Get Out Of Debt - How To Pay Off Your Home Loan In Less Than 10 Years
As long as you need to buy goods and services to survive
, you need money. As long as you have used other people's money to buy goods and services, you need money to repay that debt. As long as you desire to buy more goods or services, or enjoy the finer things in life, you need money. As long as you plan for a good retirement, you need money.
Imagine though, if you could be in a position that you did not need money. Imagine that you had enough money to not only buy all the goods and services you needed to survive, but enough money to buy what you desire. Imagine that you did not have to worry about money. You knew that you had enough money or cash-flow coming in each month to buy the goods and services you need to survive, plus the additional goods and services you desire. And you knew that monthly cash-flow was coming in regardless of whether you went to work each week/month or not.
Is it possible? Yes it is. Many people have achieved financial independence in this world, and those people are no different to you. Good money management skills are a foundation skill you require to achieve financial independence
One money management rule you should follow is commonly called 'live within your means'. For every $1 you earn, only spend 90c. One of the biggest traps to breaking this rule is readily accessible credit cards and personal loans. If you have personal loans, personal debts or credit cards that you do not pay off in full at the end of each month, then you are breaking this first rule. It may mean that for every $1 you earn, you are spending $1.10. You are acquiring 'personal stuff' using other people's money. You are acquiring depreciating items using other people's money that you have to pay interest on. Appreciating debt for depreciating items is not the path to financial freedom.
My parents definitely lived within their means. They emigrated to Australia with two small children and no jobs. My father got a job, and as soon as was possible, my parents bought their first home. In those days the house only cost $13,000; this was around 1972 or 1973. They purchased in the lower end of town (within their means), and furnished the home with second hand furniture (within their means). When my brother and I were a few years into primary school, my mother got a part-time job around school hours. All her wage went into paying off the mortgage; we lived off my father's income. They also used my father's income to save for furniture, cars and family holidays. There was no such thing as credit cards in those days, or at least not to my parents. You only purchased something when you had the cash for it. I can't remember how long it took them to pay off the mortgage, but I can remember them celebrating when I was in early high school. They then sold the house, and upgraded to the upper side of town. It only took them 10 years to move to a new country with nothing, to being well established in a lovely home and living the lifestyle they were seeking for their family in Australia.
They practised the concept of living within your means. The only loan they had, was on the family home. All other items were purchased using cash, even if this meant buying second hand until they had saved enough to upgrade. They never had a personal loan or credit cards.
Today's society appears to be quite different in terms of how we spend our money. Some first homebuyers want their first property to be the home of their dreams fitted out with stylish furniture, big screen televisions and modern kitchen appliances. Many also are battling to pay their car loans, university fees and credit card payments. At a young age, many get caught early in the credit trap.
Budget to ensure you have enough money to buy your necessities and luxury items as long as you don't break rule 1: Only spend 90c out of every $1 you earn.
My preferred method of budgeting is to not give me a choice to save: to make it happen automatically.
The approach we took to pay off our home loan was to calculate in advance, how much money we needed to cover all our living expenses. For the sake of an example, lets say our total combined net income was $4,500 per month, and our total expenses were $3,000 per month. All of our wages, rent, tax refund cheques, dividends and any other income was channelled straight onto our home mortgage. We were then allocated a budget of $3,000 per month, and no more. We had to plan for upcoming expenses. For example we may only have spent $2,000 in May as June was going to be a big spending month with car insurance, home insurance, rates, etc. We needed to ensure we saved $ in cheaper months to allow for months with higher expenses. The access to money, was taken out of our hands. This forced us to live within our means. Note, the $3,000 per month included money for the mortgage, groceries, electricity, holidays, Christmas and birthday presents, clothes, hobbies, etc. ... everything. This meant that, without us thinking about it, an extra $1,500 per month was being paid off our mortgage. $4,500 combined gross income minus our $3,000 allowance per month left $1,500 to pay extra off our mortgage.
Using a version of this method, we were able to pay off our principle place of residence in well under 10 years. The system worked. However, the funny thing is that if we tried to save $1,500 per month, there is no way we would have done that. I believe, if the money is there, you tend to spend it. However, if the money isn't there (we only had access to $3,000 of our $4,500), you can't spend it.
This is the same system you can use to pay off your credit cards.
by: Suzie Crawford
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