How the Power of Financial Planning Helped Us Buy a House in a Pandemic
A version of this article was written for and published on Business Insider
Buying your first home can be a stressful-enough process in the best of times. But doing it during a global pandemic? Talk about an extra layer of complexity.
That, however, is exactly what my wife and I did earlier this year.
To be fair, we started the home-buying process before COVID-19 rampaged through the country in the spring of 2020. We began planning a year or two earlier, and started to actually look for homes in the fall of 2019.
We put in an offer on the property we wanted to buy in mid-January. Due to a number of factors, including the sudden shuttering of all businesses and offices (including our closing attorney’s), we didn’t close until May 13th.
It was a very long, nerve-wracking process, not helped by the uncertainty and fear everyone felt as we quarantined and watched the stock market wobble around throughout March and April.
But through it all, we didn’t question our decision to make this massive purchase in the middle of a complete economic upheaval — and I think that demonstrates the power of good financial planning.
Why the pandemic didn’t change our home-buying plans
I’m a financial planner; planning is what I do for others for a living. We take our own personal planning very seriously as well, and spent hours and hours just discussing this potential money move.
That was before we actually sat down to run projections, evaluate scenarios, and determine what was financially feasible to do. It’s important to get clarity on what you actually want and value before you ever turn to the numbers.
There are always trade-offs to make, or levers you can pull to adjust things so that your financial plan works. You can retire earlier or work longer. You can reduce expenses now or in the future; you can push goals further out on your timeline or drop a goal to make room for another priority.
The combinations of actions to take are endless and there are very few objectively “right” answers because of the countless variables in play. What the best answer is for your situation comes down to your values and priorities. Because you do have options, knowing what you truly want is a critical starting point.
Once you feel clear on what you want, then you can sit down with the numbers to see what works and what doesn’t.
For us, we had a very clear understanding of not just the type of property we wanted but the reasons why we wanted it. When it came to understanding what we could afford and how to manage our finances around this goal, we felt good about the decisions we made because we knew they were aligned with our priorities.
As for the numbers themselves, there were two other big reasons why our financial planning gave us the confidence to stick with it and move forward.
For confidence in your financial planning, use conservative assumptions
We plan conservatively, meaning the assumptions we make when we evaluate scenarios and run projections to determine if buying a house was something we could truly afford were on the safe side.
Here’s what that looks like:
- We assumed minimal income and business revenue growth.
- We estimated high on the expenses we’d have to carry in the short and long term.
- We used conservative numbers for assumptions like investment returns.
- We projected that we would both stop working earlier than we think we would realistically want to do so.
- We did not factor in potential benefits like Social Security income; while I think it’s likely that we’ll receive something once we hit full retirement age, I doubt the benefit will look the same as it does for workers retiring today. By not relying on this supplemental income at all, we don’t run the risk of banking on support that might not be there.
That combination of factors means that we’re planning off of what is hopefully a far bleaker picture than what will actually emerge in our future reality.
This helps us ensure that we’re not relying on hitting a home run in any area to get our plan to work. It also means there’s wiggle room in the plan should things not go our way — or should the completely unexpected and out-of-our-control happen.
You know, like a global pandemic or something like that.
By using conservative assumptions in our planning and ensuring that things still worked should we move along the spectrum toward the “worst-case scenario” end. This gave us a lot of confidence knowing that, even if things looked apocalyptic right now, our plan could withstand it.
Keep your focus on the long-term and see the forest (rather than obsessing over trees)
The other key to our financial planning is the perspective it gives us. There are, hopefully, entire decades of life that we’ll get to live and enjoy — and that I need to plan for. This helps me keep focused on the long-term instead of getting lost or distracted by short-term current events.
When it came to buying our house, had I only been thinking about the short-term, I probably would not have gone through with the transaction. There was too much uncertainty, too much that felt like it could go wrong.
Recency bias usually leads us to feel like what’s happening right now is what will continue to happen in the near future. It’s tough to imagine our future selves and the world we might live in, and much easier for our brains to take the shortcut of assuming the most recent event is representative of what’s coming next.
So yes, things might look bad right now. (You could easily argue it doesn’t just look that way; things are bad right now.) But “right now” is not forever.
I believe there’s a good argument to be made for optimism, and part of the reason I feel that was is that financial planning gives me the ability to get the 30,000-foot view. My plan reminds me that life is more than just what’s currently directly in front of me, and it gave me the confidence to move forward with a big purchase — pandemic and all.
Want more financial advice you can actually use? Check out Beyond Your Hammock, a fee-only financial planning firm that specializes in helping 30- and 40-somethings get clarity and start building wealth.