About 16 months ago, I looked at my life — personal, professional and financial — and knew it was time to make some changes. It was time for less … not more.
While the American dream centers on “bigger is better,” for me, it’s time to shrink my lifestyle. Reducing my U.S. exposure is a priority because I see financial storm clouds forming on the horizon again. Having a smaller financial footprint here and less exposure to the dollar long-term is key.
My decision to rethink the American dream happens to coincide with a strong increase in my family’s financial situation. So I am cutting back at the exact time most people my age and income bracket are actively seeking and buying “more.”
It seemed pretty straightforward to scale back by selling my current home and buying a less expensive home nearby. I’ll use the proceeds for other investments. Lowering debt and gaining capital is a financially sound thing to do.
But I was shocked by the reaction from the mainstream financial industry…
An Addiction to Debt
My recent financial experience confirms that we are, as a nation, addicts. We are addicted to debt and I fear we will continue drowning in it until we run out of air.
Our financial practices aren’t any more stable than they were prior to the global financial crisis. The lenders are still supporting and pushing a system where it’s ideal to overleverage yourself in order to live a life that you probably can’t truly afford.
However, you can take steps for reducing financial risk and lowering debt much like I am. But I am getting ahead of myself, so let me explain….
In South Florida, where I live, it’s clear the property market is heating up again. Houses under $600,000 are being snapped up in less than a week on the market. They are quickly being demolished to make way for new homes selling for $1 million-plus. Of course many of the South Florida buyers are coming from overseas, but nonetheless home values are soaring. My home is in one of the prime neighborhoods that is “in demand.”
We happily sold it — we close in a few weeks — as planned and rather than “buy up” as we were expected to, we opted to buy a home priced at nearly 50% less than our current one. With financing still cheap these days, and wanting to use the bulk of our gains to invest outside the U.S. and the dollar, we thought getting a loan would be easy. We are ideal candidates — great credit, great incomes and low debt.
But the mortgage lender wasn’t so sure. We were considered suspicious.
Why would a couple with great income, savings and solid credit scores want to downsize? Something must be amiss. The bank assured us we could easily buy a new home for hundreds of thousands of dollars more than we were. The fact that we were turning down more debt was making them think twice.
In order to get the loan for the smaller amount, the lender had an extra requirement. We had to write them a letter explaining why we were downsizing. I am not kidding. If we didn’t send the letter, there would be no loan.
Here’s the Exact Letter
To Whom It May Concern:
I’ve been asked to explain why we are downsizing from our beautiful home given that we have great incomes and are only in our early 40s. The answer is simple.
We want more out of life than having an expensive, overpriced property in Palm Beach County. We love our current house, but it is older and will soon need a good deal of work. Plus, the East Delray Beach area has seen a healthy appreciation in home values in the past 24 months. So we figured it would be smart to cash out now and pocket our gains.
The house we are buying is a great family home in a nice neighborhood where we already have friends. We plan to do a fair amount of renovations to that home so it will be worth much more than it is now while costing us much less.
Lowering debt is a good thing and less debt gives us the ability to do what most Americans can’t. Things like travel the world with our 10-year-old daughter in the summer, properly save for our retirement, explore other investment opportunities, and buy real estate overseas, in Europe or South America.
We have no desire to chase the falsehood of “more is better.” We’d rather have “less” … and have more quality, more freedom and more happiness.
We Aren’t Out of the Woods
The good news is my letter must have done the trick because we were quickly approved for the loan. But the fact that taking on less debt than we could afford led the bank to question us says volumes about the mentality in the American financial industry today.
Take 15 minutes this week to survey your financial imprint. Can you reallocate your assets to have less exposure to the U.S. markets?
An easy way is to move some cash out of the dollar. One way to diversify is through EverBank. But you have to move quickly because they are about to close their new five-year CD offering exposure to the future economies of the world: Brazil, India, China, Mexico, Indonesia and Turkey. The funding deadline is May 7.
The best part of the EverBank Future EconomiesSM Marketsafe CD® is that it’s a MarketSafe, so you have zero risk to deposited principal. If these future economies don’t outperform America, you’ll get your full principal back as long as it’s held to maturity.
For the sake of full disclosure, we have a marketing relationship with EverBank. I’ve been a customer of EverBank since 2007 and I would recommend them based on my personal experiences with them regardless.
Don’t miss an opportunity to reduce your exposure to the dollar and shrink your financial imprint.
In Wealth & Prosperity,
Executive Consultant, The Sovereign Society