Your
outlook about money:
For the purpose of this
exercise, I am going to assume that you are 25 years old, have just graduated
from college, and gotten a job earning $30,000 a year. I am
also going to assume that you understand and agree with the concept of
savings. After all, there are always ways to spend
your entire income, regardless of how much you make.
As a person earning $30K a year,
you are probably finding out that
30K a year is simply not enough. After moving into a snazzy
apartment, buying a car, a giant TV, lap top, high fashion clothes,
a watch,
etc., you are probably finding out you are spending your money faster
than you are earning it. Not only have
you spent it, but chances are, you now also owe money on your credit
card. After all, $30K is really only about $1,875 a month
after taxes.
The above probably sums up
most people's
the economic realities. The fact is that unless you
make a conscious effort to recognize what really is
important, your income will never be enough, regardless of
how much you make.
I personally can afford just about anything I want, but
the things I want are not related to money. I wear jeans and
sneakers, drive an older model car, and no longer
have a large wish list of material things to buy. There
are tons of articles, and psychological research
that clearly tie the quest for money to
unfulfilled emotional needs. So, the sooner you
make that connection, the sooner you will be on your way
to getting ahead. The fact is that rich people
generally have little need to buy high priced
products. Money gives you choices, and peace of
mind, and that's the beauty of money.
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Borrowing money:
Probably the biggest trap of modern times is the
generally accepted 15-30 year mortgage. I consider it a
trap, because of the simple fact that very few people
actually stay in one house to the maturity of their
mortgage. In a modern society where people
change jobs every 3-5 years, most people end up selling
houses, moving to another state, and applying for new
mortgages all over again.
I personally do
not understand why the banking system does not offer
an ongoing 30 year mortgage that is tied to your
personal credit and uses your house as collateral.
If a person has a good credit history, why can't he
get a Personal Line Of Credit which will be good all
over the US? After all, the majority of
banks have branches in most states, so why not?
Could it be because banks would lose a major revenue
source, if people got what they deserve? I think so.
They say your
house is your most important asset. Unfortunately,
under the current banking system, it becomes your biggest
liability.
What's a better way you ask? I will tell you. Let's assume that
after 5 years of living smart, you have managed to
save $50,000. If you are like most people, you find
a real estate agent who shows you houses you can
afford. You are now faced with
putting a $50,000 down payment on a $250,000 home,
and paying
a $1,500 monthly mortgage.
The above is probably
what 90% of the population does, and it is a dumb
idea. If you are like most people, chances are
that in the next 3-5 years,
you will either get relocated to another job in another state,
get fired, or go through a period of economic depression.
Believe me, in the average 7 year cycle, everything
that can happen, does happen. So what's a better alterative?
Remember what I said
about borrowing money. To get ahead, you must avoid
all long term borrowing plans. Don't buy a
$250,000 house, instead buy a cheaper $100,000
house, and plan to pay it off in 3 years.
Instead of paying tons of interest and getting stuck in
a house trap, use your ability to pay $1,500 a month
to build your principal. After putting your $50,000
as a down payment, you will only mortgage $50,000.
At $1,500 a month, you will be able to pay it off in
3-4 short years, and
build up your nest egg to $100,000. In
addition, your house may appreciate in the 3-4
year period, and you may actually grow your nest egg
to $120,000. What then you ask? You sell
the house, start the process over, and this
time, you put $120,000 on perhaps a $200,000 house.
Now, if you ask me,
the above is simple, logical, and can be easily implemented
by anyone. Repeat the process 5 times, and you will
have saved a fortune. |
