In life, we all can get so busy that it becomes difficult to look beyond our daily activities. The demands of our schedule seem endless: work, children, hobbies, exercise, church, board meetings, and family make it feel virtually impossible to carve out time to think about the future.
But the past has proven one key fact to be true: The future is coming.
By making great financial decisions along the way, your financial future will be incredible.
One key financial principle we must always remember is what I call the “money switching pockets” investment.
Suppose a person purchases a house and does so by obtaining a $150,000 mortgage – 4% interest, 180 months (15 year), monthly payment of $1,109.53.
It can be easy to think, “I have a bill of $1,109.53 every month.” and just think that money has disappeared just like the power bill money. BUT it didn’t all leave you – some of it just switched pockets!
You see, some of that money did disappear – that was the interest portion of your investment, but the principal payment money switched pockets. It is still your money, it is just in a different pocket called “home equity.” When you sell the house, you will be able to transfer that money into another pocket (like your bank account)! In this example, in just the first month of the repayment period, $609.53 of the $1,109.53 payment just switched pockets! That means your effective monthly housing cost was $500!
Just by paying regular monthly payments for the first five years, you will increase your “switching pockets” money to $744.24 per month and reduce your monthly housing cost to $365.30!
This is why it is so important to own assets that increase in value. Not fully convinced yet about this “money switching pockets” principle? Consider a National Association of Realtors statistic that the average homeowner’s net worth is 41 times greater than a renter’s net worth!
Understanding this makes that monthly mortgage payment a lot more tolerable, doesn’t it?
PS: It gets even better when the house is paid off and you have no payment at all!
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