There are three key practices that will significantly affect your family’s long term financial health and wealth. Although these practices may require some planning and self-discipline, they will powerfully impact your family’s net worth. The big payoff will definitely be worth your effort!
- Live below your means: Cultivate the attitude and practice of spending well below what you earn. One way of doing this is through small restrictions. You know, things like limiting the trips to Starbucks or adding yet another pair of shoes to your closet. It also helps to develop tastes for brands and shops that aren’t overpriced. This habit should be applied to the big ticket items in your life like your car and your home. If you purchase a home that is a fair amount below what you could have spent, you’ll be able to comfortably save money for emergencies as well as other expenses like college tuition, retirement, and vacations.
- Fifteen year mortgages (or less) only: If you get a fifteen year home mortgage versus a thirty year mortgage, you’ll save thousands of dollars in interest charges. Of course, this means your monthly payment is going to be higher– but if you buy a home that’s less than what you can afford, the crunch won’t feel as tight. Another technique for paying your home off faster is to make one extra payment per year. This will cut about another 2 years off that 15 year mortgage—more interest savings. You can do this by sending in the payment(s) yourself or by enrolling in a specialized automatic withdrawal plan. I did this with my mortgage. The plan basically deducted ½ a mortgage payment every two weeks (bi-weekly payments). This ultimately amounted to one extra payment a year. I had to pay a one-time set up fee for this service and then a nominal per transaction fee. If you do the one-time payment(s) yourself, you will avoid these fees. I chose to sign up for the service because I knew that I would probably give up making the extra payment if I had to do it myself.
- Set up automatic withdrawals: Put savings and/or retirement plans on automatic withdrawals from your bank account whenever possible. This technique helps those of us that are more self-disciplined and those of us that are less self-disciplined consistently build up savings. It helps eliminate the possibility of spending our savings allotment on other expenses that undoubtedly will come up. Savings make it into the budget and the monthly “mulling it over” headache is gone. Put your family’s long term financial wellbeing first—and work everything else out around it.
Putting these practices into use isn’t always easy, that’s for sure. There are so many real and necessary expenses families manage on a constant basis. There are also so many wants our families have—many, many products and entertainment options to choose from. My parents were self-disciplined savers who took pleasure in saving versus spending. My mother said that because she had money in the bank she knew she could buy whatever she wanted (within reason) and that was enough for her. Many times I’ve heard the financial expert Dave Ramsey say, “If you live like no one else, later you can live like no one else.” Tell yourself whatever you need to tell yourself. Do what works for you. Above all, remember that even if you can’t do everything, at least do something.
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