Imagine something good happens, and you come into a lot of money. You’re feeling pretty rich. So, what should you do with your money?
Buy a Ferrari? Buy a Rolex? Jet off to Bora Bora?
No, no, and no. You should buy a bigger house.
We always talk about getting the big decisions right here at Jared Dillian Money—the house, the car, the student loans. None of that has changed. And I’m not suggesting you buy a house you cannot afford. But if you can afford a bigger house, you should. Hear me out…
Reason #1. Buying a bigger house will immediately improve your quality of life. Since my twenties, I’ve purchased a 1,200 sq. ft. townhouse, a 1,200 sq. ft. apartment, a 1,600 sq. ft. house, a 2,600 sq. ft. house, and a 4,000 sq. ft. house, which my wife and I live in now. And we’re currently building a 9,800 sq. ft. house close to the beach in South Carolina.
I have to say, living in a big house is awesome. I love the extra space. You have all kinds of rooms you can dedicate to different activities—home office, billiards room, home gym, recording studio, home theatre, etc. The bigger the house, the more special rooms you get. It’s great!
Reason #2. A bigger house can help you build wealth. Unlike a new car—which is going to depreciate—most of the time, a house is a good investment. You pay the mortgage, build equity, and the house appreciates over time.
Now, we all know people who are just bad with money. They can’t keep money in the bank. They can’t keep it in a mutual fund. If there’s money around, they spend it. I often encourage these people to buy a house. That might sound counterintuitive. But even terrible savers are usually diligent about paying their mortgage every month. For these people, a house is a forced savings program.
When you buy a house or trade up to a bigger house, you will pay down that mortgage over time and build more equity. Eventually, you will pay off the mortgage. Then, you’ll own an asset that is worth, say, $700k or $800k. It’s a good deal all around.
Reason #3. A better house in a better neighborhood gets you better neighbors. I was talking to my friend Dave about this. He had some money, and he was thinking about buying a new house in a nicer neighborhood. He could definitely afford it. But ultimately, he decided to build an addition onto his current home. Big mistake—his neighborhood is kind of a dump. People steal stuff out of his garage all the time. I told him he was nuts. He’s living among thieves.
He should move to a better neighborhood with nicer people. Class it up! Some people would call that social climbing. But guess what? A little bit of social climbing is a good thing. You surround yourself with more successful people, and it keeps you from growing complacent. It keeps you pushing for more.
I often say that I am not in the money business. I’m in the happiness business. And building equity in a house will make you happy. The opposite is true as well: sucking equity out of your house will make you less happy.
I hope this goes without saying, but the other thing that will make you less happy is buying a house you can’t afford. Please, don’t buy too much house and tomahawk yourself. Housing costs should not swallow more than 25% of your income. That can be hard to achieve in places like California or New York City, but that’s the rule.
One final thought: When you move to a bigger house, if you’re over the age of 35, it’s time to stop asking your friends to help and hire movers. And when the movers show up, make sure you are the best tipper in the world. That is money well spent.
Jared Dillian