Do you actually need to spend your hard-earned cash?
1 – Check any cupboard, garage or attic in almost any house and you may find hundreds of pounds of goods which are gathering dust – goods which have never been used or used so infrequently they in no way justify the amount of money that has been spent on them. And it is not only goods, its services too; unwanted/unused subscriptions of various kinds from gyms to magazines and insurances, to name but a few.
I am not immune to this insanity. Somewhere in my house you will find at least 6 headphones, not one of them used in the last 5 years and some never used at all. Before buying anything, everyone should answer these questions:
- Can I comfortably afford it? If not, don’t buy it.
- Do I really need it? If not, don’t buy it.
- Will I actually use it enough to justify the cost? If not, don’t buy it.
If you are going to buy anything and get proper, true value from it, and not waste money, answer all three questions in the affirmative before thinking about spending your hard-earned cash.
Even if you do answer ‘yes’ to all three questions, always think about a fourth: can you buy a cheaper option? And a fifth, do you need to buy at all? Can you beg or borrow? But not of course steal!
Now let me come back to that little army of headphones I have at home. I spent at least £500 on them. Money I could have in my bank account now – more if I had invested it wisely.
Consider paying off expensive loans/debts before you save
2 – If you have a lump of money, you will usually be better off financially if you use it to pay off any loan/credit card you have – where the loan/credit card interest is more than the interest you would get on the lump sum if you put it in a savings account.
REMEMBER THAT IT IS GOOD PRACTICE TO ALWAYS HAVE SOME SAVINGS FOR AN EMERGENCY.
Good debt is good, bad debt is bad
3 – By now everybody should know, but they don’t, so it is worth repeating – debt is not always bad. It is impossible to think of a millionaire or billionaire who has not acquired their wealth partly as a result of massive borrowing.
There is good debt and bad debt. Bad debt is when you borrow to buy something which is non-income producing and probably depreciates in value fast; good examples include:
- a new car which is not essential for work or used in a business
- designer goods and clothes
- expensive phones
- most watches and jewellery
- white goods
- TV, audio and tech goods.
An example of a good debt is a mortgage taken out to buy a property which is rented out and the rent pays for the mortgage. Good debt makes you rich, bad debt makes you poor.
Excessive reliance on an overdraft is an early warning sign of financial problems
4 – Don’t rely on an overdraft more than you need to. If the overdraft is interest free and remains so, fine – but if interest is running every time you go into the red the cost over time can be surprisingly large. Especially in business, it is easy to get into the bad habit of running your business on a permanent overdraft. If you can secure a loan, you may find it much cheaper than relying on an overdraft.
INCREASING USE OF AN OVERDRAFT IS OFTEN A TELL-TALE SIGN THAT A PERSON OR BUSINESS IS IN FINANCIAL DIFFICULTY AND NEEDS TO ADDRESS THE PROBLEM FAST.
Interest only mortgages don’t normally lead to you being mortgage-free
5 – With an interest only mortgage you only pay your lender each month the interest on the loan you borrowed. The loan itself, the capital, is not reduced and the full amount is repayable at the end of your mortgage term. If you want to have a mortgage free property at the end of 25 years, or however long the length of your mortgage, you should look at a repayment mortgage where, each month, you pay interest as well as a part of the capital.
If you are on an interest only mortgage and have spare money each month, you can consider over-paying on your mortgage payment – if your lender allows that. It is astonishing how even small regular over-payments can greatly reduce the length of your mortgage, leaving you mortgage-free much sooner than you expect.
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Rebel Property Coach
My website is: www.rebelpropertycoach.com
Categories: 08 Mindset