Financial Life Hacks
Founder and President, Armstrong Advisory Group
It’s great to watch other people get ahead in life and experience good financial health, but it’s also easy to feel left behind if you’re unable to do the same. Have you ever wondered how your brother was able to buy a brand new car with nothing more than cash? Is it frustrating to watch your neighbor pay off her mortgage early? If these thoughts go through your mind, the most likely source of your frustrations is your own perceived inability to get into solid financial shape. I understand where you’re coming from and I’d like to share three financial life hacks to help give you a boost.
Financial Life Hack #1: Stop Wasting Your Money!
Before we get too far into the weeds, it’s important to get one fact straight: consumers in the U.S. waste a ton of money each month. For example, the Bureau of Labor Statistics recently found that American households spend an average of $3,154 a year on dining out. That’s $263 a month. I don’t mean to nitpick, especially since many parents and working professionals are just too busy to cook their own meals at home, but the costs of eating out clearly add up in a big way. When he ran for president in 2012, Mitt Romney pledged to apply a litmus test to federal spending: “Is a government program so critical that it’s worth borrowing money from China to pay for it?” Apply the same litmus test to your own personal spending habits. Is dinner at a swanky restaurant worth using money that could otherwise go toward your mortgage principal that month? Are you wasting money each month in other areas? Have a closer look at your spending habits and see if there are ways you can save money by reducing any unnecessary expenses.
Financial Life Hack #2: Save Now, Buy the New Car Using Cash Later
Now that we’ve covered the first step toward getting into better financial shape, let’s have a look at how your friends, family members, and neighbors are able to buy stuff in ways that you currently can’t. We’ll start with the new car. The average monthly payment on a new vehicle last year was $479. As of 2016, the average car loan was $30,032 with an average length of 68 months. That’s almost six years. Instead of throwing $479 a month at a car loan for six years, imagine that you contributed $479 to an investment account every month for six years and earned a hypothetical annual return of 8%. You would end up with $43,973. That would leave you with more than enough money to buy the new car using cash instead of taking out a loan and paying interest for six years, and you’d still have enough cash left over to save or make additional purchases.
Financial Life Hack #3: Reduce the Length of Your Mortgage Term
Here’s the third financial life hack: if you pay an extra $100 toward your mortgage principal every month, you will eliminate years from the life of the mortgage. I’ll elaborate: let’s say you take out a $400,000 mortgage with an annual interest rate of 4.5%. Over the next 30 years, you will end up paying $729,627. However, the extra $100 payments toward the principal each month will ultimately allow you to save $35,400 and reduce the mortgage repayment period by two years and nine months. Let’s say you’re feeling motivated and add an extra $200 to the mortgage principal every month. Doing this reduces the mortgage term by five years and saves you $63,491. If you’re able and feeling brave, you could pay an extra $300 to the mortgage every month. That reduces the mortgage term by six years and eleven months, and it saves you $86,409 in the long run. Don’t believe me? Check out Bankrate’s Additional Payment Calculator to see how this strategy plays out for yourself.
Those are just three ways to get ahead of the game and into good financial shape. Going above and beyond the call of duty when it comes to paying your bills will probably require a great deal of sacrifice and discipline, but it’s important to get rid of your debts as quickly as possible in order to have the resources necessary to save for life’s major purchases, as well as retirement. The decision to make wise financial choices today will increase the likelihood that you will experience financial freedom in the years to come. However, it’s important to find the will to make that decision in the first place.
Barry Armstrong has over 30 years of experience in the financial industry. He founded the Armstrong Advisory Group in 2004 and has been sharing his financial knowledge with New Englanders on a daily basis during his Boston-based radio broadcast for nearly 20 years. Learn more about Barry and the Armstrong Advisory Group at www.armstrongadvisory.com. Securities offered through Securities America, Inc. Member FINRA/SIPC and Advisory Services offered through Securities America Advisors. Barry Armstrong, Representative. Representatives of Securities America do not offer tax advice. Always seek the assistance of a tax professional familiar with the laws in your state. Armstrong Advisory Group and Securities America are unaffiliated. September 2018
Image courtesy of The Wall Street Journal