Arrange your affairs to prosper
Mortgage stress is back in the news, with increasing numbers of borrowers reporting trouble making their repayments. Furthermore, there is now a growing belief that interest rates will start rising within a year.
If rate rises do occur, anybody experiencing mortgage stress will be hit hard.
The way out is to get ahead of your loan repayments and the best way to do this is to practise what I call "the guaranteed secret of wealth.” Everybody, irrespective of income, tends to pay their commitments, spend the balance, and end up broke on pay day.
Remember, if you try to save what's left over at the end of the week, you inevitably find there is nothing. However, your wealth will grow faster and faster if you arrange your affairs so that investment happens automatically. This is why increasing your home loan repayments works so well.
Back in 1980 I was on national television telling viewers to pay their home loans fortnightly and not monthly. The banks scoffed at the idea but they had missed a major point - if you are paying $3000 a month on your loan, and you change to $1500 a fortnight, you are repaying an extra $3000 a year because there are 12 calendar months, but 26 fortnights.
This is why the easiest way to get ahead is to take on some sort of a commitment. It may be buying your own home and paying it off, committing to a regular savings plan or borrowing for investment. No matter which way you go, there's still a commitment involved.
The way to wealth is to focus on accumulating assets, not accumulating more income. When your income increases, tax takes a larger and larger proportion of it, and human nature being what it is, you'll tend to spend at least as much as the extra you earn. However, when a major part of "the income” coming into your home is by way of capital growth, or reinvested income on your investment portfolio, you are not tempted to spend it, as it involves cashing in precious assets. Best of all, the sum gets larger and larger as time goes by. This reinforces your decision to leave it alone.
Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email: firstname.lastname@example.org