Becoming A Cash Based Household Can Free You Of The Stresses Of Your Credit Report – And Advance Your Financial Success
At some point in our lives we become independent of our parents. This is specifically the case right around college when we break away financially. Unfortunately, for many families, the financial relationship is the only thing that keeps them connected. Those with such relationships can’t wait to break free from their parents and usually do well and become financially independent shortly after making a few mistakes.
The financial industry does the same exact thing to us but many of us don’t think we can break away from this relationship. Financial news will have you believe that you must maintain a strong credit report in order to buy a home, in order to make larger purchases and to even apply for jobs.
The Job Myth
For us clinicians this is pretty much bogus. Sure, there might be those organizations that are malignant to begin with that just want to see where you stand financially. Even if you have a shitty credit report it doesn’t mean they won’t hire you. The bigger problem is when you owe a lot of back taxes. It’s one thing to not care about your credit report and it’s another to be a deadbeat.
Making Large Purchases
The large purchases that we will make in our lives are cars, homes and jewelry. A few of us will also spend a good chunk of change on our wedding. This is coming from a reformed individual who has spent $40k+ on his wedding, $50k on an engagement ring and $65k on a car. I’ve also gotten a mortgage for a $288k home in the past followed by a $475k home.
I was trying to live the doctor lifestyle. I falsely assumed that my life was predetermined. These expenses all were made possible because of a decent credit history and of course a high enough income.
After making these financial mistakes I realized that I could buy a beautiful and reliable car used. I didn’t need to get married in order to enjoy a meaningful life with another person. And most importantly (most costly), I didn’t need to get a mortgage to buy a house.
I know it seems like a far reach to imagine that one day we could be completely reliant on cash. Many of you reading this just finished residency or have a lot of debt to tackle still. When I say cash I am also including using a credit card in order to take advantage of the mileage benefits or other benefits the credit card affords you… as long as you pay it off before a penny of interest is charged.
I didn’t think that I would get to a point in my life when I could make a home purchase in cash but that’s exactly what I’m doing. Even though I had enough to make the purchase I was still leaning towards a mortgage. I was drawn to the safety of having a mortgage, knowing that only 20% of the purchase price came from me and the bank had to take the rest of the risk. My best friend talked some sense into me and a cash purchase it will be.
The average doctor gets jumbo loans and many of my colleagues in California were/are buying homes in the $1 million plus range. Were they making that much more in California compared to other states to justify such a large expense? No. They were playing the game that was laid out for them. Most of them will be tied to that home and that job and that location for the next few decades.
Your Credit Report
You are scared into keeping your credit cards open and not closing them. You are told to clean up your credit report to make sure nothing derogatory is on there and you are told to even keep a little on a few credit cards to boost your credit score. Now imagine that you were planning on only paying cash from now on, would you care what your credit score is?
Back in 2013 my credit score got demolished when I tried to refinance my first condo. It was a cluster fuck of paperwork on top of my ignorance and in the end the bank got some of their money and I got a few ugly marks on my credit report. Neither party came out a winner and this flawed system continues.
After that I wrote my financial manifesto. In it I indicated when I wanted to retire. I wrote what kind of investment strategy I wanted to follow. I also wrote that I would only try to buy a house cash in the future and never be reliant on my credit report again.
One Success Story
I don’t own a car and I am buying my condo in cash. I don’t think I am the only such scenario out there. Many docs have decided along with their families that they will never ever go into debt again. They may still be trying to keep their credit history as spotless as possible but I am here to tell you that you can finally let go of that too. When I entered escrow for this property I was still a bit fearful about cashing out some of my investments to pay for this condo. Thankfully, I have a very wise best friend who is naturally great with money. She told me to suck it up, cash out the funds and no matter how low the interest rate was to just buy the condo in cash.
Have you adopted or are you planning no going cash-only?
Do you have any concerns about not maintaining your credit history?