In the mid 1980s, a few years after I "decided to be rich," I bought my dream house. It was a 4,000-square-foot chateau-styled, custom-built, five-bedroom home in a very nice gated neighborhood called Les Jardins in Boca Raton, Fla.
The cost of the house was about $600,000--more than I ever imagined I could afford. But thanks to the success of a business I had started, I had socked away about $125,000, and that was enough to cover the down payment and closing costs.
Telling the real estate agent, "I'll take it," gave me a great, memorable feeling of the power of wealth. I knew, even then, that this purchase would be a milestone in my life.
What I didn't know was how many different lessons I would learn from it.
Deciding to buy my dream was euphoric. But signing the loan documents evoked a very different emotion: an ominous weight.
The title to this magnificent house was in my name. But I owned only one-fifth of it. The real owner was the bank.
I didn't like the idea that if things went awry, I could lose "my" house to this corporation. So I decided to devote every extra dollar I made toward paying down the mortgage. I put no money away for my children's education or my retirement. I didn't even have an emergency fund. It all went toward my goal of really and truly owning my house.
What a great feeling it was when, only three years later, I handed that last payment to the bank. I would finally be rid of that burden, I thought. I would finally be master of my own domain.
But life had more lessons for me. Just a week or two after paying off the mortgage, I received my property tax assessment for the year. It was something like $22,000. "Holy cow," I thought. "That's more than Kathy and I ever paid for rent. And I've got to pay this every year, without fail, as long as I own this house."
The next week, I received a notice about the homeowner's association fees: They would be going up to $4,000 per year. And then, the following week, I wrote checks to cover our monthly bills. These included about a half-dozen expenses that related directly to the house: electricity, gas, lawn maintenance, etc. I realized that even after paying off a mortgage of $600,000, I was not in any way financially free. To possess and occupy that house was going to cost me more than $30,000 per year--for as long as I "owned" it.
I learned two important lessons from this experience: > Holding title to something doesn't mean you have absolute control over it > Having paid for something doesn't mean it no longer costs you anything to use it.
Later, I realized that the same rules applied to buying a car. Getting a title to one doesn't mean you own it. And owning it doesn't mean your car will be cost-free.
The same is true for boats and planes and beds and exercise equipment and machinery and so on. This rule applies to about everything you buy that cannot, like food or medicine, be consumed.
Thus, my happy delusion about ownership was shattered. But it wasn't a bad thing. Not at all. It gave me a very useful insight into the cost of possessing things--an insight that has helped me make countless buying decisions since.
Read on at earlytorise.com: How Mark Ford uncovered the money-saving owning vs. renting formula... |