By Miles Clyne
In a perfect world we would all make more money than we need, and have the wherewithal to be as constructive with the extra as possible.
In the real world, being as constructive as possible frequently does not happen. The challenge is our prioritization process - we seem to be able to justify almost anything. Saving money is just one of the items in our long “coulda, woulda shoulda” list, that we will all look back on at the end our lives.
It seems for many of us, our brain can have somewhat of a self-destructive nature to it when it comes to giving ourselves good advice. I also believe many of these “bad patterns of behavior” have been taught to us. It doesn’t mean we are broken, we are just following a wrong pattern. Given our brain is like a very sophisticated PC, we should be able to do some reprogramming or reboot to avoid some of the nasty thinking that is holding us back.
In business, CEOs have teams to help them make better decisions. The CEO is ultimately responsible, but relies heavily on others and will call upon specific experts if needed. Yet the majority of us continue to make decisions in key areas of our lives with no support. In most cases these decisions are not life threatening, but definitely life altering.
Maybe the best example in modern times of where we have been steered wrong is on the subject of debt. Too often have I heard people being told that they need to take on debt to establish a credit rating. Advertisements pitch that you don’t need a credit rating to buy a car, so come buy one and establish or re-establish your credit rating. Perhaps our largest purchase in life is buying a house. Do you need a credit rating to buy a house? I spoke to three mortgage brokers. Independently, they agreed that as soon as you are responsible for a utility or any form of a payment, you are building your credit rating. None thought that taking on additional debt over and above the basics was necessary.
The biggest factors in qualifying for a mortgage are how large of a down payment you can afford and the stability of your employment. When our education is focused on establishing a credit rating, as opposed to saving, we are hearing the wrong message. The first question we should be educated to ask ourselves about major purchases is: have I saved enough? It is not: how much can I borrow?
Life for me is pretty simple. I establish goals, then I only have one of two choices to make. One decision takes me closer to my goal, the other, further away. Debt in some instances can take you closer to a goal, but most often it takes you further away. Owning a home is more than just having your name on the title with the bank. It is having it paid for so you are in control, not the financial institution. Setting a clear goal to get this done I hope should be a priority to anyone who has or is contemplating a mortgage.
Here is an example to hopefully drive home the financial benefit of saving before you spend. Assume a mortgage with a 4% interest rate, amortized over 25 years. If you could put 50% down on a $500,000 property, then make the same payments as if you put 10% down, you would save almost $200,000 in interest payments, not to mention paying your house down much faster.
Consider your own needs and goals; you are important! The resources are out there for all of us to make better and more informed decisions in all aspects of our lives. Build your resource team and watch the difference it makes when you can call upon people with experience to support you and have your best interests at heart. Your team will help you with the reprogramming you will need to ultimately make the decisions that will move you ahead in the world in a far more constructive way, and you will feel great knowing both the long and short-term benefits you are gaining.