Being an architect, I know a little about building design and construction. Which I must admit is more complicated than people think it is. So, when I began to think about building a financial home my architectural training enlightens my decision making.
Many might say that a financial plan is the foundation of building a financial home. I do not believe this to be true. If you don’t become engaged until the foundation is place, your home could be built with a serious structural flaw.
If someone wants to build a building, they first must start by analyzing the soil (the dirt) on which they want to place the building. Why the soil you ask? Because there are different types of soil and each type has limited weight bearing capacity. So, if you are building on clay, a different type of foundation system would be required than if you were to build on stone.
So, for the broke architect household we had to review both of our soil types (mindsets) in order to build our financial home. Of course, there was an immediate problem, we realized that we were dealing with two individuals with different mindsets about money (two types of soil). Trying to merge these two soil types to make a place for our foundation was going to be difficult but we were up to the challenge.
Below is our “soil analysis” and the various other components of a financial home:
Our Soil Types:
- The Broke Architect – If I had to describe my mindset (soil type) I would say I am more like clay. Clay is considered a cohesive soil type—that with proper analysis and enhancement—can be made suitable for building. The problem with clay is that it shrinks or swells depending on the amount of water that is present. When there is little to no money (water) present I shrink my spending, which makes sense. But when money (water) seemed to be in abundance, I used to increase my spending (lifestyle inflation) to keep up with the increase cash flow. This increase spending placed additional pressure/stress on the foundation of my financial home, just like clay.
- Mrs. Broke Architect – Her mindset is more like large gravel. Gravel is considered a granular soil very suitable for building. She is naturally frugal and has strong opinions about not carrying large amount of debt. And unlike mine, her beliefs do not shift with the present of or lack thereof money (water).
So, how did I enhance my clay soil? Reading. I chose books that teach as well as inspire me to better manage money. Enhancing of my mindset is an ongoing process that I have come to enjoy. Listed below are a some of the books I read:
- The Total Money Makeover by Dave Ramsey
- The Millionaire Next Door by Dr. Thomas Stanley
- Debt is Slavery by Michael Mihalik
- The Simple Path to Wealth by JL Collins
- The Little Book of Commons Sense Investing by John Bogle
Now that our soil has been analyzed the next step is to come up with a plan that would serve as the foundation of our financial home. Why is the plan the foundation? Because, a building’s foundation ensures that a building is structurally stable, and it can have a direct impact on the appearance of the building. The financial plan has the same ability if it is designed correctly. It will not only ensure that your financial home stable; it will also have a major impact on what your financial home will look like.
For many people, designing/developing a financial plan can be difficult. There are so many options that must be considered, like:
- What is your income?
- What is your debt load?
- Do you have children?
- What are your families hopes, dreams and goals?
Many people choose to hire a financial advisor to help them build the foundation of the financial home.
How many of you have been in a house where the floor has a bounce and/or creaks you when you walk on it? These are signs that the floor framing is inadequate and needs to be reinforced. This is the same for your financial home. If you are living with an inadequate or without an emergency fund you are living with bouncy /creaky floors that may someday collapse or worst you are living with no floor.
After Ms. Broke Architect and I developed our plan, we built a six-month emergency. We now had two components of our home built so, on the next component.
The walls of a financial home have defining characteristics. They shield us from financial storms that come from time to time. Think of it this way, when someone is house hunting the first thing they notice is the appearance of the exterior walls of a house, whether the material is stone, brick, wood or vinyl siding. Each of these materials says something different about the quality of the house. This also holds true for the walls of your financial home.
The 401ks, IRAs, stock, bonds and other income producing investments are the walls of a financial home. The more you have in investments, the better the material is on the financial home. Having vinyl siding would be the equivalent having a 401k and putting just enough into it to get the company match.
The roof of the financial home is just as important if not at time more important than the walls and the floors. A roof provides shade and shelter; it also provides cover from the harsh elements. The roof in your financial home is the various types of insurance we should all have:
- Life Insurance
- Auto Insurance
- Disability Insurance
- Umbrella Insurance
Having the proper insurance keeps us from removing/selling off parts of the walls and floors of the financial home. Although the floors of a financial home are meant to be removed in case of emergency, the roof/Insurance is our first line of defense against large ticket items that would consume all our emergency fund.
Building a strong financial home is something we all should be working towards. Many of you already have a financial home, but the soil it was built it on is not stable. So, your home may be leaning and or sliding off of its foundation. It’s never too late begin the renovation/rebuilding process. To start the process, you just need to do a complete assessment of your financial situation.
So, let’s start a financial home building revolution.
The Broke Architect