000 home.

• ($3,000 x 6 months) + ($2,500) + ($275,000 x 20%) + ($275,000 x 5%) = $89,250 at minimum

I would suggest that you never expect to use your emergency fund for anything related to a home purchase and closing costs. Do not earmark this money for anything except a true emergency. The extra $2,500 I recommend is to cover some minor expenses and repairs that you come across when moving into a home for the first time. 

One look at the necessary minimum for purchasing a $275,000 home may leave you feeling like this is unattainable. If this is the case, you have two options. Option A is to lower your desired purchase price. Option B is to save up for longer because you are not ready to purchase this much home.

Using the 20% rule as a metric for determining how much house you can afford would prevent the most common financial mistake of homebuyers, purchasing too much home. Further, by saving the necessary minimum amount highlighted in the equation above, you prove to yourself that you are financially prepared to make the largest purchasing decision of your life. 

Be careful about listening to the advisement of those urging you to put no money down or using bizarre mortgage products such as interest only loans. Saving and preparing financially for a home purchase can be simple and straightforward, whereas using a more advanced strategy like an interest only loan or a 0% down payment can be costly and complex long-term. Nothing is more devastating in personal finance than debt and a mortgage will likely be the largest loan you will ever incur. Do not be afraid to purchase a home, but first make sure you are truly financially prepared by using the tips found above.

• What is a mortgage?
• 3 Common myths of financial independence... real estate is one of them.