Money, it’s hard to earn yet easy to spend. We have all made mistakes within the realm of finances. The defective toy you purchased as a kid, the expensive date you went on with a girl or boy that broke your heart afterwards, the bad car purchase, or the overpriced home you thought you could afford. Every stage in life brings it’s own set of challenges.
I cannot teach you how to get rich. At one point I thought there was an easy way however, there is no easy way. I can however, point you in the right direction. No, I am not a finance guru, nor am I an investment specialist. I have made the mistakes I mentioned above. Handling money is not a theory but rather a discipline. A discipline that should be sought out by everyone.
For 10 years I have worked in the finance industry. I have worked in consumer finance, retail mortgages, wholesale mortgages, and have worked in the credit approval department of all of these branches. There has been one thing I have learned, that I found to be unfortunate universal truths.
When it comes to finances most people want the easy way out!
People typically want the following:
- Consolidate all of their debts into one.
- Buy a house with no money down and finance the closing costs.
- Finance a car to build credit.
- Use credit cards to earn travel reward points.
The problem with these scenarios are the following:
- Consolidating your debts and not closing out your lines of credit leaves the door open for you to rack up the credit cards again…and now have to pay the credit cards and the consolidation loan. Save yourself the heartache and do not do it!
- Buying a house is a big undertaking, unfortunately most people think that just because the bank’s software says they can afford it they believe the lie. The bank qualifies you on your gross income, they do not calculate the fact that Uncle Sam takes his money every paycheck. For example if you earn $3,000 per month gross, you probably only bring home $2,200 (after taxes, insurance, 401k etc). The bank will qualify your debt to income ratio at about 40% which means that they will allow for you to be indebted up to about $1,200 per month total (mortgage, taxes, insurance, credit cards, other loans etc). That leaves you with only $1,000 per month to pay your tithes, electric bill, gas bill, water bill, cable bill, cell phone bill, groceries, gas for your vehicle, insurance payments etc. You must be thinking I cannot afford that with only $1,000! I know, you know that, the bank knows that…yet it still happens. Therefore, think twice before purchasing and financing it all. Try to save up at least for your own closing costs and buy a house that you determine you can afford, not the bank.
- Car payments suck! Seriously! Buy a used car for cheap or save up $500 per month for 2 years and pay $12,000 for a great car at an auction. Do not get trapped in the whole car payments will boost your credit score because they do not. Revolving accounts boost up your score a lot faster than an installment loan.
- Credit cards with reward points are great for all those who travel frequently, unfortunately most people who depend on credit cards are too broke to travel. Save yourself the headache of paying 9% interest on a rewards point card and save up your own money at 0% cost to you to travel.
This is the first post on finance and for the next couple of days we will discuss the problem with debt, budgeting, and other tips to get you on the right path!
Most people do not need more money, they need behavior modification. – Dave Ramsey, Author of Total Money Makeover.
What are your thoughts concerning this topic?