My spouse and I spent years saving for a new house, and living well below our means. It may sound weird, but now that we have a new home, we feel overwhelmed by the prospect of spending our savings on the items we were actually saving toward.
Basically, my partner feels bolstered by our nest-egg, and goes for high-end items every time, while I’m stuck in a penny-pincher mindset. I feel like we need to list everything we may ever want to buy and weigh each item against the rest, and it’s completely overwhelming.
Can you recommend a way to make a middle-ground plan?
Thank you for your help.
The Diametrically Opposed Duo
Dear Diametrically Opposed,
You can only do one thing at a time, and plenty of new homebuyers sleep on air beds before buying a mattress. I slept on one the last time I moved house and, when I bought my first home I used a wallpaper table covered in a table cloth for dinner parties. So before you think about furniture and washer-dryers and cookers, you should look at the broader economy, your own job security, your emergency savings (6 months minimum) before spending more money.
Congratulations on buying your home. The general rule of thumb, to which I am not opposed, is that 28% or less of your gross income should go towards your mortgage, and your monthly debts in total should be no more than 35% of your gross income. Clearly, there is a bit of wiggle room, especially as your income is likely to increase over time, along with the value of your home, but your repayments should remain consistent if you have a fixed-rate mortgage.
Bottom line, you and your spouse should be operating from the same playbook: macroeconomic data. There is a lot of economic uncertainty and fears of a looming recession, as the Federal Reserve raises rates in an effort to tame an annual inflation rate of 9.1%. Still, the data doesn’t support a recession with anything close to absolute certainty. If it happens, it would be quite unique. Although initial jobless claims are at an eight-month high, for instance, unemployment is at 3.6%.
“You and your spouse should be operating from the same playbook: macroeconomic data. ”
What’s more, wages grew at 5.7% in the first half, even if they’re not keeping pace with inflation. The personal consumption expenditures price index rose by 1% in June on the month. However, it’s up 6.8% on the year, the highest rate of annual growth in four decades. And while gross domestic product fell for the second consecutive quarter, the biggest negative was a trade deficit, where people were buying more imports as businesses struggle to keep up with supply.
If you base your spending on your needs instead of your wants, and tailor those wants based on the unusual economic backdrop, you are more likely to agree on a spending plan. There are items worth investing in: a refrigerator and washing machine, but there are many other things that do not need to be the most expensive in the store. Write a list of those big-ticket white goods. They could cost you more money in the long run, if you skimp and they break down.
Your list could go something like this: “1. High-end necessities. 2. High-end wants. 3. Necessities that do not need to be the gold standard. 4. Wants that we really don’t need, and would be better off foregoing in order to boost our emergency fund.” It will help to see them written down in black and white. Once you have your necessities, take your time. Live in your house. Sometimes, the best decision is waiting for life to unfold, and making no decision at all.
A final note of caution: the thrill of buying something expensive, fancy and new is unlikely to last as long as the next recession.
Learn how to shake up your financial routine at the Best New Ideas in Money Festival on Sept. 21 and Sept. 22 in New York. Join Carrie Schwab, president of the Charles Schwab Foundation.
Check out the Moneyist private Facebook group, where we look for answers to life’s thorniest money issues. Readers write in to me with all sorts of dilemmas. Post your questions, tell me what you want to know more about, or weigh in on the latest Moneyist columns.
The Moneyist regrets he cannot reply to questions individually.
By emailing your questions, you agree to having them published anonymously on MarketWatch. By submitting your story to Dow Jones & Co., the publisher of MarketWatch, you understand and agree that we may use your story, or versions of it, in all media and platforms, including via third parties.