Articles: Index
True Cost of a Home
You decide to purchase a new home. $135,000. Unless you have cash on hand, you will borrow the money from your banker. In 1995 the interest paid on new homes was a relatively reasonable 8%. Most home-buyers take advantage of the traditional 30-year mortgage as their time frame to repay the $120,000. (Assuming $15,000 for a down payment.) The home buyer will pay $881 per month in principal and interest only, for 30 years. The total of principal and interest payments on the home over the period total $317,000.
A $135,000 home financed at 8% for 30 years really costs you $317,000.
Approximately seven years into a mortgage, many people move into a new home. When they begin looking they will most likely believe they have built a significant equity position in their home. Having lived in a home seven years, one would expect to have nearly 25% equity after seven years (7/30). However, you have not paid 7/30 of your loan. Loans are not paid off in equal monthly proportions as your stable monthly payments lead one to expect. By the seventh year of a 30 year mortgage, you still owe about 90% of the original principal. You have built very little equity in your home.
Playing the Game
What all this means is that you have been entered into a game in which the odds are definitely tilted in favor of the house (the government and those loaning the money). Living a life by design means that you can play the money game and win for you and your family while not creating losses for others. Playing to win, however, does take some strategic planning. Winning means building a surplus of those illusory dollars so that when you decide to "retire" or lead a more independent and less structured life, you can.
It is still a rarity to find someone who is planning their retirement 20 or more years in advance. In the 21st century it is more important than ever to do so. The taxes that were taken from your payroll checks for social security simply will not be available for you when you retire, barring a miracle equivalent to the parting of the Red Sea.
It is enticing to note here that the earlier you begin taking control of your money, the earlier you are likely to begin truly enjoying the rewards money can buy. As it turns out, time and interest (return on investment) are more important than the amount of money you invest for your ultimate freedom years.
As with every aspect in life by design, you want to know where you are before attempting to set goals, directions and plans to move ahead.
A Budgetary Crisis?
Is your personal budget a microcosm of the United States? As of this writing in 1995, the United States is 5 trillion dollars in debt. That's approximately $18,000 per human being in the United States. The debt is growing about 15% per year. The government takes in about 1.1 trillion dollars per year in revenues. It spends about 1.4 trillion dollars per year.
Compare this to a family budget. If you bring in $50,000 per year before taxes, owe $250,000 in debts and spend about $40,000 after taxes, you are in the same shape as the government. (This completely excludes what you personally owe the national deficit and debt. No one knows when this rapidly growing credit card payment will come due.)
Fortunately, most people budget far better than our government. Unfortunately, most people are in debt and are operating at a net loss each year. It is impossible to live a life by design in this situation. Life by design means that you are in charge of your life. When you are in debt, you are not in charge of your life. How do you know if you are in debt?
You make a balance sheet with assets and liabilities listed and discover whether your financial worth is positive or negative. If it is negative, you are in debt. Fill in all of your assets and all of your debts. Think of everything. An asset's value is what you could sell it for today. A book may have cost $30, but you cannot sell a book for $30. A used bookstore will give you $2 for such an item. A $4,000 ring is really worth about $400. Jewelry is worth roughly 10% of retail. The same is true for many seemingly good "investments."
In the book, Life By Design, we discuss how to REALLY create a budget that will work in putting you on your road to financial freedom. One of the charts has a line noted simply as "monthly available." This is the money you should have available after expenses. The dollar figure next to monthly available is a very important number. It is your "flex" money. All flex money should generally be used to pay off debts (including credit cards) which have no asset backing up the debt.
In other words, if you have a $2,000 credit card bill and it is simply an accumulation of small debts and purchases it needs to be paid off as soon as possible. Credit cards charge 15% or more for interest and every dollar you pay off has a 15% guaranteed return on investment. That makes this a priority. High interest credit cards should be paid in full, first. Then, those cards that carry lower rates should be paid off.
How much of your monthly income should you be keeping to enjoy your life tomorrow? If you are more than 10 years from retirement, you probably want to save 10% of your income as a minimum. If you are less than 10 years from retirement you want to save (invest) more than 10% per month. If your retirement will begin after 2015 you cannot be certain that there will be "social security." There is no reason to believe that the fund will be solvent at that time. Therefore your investments and savings will need to augment any pension plans that you are offered. If you have no pension plans sponsored by an employer, you are going to need to design your entire financial security yourself.
Go to Page Three of this article
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One may eventually tire off popping vitamins one after another. For such people, vitamin water is the only solution. However, individuals already suffering from a certain vitamins deficiency, say thiamin b1, or vitamin d3, should first concentrate on going through a complete treatment pertaining to that deficiency.
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