Martin Hawes: Home is where the hard graft is

Many New Zealanders set too much store by their houses to give them happiness. This often results in people having a great deal of capital tied up in their houses to the detriment of their lifestyles.

I frequently meet people who, when asked what they expect for retirement, say they want a good (read: expensive) house. That's fine - a nice place to live is what we all want.

However, it does mean they forgo having much income-earning investment capital so they can afford the expensive house.

In effect, such people are allocating a great deal of their net worth (their capital) to the house and very little to investments that could give them income. This means they can enjoy the nice house but not other things that they might want to do, such as travel, sports and hobbies.

For most of us, capital is limited, so we have a fundamental choice - a nice house or a better lifestyle. Only a few are wealthy enough to have both.

This happens not just to people planning to retire but to younger people too. I have seen many people with expensive houses and large mortgages. Paying the mortgage requires both partners to work long and hard.

Sometimes I think that the couple is rushing around and working to have a house they seldom have time to enjoy.

I ask: do they own the house or does the house own them? What things are they going without so that they can have this expensive house?

The amount you have tied up in a house is a personal and lifestyle decision. However, the way you allocate the capital you have is something that should be done consciously - carefully planning the trade-off between lifestyle and house.

There is no easy rule of thumb - it is a compromise we each have to make.

Making this compromise takes judgment and hard and honest thinking about the things that are truly important to you. Happiness may be the house, but maybe there are other things that matter more.

There is more to a house than simply a roof over your head - there are the things that you can do there such as gardening or having a swimming pool, and frequently people have their status tied up in the house. A house is often the first way we display our success to others.

However, if the amount tied up in the house is stopping an older person from visiting the children and grandchildren in London, or stopping a younger person from taking the family tramping in the South island, perhaps the balance is wrong. Too much weight on the house can mean a lightweight lifestyle.

* Martin Hawes is a financial adviser. His disclosure statement can be found at www.martinhawes.com