Today we're going to go over what some people said was their best money decision thus far in their life. Let's get started!
Male, Age 48 & Female, Age 31:
"House."
A house is a great asset to have to build wealth. Unlike vehicles, boats, phones, and most other large purchases, houses and land (property) appreciates, meaning it goes up in value over time. As you pay off your mortgage and the value of your home increases, you earn what's called equity, which is "the difference between what you owe on your loan and what it's worth" (Quicken Loans).
Why is this a good money decision?
Typically, a person's home makes up a good majority of their net worth [what you own (assets) - what you owe (liabilities/debt)], making them great investments. Nevertheless, the only time a house or land is a good money decision is when you can afford it. Dave Ramsey recommends having a 15 year loan with a fixed-rate conventional loan on a house/property that is no more than 25% of your monthly take-home pay. Why?
1. You will pay WAY too much interest (think extra) on a 30 year loan than you will on a 15.
30-year Mortgage example:
Let's say your house is worth: $320,000
You put 20% down: $64,000
Monthly Payment: $1,708
Interest Rate: 7%
By October 2053 you will pay $615,000 total with $359,000 in interest alone. YOU'LL PAY MORE IN INTEREST THAN WHAT YOUR HOUSE WAS WORTH WHEN YOU BOUGHT IT. Now yes, you're house has gone up in value and should be worth a lot more in 2053 than what it was when you in 2023, but paying that much on interest does not seem like a wise financial choice.
15-year Mortgage example:
Your house is worth: $320,000
You put 20% down: $64,000
Monthly Payment: $2,305
Interest Rate: 7%
By October 2038, you will pay $414,953 total with $158,953 in interest. Look at how much you save by paying on 15 years rather than 30. This will mean that you cannot afford as much house as you would with a 30 year loan, but you will save so much money (which can help you buy a bigger house in the future if you so choose).
2. You do not need to be house poor. Just because houses appreciate and are known as great investments does not mean you should jump into one without wisely considering the costs. House poor is when your house payment takes up too much space in your monthly budget.
When this happens you have little to no room to:
- Save
- Pay for unexpected expenses
- Live comfortably throughout the month.
Just because the numbers add up on paper and seem doable does not mean that's the case. This is why the 25% rule is great because it creates margin (extra space) in your budget to maintain wise money habits while being a home owner.
Tip: ALWAYS test trial a mortgage payment in your budget for a couple of months BEFORE you purchase a house. This way you can see if you can really afford the payment.
3. You will always have added expenses as you age. Many people purchase the adjustable-rate loan because of their likelihood of income increase overtime. The theory is as their income increase so will the mortgage payment, allowing lower payments in the beginning and higher ones towards the end.
The issue with this philosophy is that life happens. Just because statistics say your income will increase over time, does not mean will exactly happen, and even if your income does increase, it may not improve enough to keep the payments inside the 25% rule, causing money to be tight. Having a mortgage that is consistent will help you learn how to budget that amount every month, be less stressful (no surprise payment increase), and give you peace of mind when you figure out how to manage it.
What should we do moving forward?
Only buy a house when we're ready:
- At least 5% down payment (20% preferred)
- Saved up closing costs
- 15-year fixed-rate conventional loan that takes up no more than 25% of your take-home pay
Male, Age 32:
"Attention to detail on money incoming versus money outgoing."
Intentionality is key to winning with money. Again, you DO NOT have to be a money expert, but you do need to be intentional about HOW MUCH you bring in and WHERE your money is going. How do we be intentional with our money?
By giving every dollar a job and thoroughly checking throughout the month that our dollars are fulfilling that job.
At the end of every month, we need to sit down and look at how much is coming in, how much we plan to send out (spend), and how much we plan to save. Rachel Cruze says there's three key areas to managing your money:
- Giving
- Saving
- Spending
When we pay attention to how much we're bring in, we're able to evaluate if our income can meet our goals, support our lifestyle, and offer generosity.
Why is this a good money decision?
How can we create a plan if we do not know how much money is coming in? Personally I think you should be intentional about both the income and the outcome of your money. This way you can clearly see your progress in achieving your money goals.
What should we do moving forward?
Add up your monthly net income (this is your income after taxes). If you are married, your income should be combined (yes, you're now one flesh. It's no longer mine but ours)
Write down your money goals.
A goal needs to be:
- Specific
- Measurable (think an amount)
- Attainable (realistic)
- Time-Bound
Three areas I highly recommend is:
- Saving for an emergency fund
- Paying off all debt
- Investing in retirement.
Perhaps decide which goal you want to focus on currently and write it down.
3. Assign every dollar a job (aka create a budget). EveryDollar is the budgeting app Briston and I use. It's perfect to give every dollar of our monthly income a duty, while also letting us track how much we spend throughout the month. Whatever you do, pay attention to WHERE you spend after you've assigned your money a task.
Female, Age 40:
"Starting savings early."
No one ever said they wished they wouldn't have saved as much as they did. In Briston's and I short years together, we have seen the value in saving even when you don't know what you're saving for.
1. Unexpected expenses happen. Even in this month alone we had to pay for a car repair ($500) and a medical bill ($400), THAT'S $900 STICKEN DOLLARS!
Thankfully we've been saving an emergency fund since we got married, so we didn't have to take money out of our checking account or even our savings. Our emergency fund is a completely separate account (in a high-yields saving account to be specific. You should get one if you don't have one 😉).
