Building Homes and Financial Plans

Reed C. Fraasa, CFP®, AIF®, RLP®

On September 8th, HIGHLAND dedicated a Day of Service to Habitat for Humanity, contributing to constructing five new homes in the heart of Paterson, NJ. The whole team showed up at 7:45 AM, ready to make a difference in a small spot on the planet. Habitat for Humanity helps people to become homeowners by providing affordable, adequate housing. The concept of "partnership housing" was started in central Georgia in the early 1970s by farmer Clarence Jordan and Milliard and Linda Fuller and gained global recognition when President Jimmy Carter got involved in 1984. Today Habitat for Humanity operates in all 50 states and 70 countries. No one pays more than 30% of their income on the home, with an average down payment of $500 and a monthly mortgage payment of less than $1,000. Each new homeowner must also contribute 400 hours of sweat-equity by volunteering in their neighbors' house building and participating in financial literacy education. 

At HIGHLAND, our motto is "What We Do Matters." The opportunity to put that motto to work by volunteering to help five families realize their dream of homeownership was rewarding, unifying, and invigorating for the whole team. I was proud of how everyone gave heart and soul to put in a good day's work. We spent the day cleaning a house, painting doors, and applying the first coat of paint on an entire home. The Habitat for Humanity project manager said that we were one of the most productive volunteers they had to join them. As we worked that day, it occurred to me how building a home is like building a financial plan.

Both are very long-term endeavors, requiring patience, persistence, and perseverance. A home and a financial plan are a lifelong presence that represents stability, security, and wealth building. According to recent US Census Bureau data, more than one-third of the population does not own a home, and about two-thirds do not own a home for people under the age of 34. The numbers for black and Hispanic populations are even worse, with only 50% having home ownership. Likewise, according to Schwab's 2021 Modern Wealth Survey, only 33% of Americans have a written financial plan. I suspect the percentage of people claiming to have a written financial plan significantly decreases as you move down the socioeconomic ladder.

Much research over the last decades shows that home ownership is a significant factor in lifting people out of poverty and putting a family and future generations on a different socioeconomic pathway.

Homeownership starts with an architect designing a vision for the home on paper. Architects will take the time to understand the dreams and lifestyle of the homeowner, incorporating as much as possible into the design of the house. Sometimes, the price to build the vision is too high. The architect must guide the homeowner to prioritize their goals and objectives and revise the plans to accommodate the necessary changes. Then, a project manager guides the team of skilled builders with diverse specialties to construct the home. Building a house involves four essential components:

  • Foundation

  • Structure

  • Mechanicals – plumbing, electrical, HVAC

  • Finish – wall finish, trim, floors, cabinets, painting

Of the four, the most critical is the foundation. In one of his parables, Jesus, who was a carpenter, used the illustration of the foolish man building his house on sand and the wise man building his house on rock. The Early Egyptians and Central Americans could never have built the great pyramids without understanding how to start with a solid foundation. Getting the foundation right in a home, being square and level, then raising the walls plumb, will translate much later in the project to the finish trim, doors, flooring, tile, and cabinets looking right. You cannot make up for a lousy foundation later in the job.

Once you build a home, you need to maintain it. That may require periodic work or investments to keep the house updated and working correctly.

Likewise, research and our own experience support the power of financial planning to significantly improve the odds of someone achieving what may seem impossible in their lives, including changing their socioeconomic pathway.

On paper, a financial plan starts with a vision for the client's future, the life calling to them. Financial planners should have a process for exploring the client's dreams and aspirations to uncover goals and objectives for the plan. Sometimes, based on the client's resources, the financial calculations reveal the financial plan is not feasible. The financial planner must have the empathic skills to guide clients to clarify and prioritize their goals. Like a project manager on a construction site, the financial planner quarterbacks the plan's components with the various experts to execute it in the client's best interest. At HIGHLAND, we build a financial plan with our trademarked "The Person is the Plan®" to achieve your goals, protect your lifestyle, and plan your legacy that involves four essential components:

  • Discovery

  • Collaboration

  • Implementation

  • Monitoring

Of the four, the most critical is discovery. The discovery process is the foundation for a financial plan. Your vision, current resources, goals, and objectives must be clear and measurable to provide a solid footing for all future decisions. Your financial statement is the tool to evaluate existing resources, and the cash flow portion is the most important. Your financial plan is uncertain and dysfunctional without a clear and accurate statement of all the inflows and outflows. Cash flow will impact many future financial planning decisions.

Finally, monitoring a financial plan, like maintaining a finished home, requires supervision and maintenance. Managing time, money, and investments may require adjustments over time to stay on track to reach your goals.

A financial plan, like homeownership, is a lifelong endeavor that can genuinely change people's lives. For more information about Habitat for Humanity, visit their website at www.habitat.org.

Reed C. Fraasa is a CERTIFIED FINANCIAL PLANNER™ and founder of HIGHLAND Financial Advisors, a Fee-Only financial planning firm that offers comprehensive financial planning, retirement planning, and investment management. Reed has 30 years of experience as a fiduciary advisor and is the author of The Person is the Plan®, a unique financial planning process. Reed was a frequent guest contributor on PBS Nightly Business Report and has been featured in the New York Times, Wall Street Journal, and Star Ledger newspapers.