Some of you may know that I run monthly giveaways for my newsletter subscribers (if you want in on that, sign up in the right toolbar). All my subscribers have to do to enter to win is to comment on a monthly giveaway post. They can leave any comment at all, but I do ask for questions so that my “Ask Crystal” part of the newsletter doesn’t get extremely boring.
Erika at Newlyweds on a Budget asked a fantastic question last week and my answer just was too long for a newsletter, lol:
I have been curious to ask…you guys decided to purchase a new home right around the time the whole google slaps happened. Did it not make you nervous that maybe your online income wouldn’t be as stable? or did you get nervous to make such a huge purchase with the uncertainty?
Were We Worried?
Short Answer: Yes, we were pretty worried but we ran the numbers, could make it work, and decided to go ahead anyway.
Here was the whole situation. We signed the contract to have our house built on April 14, 2012. We had made nearly $16,500 in March after expenses, so we actually didn’t know yet that April would be the start of a lull. But it was. We decided to keep an eye on it. Worst case, we would forfeit our $2750 in deposits and walk away. This house literally had everything we wanted from a home and we plan to stay here until we physically can’t handle it anymore, so we definitely wanted to give it as much time as possible before just walking away.
From April through September 2012, while our house was being built, our high income month online was about $10,000 in August and our low month was about $6000 in June. Seems that our new average is around $8000, but we obviously don’t have a ton of data.
Even though that meant we were making half of what I was expecting, we only lived on $3500 a month. When I worked the numbers for the new house (mortgage, taxes, insurance, HOA, and utilities), we’d be adding a max of $2000 a month to that total. That brought us to $5500 a month in estimated expenses.
Taking a Closer Look
Well, even in our lowest month, we brought in $6000 online, $1500 from hobby jobs (Mr. BFS refs and works part-time at a bowling alley), and $600 from renting out our spare bedroom. That’s $8100. After taxes, we were still covering everything without taking into account the rental income ($1200 a month) that we would be getting from our old house.
Thanks to saving the extra in big months or using it to pay down the old mortgage in 2011 and early 2012, we also knew that we already had the 20% down in the bank, knew that we would have $20,000 as padding after closing, could sell $20,000 in stocks if we ever had to, and have $60,000 more as worst-case-scenario money in retirement accounts.
Plus, we could sell the old house within a month for $100,000 (should sell for $120,000 at least but we could liquidate it for $100k super fast).
Our Final Decision
In the end, we decided that worst case, we could get “real” jobs again and bring in the $5500 a month, expecially when you take into account $1800 a month in rental income between the old house and a bedroom in the new one. And we have 5 bedrooms in the new house, so we can always rent out one or two more for an extra $500-$1000 per month if we ever had to go balls to the walls.
We can also cut expenses down to $5000 a month easily, $4500 a month pretty easily, and $4000 a month if absolutely necessary.
So far, it hasn’t been an issue. I am still hoping online advertising picks up again, but even if it doesn’t, we are okay. Yes, I still worry in general, but that’s nothing new. Until both houses are completely paid off (so until we are debt free), I will worry. It’s in my nature. And honestly, whenever I stop worrying about one money issue, I find something else.
What do you think? I just assumed most of you would not have actually made the same decision we did, but I could be wrong. The financially-motivated part of me knows that lifestyle inflation is a risk. But that part of me and all of the rest also knows that we spend the majority of our life in our home. I couldn’t justify passing up our actual dream home, especially when it was a pretty great price, just because of a risk. Especially since we had backups in place even if all else fails. That said, instead of me just assuming, would you have made the same decision in our place? Feel free to ask for more details in the comments below if you need them to make up your mind.