2. Future expenses. College, trips, new cars, new born baby, the list goes on and on about what future expense can occur. Isn't it stressful not knowing if you're going to have enough money for that future thing you have planned? That's why saving is so important! It helps us have peace of mind about the things we want to do.
3. Keeps us out of debt. Credit card debt is the worst debt we can fall in (because of its high interest rates) and can be a mountain to climb out of. Saving prevents us from stepping foot in this quick sand and keeps us on top!
Why is this a good money decision?
The beauty of saving early is:
1. You have less financial heartache
2. You tap into the effects of compound interest.
What should we do moving forward?
QUIT SPENDING AS MUCH OR MORE THAN YOU MAKE. You heard me. If you're sitting here and am like, "But Carley how do we do that when we got bills and our kids are doing xyz." Look I know I don't have kids yet and just started this adulting journey, but let me tell you I've watched hundreds of people on the Dave Ramsey Show cut expenses, get themselves out of debt, and start saving, all while having kids and living in the same position you're in.
The difference between them and the rest of the world is that they sacrificed for a season what most people are unwilling to do.
- Quit eating out
- Quit buying coffees at Starbucks or teas or any snack or drinks
- Quit traveling/taking trips when you don't have the cash
- Quit buying clothes that you don't need (we all got enough trust me!)
- Quit paying for products and subscriptions you barely use
- Quit getting your nails and hair done (you'll be fine doing your own and it's A LOT cheaper too)
- Quit buying seasonal decor every time the holidays change
- Quit buying the most expensive brand/latest and the newest (it's okay to purchase the off brand or buy and older version)
Man by now you should have at least a few hundred dollars left in your account. Now to stash it away!
2. GET ON A BUDGET. Yup. You need a plan every month for how much you want to save, your reoccurring expenses and the expenses specific for that month. If you're married (even engaged), you need to sit down with your spouse and dream together.
Remember, give every dollar a job.
Think what do you want your life to look like in a year? $10,000 in the bank, 2 cars paid for, no debt except your house, and you're saving for that 1 year trip you have planned. Don't think it's possible, then you need to start watching some debt free screams. I promise, they will encourage you!
3. SAVE FIRST. After you set your goals and make a budget, you need to save FIRST every month! If you wait till the end of the month, you will spend it. Always save first!
Female, Age 65:
"Auto draft to savings each paycheck."
This is a great idea! Instead of you having to move money at the beginning of every month, your account does it for you. You can set this up in your online banking app. You'll pick the amount, an account to send the money to, a reoccurring day, and a time. Out of sight out of mind.
Female, Age 68:
"It’s a tie with my church tithe and putting money in my 401k when it seemed life would be easier not doing so."
Here we see two good money decisions:
- Giving
- And investing in retirement
The tithe is giving the Lord 10% of our first fruits in each paycheck. When we give to a church, we are giving to the Lord, for "the earth and everything in it belongs to the Lord" (Psalms 24:1).
Why is giving the tithe so important to our financial success?
Because the tithe comes with a promise. In Malachi, God says, "Bring the full tithe into the storehouse, that there may be food in my house [meaning that those who work for and in the church need to be paid for their work and it is our responsibility to feed them]. And thereby put me to the test, says the Lord of hosts, if I will not open the windows of heaven for you and pour down for you a blessing until there is no more need. I will rebuke the devourer for you, so that it will not destroy the fruits of your soil, and your vine in the field shall not fail to bear, says the Lord of hosts. Then all nations will call you blessed, for you will be a land of delight, says the Lord of hosts" (3:10-12).
When we give to God what He declares belongs to His, then He will bless us, but we need to give with the right heart (humility, expecting nothing in return).
2. Giving with the right heart blocks us from greed. Paul says that "godliness with contentment is great gain" because it blocks us from the temptation and snare of idolizing money that so many people who desire to be rich fall in. Sadly because of the love of money, which is a root of all kinds of evil, some have strayed from the faith in their greediness, and pierced themselves through with many sorrows" (1 Timothy 6:10).
This tells us that when we desire riches MORE THAN the Kingdom of Heaven, we fall into greed. I think it's okay, even biblical to want to be financially successful, but the difference between financial success and desiring to be rich is that financial success is more about gaining wisdom for how to manage money than it is about gaining dollar amounts.
Having a heart that gives is precious in God's sight.
Investing in Retirement:
Remember the sooner you start, the more money you'll have for retirement. The best way to start investing now is by opening a Roth IRA. You'll need a lump sum of cash and then can sent up monthly amounts to give.
Saving money into this account, even when life happens, is a great way to reaching your goals. Even putting $10, $20, or just $50 a month can go a long way over time. The key to building wealth for retirement is committing to investing (putting money) in these accounts LONG-TERM.
Dave Ramsey refers to the stock market as a roller coster. If you get off of it too soon (pull money out early), you'll get hurt and might not have enough to live completely on. If you hold on until it levels out and starts going up again, then you'll improve your profits and see success.
What should we do moving forward?
Start giving the tithe to the church (again that 10% of your gross income
Open a Roth IRA today (go to your local bank or investments company and ask if they can assist you with opening one)
Save, even if you don't know if they'll be room in the budget by the end of the month
Stay tuned for Part 3 - What Item Can You Justify Buying Even When You Don't Need It?
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