Most people can manage to do their work jobs successfully. Many people can manage other people who work with them. But a lot of people have trouble managing the person they know best, themselves. This is especially true of family finances where so many people spend their whole lives wishing they had more money to do the things they want to do.
Yet, successful personal and family finance is well within their reach if they only get a few things right in respect to finances.
It is difficult to buy a house without a mortgage and most people can’t do it without borrowing most of the cost of a home. But even with a mortgage, assuming you get one that allows lump sum payments from time to time, you can own your own home free and clear in much less than the 20, 25, or 30 year term of the mortgage.
To give you an example with a $15,000 mortgage years ago when housing didn’t cost so much as now with a 9% interest rate over 20 years, I paid $5,000 in a lump sum after 3 years and cut out $17,700 in payments. $5,000 was paid on the principal and $12,700 in interest was saved. With the saved interest, my family and I enjoyed many other benefits and pleasures that we otherwise would not have been able to do. It takes a little determination to pay yourself first and the mortgage company only if you have to. We followed the same practice again and had the house paid off in 8 years.
Admittedly you can’t buy a descent house at present for anything like that low price, but applying the same principles to a house with a $150,000 mortgage will result in even greater dollar savings in interest.
As part of your personal discipline, you need to adopt a policy of buying only what you can pay for in the current month. That means paying off your credit card by the billing date every month.
One further thing about your home. Don’t ever take out a home equity loan for any reason. You are just getting more costly debt and it may cost you your home if you lose your job.
Banks want to lend you money especially on credit cards because once they get you to a stated maximum on your card, you are effectively paying them 18% to 29% on that amount each month. In effect you are cutting them in on approximately a fifty of all you buy. When you get yourself in that situation, they own a chunk of you. You are their personal slave.
Remember that while the banker might be friendly, the bank is not your friend. Ever!
So if you can’t pay now, don’t buy or you will pay maybe 20% more for each purchase. You wouldn’t buy an article if a merchant said that the regular price for it was $100, but for you I will sell it for $120. So don’t pay more because you borrow and don’t pay off each month.
A second thing to get right and keep it that way is if you have to borrow to buy a car, pay it off as quickly as you can. If you have a 3 year loan on your car, pay it off in 2 years. Then after it is paid for,keep it for at least 6 or 8 years. Modern cars are quite reliable for close to 300,000 miles (480,000 kilometers). Then make it a point to never buy a vehicle unless it is at least 1 year old. Combine these two practices and you will have four or five years without vehicle payments.
Live within your means. Lots of people making less than you are doing this and living better than you even though you have a higher income. Unless you have 6 kids you can live quite nicely in a 1,000 sq. ft. three bedroom house and it will be much more affordable than the 2,500 sq. ft. house of your dreams. In fact the dream home may well turn out to be a nightmare for you because you don’t need it and can’t afford it. The same goes for a vehicle, buy one that gets good mileage rather than one that has an extra 100 horsepower that you don’t need.
Apply the same principle to buying appliances and furniture. You don’t need the top of the line stuff. the lowest cost automatic washer will last just as long as the highest priced one and get your clothes just as clean.
Ask yourself this question: If I could pay myself instead of a lender which would I do. If you are like me, you will always be the winner in that and the bank will always lose when it comes to a choice between yourself and the bank.
Think of it this way. Which class of people have the most money? Is it those who pay interest or those who receive interest payments. The answer is obvious so don’t borrow except for a home or possibly a vehicle.
Get them wrong, however, and you may make yourself poor and miserable.
Combine these decisions and you will have a lot more money to spend on yourself and your family, which means you can take nice holidays (and pay cash for them too) and have a better life style with less financial worry. All it takes is determination to pay yourself first. There is nothing wrong with buying smart and a lot right about it.
If you have flunked personal and family finance up to now, it is not to late to learn the smart way and pass the test now rather than never.