The Plan

Posted: Aug 05, 2006 12:00 AM

In every endeavor there is a plan. Bank robbers have a plan. Football teams have a game plan. Architects draw up plans. Teachers prepare a lesson plan. Successful businesses have a business plan and even squirrels have a plan to store food for the winter. Is it too much to suggest that people who buy or own a house(s) have a plan for their financing? When I mention this to people they act in such a way that makes me think that it’s my plan that isn't working, not theirs. Well, I've checked it out and my plan is working so I guess it must be them.

Let us begin at the beginning. Why do you need a plan? At one time you didn't because you had the financial equivalency of the Henry Ford's model T plan: any color you want as long as it is black. Any loan you want as long as it is a 30 year fixed. (It probably wasn't a 30 year fixed when financing began, but I am sure it quickly got to that loan). No choice, no plan, no need.

Then, at some point, new loans were invented and the need to choose became apparent. If you need to make a choice, it behooves you to have a goal (plan) so you know which choice to make: the one that compliments the plan. As years rolled by new loans continued to develop and financing plans took hold. Actually, financial planners took hold; most people still threw darts. The darts determined the loan and the need for a plan was dismissed.

That could have been the end of the story but our industry came up with some unusual twists that caused people some consternation. "What happens in a variable loan that makes my payment change now and then; how do I reconcile the idea of taking an interest only loan; why does the balance of my loan go up instead of down because I am making the payments (negative amortization) and what do you mean it costs more to finance a rental than my own home." This was just a small sample of the problems that arose.

That would be enough to deal with, but we need to include the economic conditions of the day, the real estate cycle, income tax considerations and the need or desire to retire someday. All of a sudden people realized they might need a plan to deal with these complexities. The end. I wish that were so but it doesn't appear to be going in that direction. Most people still don't plan because they either do not know enough to realize they need a plan or they don't know how to develop one or who can assist them with their planning.

The answer is always to try and educate yourself and then seek help if you need it. Once you have an idea of what you want to accomplish, you are almost there. Fine tune your plan, test it, discusss it with others and correct that which is needed.

Now, it's the end: Well, actually, it’s the beginning because it is time for you to start developing the plan!