Place is Core to Financial Planning

financial well-being place Oct 25, 2023

The importance of financial planning is increasing. With increasing longevity (note: experts expect half of kids born today in developed countries to live to at least 100 years of age!), less generous pensions and limitations of social security, greater responsibility is falling on the individual to manage personal financial well-being.


Financial planning is more complex with people living longer (Photo by Scott Graham on Unsplash)   


Complexities of Living Longer… Don’t Forget About Housing

But there is another factor driving the importance of financial planning: complexity. There are more “what ifs” that occur over the course of a longer life. There are more years for life to go sideways. What if my investment returns are below assumptions? What if high inflation is here to stay? What if my or my partner’s health deteriorates? What if I lose my spouse or my marriage dissolves? What if outlive my financial means?

Housing is one of the complex issues. Housing is a leading expense throughout life. We need a roof over our heads and between high interest rates, rising cost of energy, increasing home insurance and so on, that roof can be pricey. On the other hand, housing is also an investment for many people. Approximately 66% of people in the U.S. own their home with the average mortgage holder having about $185,000 in home equity.


Housing an Investment Whether You Own Your Home or Not

It turns out that housing may represent more of an investment in your future than you realize. Where we live (and how we choose to engage where we live) is a key driver in our healthy longevity. Our DNA only accounts for less than 10% of our longevity; our lifestyle and environment are much more significant factors. Our place addresses not just our physical, psychological, and emotional needs but also influences our sense of purpose, social connections, physical well-being and, of course, our financial well-being.

Invariably, decisions about place involve trade-offs that impact your future self. One might optimize for low housing costs, for example, and choose to live in a small dwelling in a low-cost area. This approach may succeed in the minimizing housing expenses but introduce other challenges that impact healthy longevity. Your new home may not be close to friends or be a place where making new friends is easy. In this instance, your risk social isolation and loneliness, areas of increasing concern that are known to materially impact our near and long-term health.   


Overspending to be in a place that brings out the best in you for a chapter in life may be a wise decision (Photo by roman gomez on Unsplash)  


On the other hand, one could rationally overspend on housing for a chapter in life to enhance overall well-being. For example, a person may be in a position where being active is particularly important. One may elect to move to a place, such as a state like Colorado or a city like San Diego, where being active is part of the culture and the weather and geography are supportive of outdoor pursuits year-round. Once an initial move is made, subsequent moves can be made within the area that are better aligned with long-term financial well-being, such as moving to a less expensive apartment or a shared house with roommates.

We should be particularly mindful of situations that represent poor financial investments that are also poor investments in our healthy longevity. One of the most common examples in this category is when empty nesters or solo agers remain in single-family homes that no longer best fit their lives. In such instances, these homes can be expensive to operate and maintain and, often, the equity value of their homes may not appreciate at the same pace as the broader stock market. In other words, they may not be additive to financial well-being. At the same time, these homes may create social isolation as friends move away and may not be as conducive for daily physical activity as other housing options. Some multi-story homes could be downright hazardous, particularly for older adults at risk of falling.


Make Place Core to Your Financial Planning

Fortunately, as financial planning takes on greater significance, opportunities for help are increasing, too. There are many online tools for do-it-yourselfers and more financial planners and wealth advisors are broadening their set of services to help people consider the various factors to optimize the chances of living a long, financially secure life.

Whether you decide to map out a plan on your own or work with an advisor, you would be wise to make sure place is core to your financial planning. Determining where to live may be complex, but it may be the most important decision you will make for each chapter of life.


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