The person you see in the mirror when you brush your teeth every morning often causes financial woe; you can’t blame Wall Street greed all the time. Dysfunctional psychology earned its place as one of the Five Horsemen of Personal Financial Apocalypse. A Facebook friend wrote three of the Horsemen were “me, myself, and I” but dysfunctional psychology covers those with flair and eloquence.  

While some people can make it work, for most the house hopping strategy for building wealth is overstated. Americans own, present company included more house than we need.  My friend, colleague, fellow CFP and adjunct professor at the

University
of

Alabama
, Scott Cole shared a Facebook post from Life and My Finance: “House Hopping is Keeping You Broke and Definitely NOT Making You Rich.” This illusory path to wealth involves moving every few years and plowing the appreciation of your home into a larger home. One thing I’ve learned over the last dozen years in this business is people invariably track expenses to suit their whim. Behavioral psychologists call this “mental accounting.” “I bought my house for X and sold it for Y so I made Y minus X in profit.”    That’s only true if you exclude closing costs, private mortgage insurance (PMI), interest, taxes, along with home repairs and realtor fees.  

While the post was spot on, the author omitted two important considerations. A sound financial strategy should include a home mortgage paid off before or shortly after retirement.  Folks who move often and refinance end up with mortgage payments for eternity. Unless you have a pension, that dog won’t hunt. Mortgage loan criteria are based on what works well for the lender. Banks and loan companies want to lend as much as you can painfully pay back. If it comes down to the mortgage payment or kicking more into your IRA, that is an easy call. You might find it impossible to save sufficiently for retirement if you follow the maximum lending standard guidelines. A larger home means more expenses thus reducing your ability to save. Cue another personal financial apocalypse horseman, insufficient savings.  Home maintenance costs run one to two percent annually.  A bigger home means more outflows.

Fixer-upper homes are a different matter.  Assuming you have the tools and skills, sweat equity can provide a lucrative rate of return.  Rental properties can be rewarding assuming you have time and can deal with other rental headaches (toilets, trash and tenants).

If you read “The Millionaire Next Door,” and you should, you will discover over half of the millionaires interviewed lived in the same home for more than 20 years. One of the authors, Thomas Stanley, argues nothing has a greater impact on your wealth than your choices of home and neighborhood.

Of course, I am bringing this message from my son-in-law’s home office while he’s out building homes in

Houston
. Go get ‘em boy. I rocked the baby to sleep — she likes my cover of Guy Clark’s Rita Ballou.

Even though Buz Livingston is a fee-only certified financial planner this should not be considered personal advice. For specific recommendations visit online at livingstonfinancial.net or at the office in Redfish Village, 2050 Scenic 30A, M-1 Unit 230.  Follow us on Twitter @BuzLivingston.