How to make the best wrong decision

Things are looking a lot better for my refinancing. I'll explain the story in a future post once I get through the end. I expect the end to occur within a week and hopefully it's a happy one, but it got me thinking. A lot of people make a financial decision they're not proud of. Actually, I would say we all have at one point and most of us are probably living in one. Also, sometimes you can't undo that financial decision. 

I am in that situation now. I teach the 25% mortgage payment method. In other words, your mortgage payment should be no more than 25% of you take home pay (this rule can and should be applied to rent). Though I teach it, I didn't follow it. My mortgage payment is well above 25% of my take home pay. Nobody is going to perform their financial journey perfectly and I'm no exception. So, what can I do to fix the mistake?  

I first considered reversing the mistake I made, but I based it purely off the numbers. My home value was about the same. I could maybe make $5000-$10000 more off it. Assuming average case (about $5000), I ran the numbers and considered new closing costs for selling this home and getting a different one. The numbers did not go well and they clearly showed I should not sell the home.

My next consideration is what I would recommend to a lot of people. If you can't reverse your financial mistake, make it the best wrong decision you've ever made. This is how I and my wife are approaching our home. The home was is a great house, but the price was not as good. We're making it right by refinancing, which increases the mortgage just a little bit, but it keeps so much more money in our pocket, which can be seen month-to-month when we calculate our net worth. It's also likely that our salaries will increase, which would get us closer to the 25% rule. Once the PMI drops off, we'll get even closer.

Our situation will naturally improve over time, but yours might not. If you don't expect your situation to improve, still make it the best wrong decision you've ever made. Just use this best wrong decision as a bridge. A bridge to what? A bridge to reversing the decision. If it's not going to naturally improve, you'll have to eventually undo the decision. It's a hard decision for some, but it needs to be done. 

The most important thing for us all though, is learn. Learn from the financial mistake and don't make it again. For me, I need to follow the 25% mortgage payment method. It requires sacrifices, but they pay off. Every financial sacrifice you make will pay off later and even better. I promise you, with a little patience, you'll never regret the sacrifices you make.

---

Thanks for reading Better Budget! I hope if improves your personal finances become better. If you have any questions at all, please reach out to me. I'll be happy to answer any you may have. Have a great weekend!