Debt’s mountainous climb
Blake Crayton-Brown is off on an expedition to climb Mt Debt. He started hunting for his first home and, in a series of opinion pieces on Stuff.co.nz, has been writing about his experiences. His latest offering uses a mountaineering analogy as Crayton-Brown finds himself at Base Camp gazing up at the challenges ahead of him.
The famous French mountaineer Lionel Terray, in his 1961 seminal book Conquistadors of the Useless, quotes his own father who said of mountaineering: ‘‘It’s a stupid sport … a man must be completely crazy to wear himself out climbing a mountain, at the risk of breaking his neck, when there isn’t even a hundred Franc note to be picked up on the summit.’’
All mountaineers at times questions why they do it. There are times when it all just seems a bit hard and the rewards insufficient. Crayton-Brown similarly finds scraping together a deposit to buy an overpriced house uncomfortable, and similarly questions the purpose of climbing Mt Debt.
My answer to his uncertainty of purpose is that if nothing has changed and the original reasons for his climb are still valid, he should just grit his teeth and plug on.
On his climb, Crayton-Brown finds he has a decision to make. His lender now says that he can borrow an additional $100,000. So, should he take a harder route up Mt Debt and buy something more expensive – or should he take low and easy way?
My answer is that he should borrow the additional money and buy better. First, in property, location is everything and the additional funds should go to a better location, not a better house.
Second, Crayton-Brown should try to future-proof his purchase. A better house means he will stay there longer. Many people have a large number of shifts as they move up ‘‘the property ladder’’ but each of these shifts is expensive in time and money.
I think Crayton-Brown should buy well and have as few house shifts as possible.
By borrowing an extra $100,000, Crayton-Brown has an opportunity to start a bit higher up this ‘‘ladder’’ and so avoid some of those shifts. The additional interest that he will pay is likely to be
Personal finance and mountaineering are about risk management as anything else.
significantly less costly than repeated house shifts.
Nevertheless, when borrowing more, Crayton-Brown should remember that personal finance and mountaineering are both as much about risk management as anything else.Yes, borrow some more money, but be aware that things seldom go perfectly to plan.
Remember, there are plenty of old climbers and plenty of bold climbers; but, unfortunately, there are not many old, bold climbers.
Martin Hawes is the Chair of the Summer KiwiSaver Investment Committee. He is an Authorised Financial Adviser and a disclosure statement is available on request and free of charge, or can be found at www.martinhawes.com.