The following article was written by Griff Hanning – the owner and founder of FinancialSecrets101.com. He has a passion for helping others attain financial freedom and maximize the amount of time and money they have to help advance God’s Kingdom.
1. Spend over 1/3 of your income on a house or an apartment.
Most people dream of living in a house with over 5,000 square feet and located in one of the nicest parts of town. I mean, who wouldn’t want to wake up every morning to a little bit of luxury?
The problem with living large is that money is usually in limited supply. If you are spending 40% to 50% of your income on your mortgage or rent, you’re not going to have a whole lot left over at the end of the month.
You may be thinking, “So what. I’m getting by just fine.”
OK, I have two issues with this kind of attitude. The first is about “getting by.” Do you really want to live life just getting by? Wouldn’t you rather be thriving? I would.
The second issue I have with that kind of attitude is that you never know what the future may hold. You may be making the payments just fine today, but what if you got laid off tomorrow?
Mortgages and rent are some of the largest stand-alone expenses for consumers. If you want to fail, choose payments that are more than 30% of your income.
2. Wait until tomorrow to make changes.
It doesn’t matter what good financial advice we are talking about here, if you keep telling yourself that you will start tomorrow, you’ll wake up one day and be a broke 70-year-old wishing you could start over. Don’t take my word for it! Go ask your grandparents what they wish they would have done better in regards to their finances. You’ll know exactly what I’m talking about.
I was sitting in a Bible study last year with Dr. Del Tackett, author of The Truth Project
He used the coffee table and center-piece as an analogy. The coffee table surface represented our minds with all of our “nuggets” of knowledge scattered about. The small tea candles represented the nuggets of knowledge that we daily acquire and keep stored away. The center piece was a bowl-like decoration that he used to represent our heart- where we place the things that we believe.
As Del was talking he started taking some of the candles from the table and placing them in the bowl. He explained that the only way to move a nugget of knowledge from our minds to our hearts is through believing – and the only way to believe is to act on your belief.
This concept is convicting not only for living out your faith as a Christian, but also acting upon the good advice we know in other areas of our lives, like money. You may KNOW that saving money for a rainy day is a good idea, but do you BELIEVE it? You may know that investing money when you are young is extremely important, but do you believe it?
If you want to fail financially, keep putting off the things you know you should do until tomorrow.
3. Stay where you are.
I believe that financial freedom is attainable. I think this can only come through finding contentment with where you are at in life and implementing wise money-saving techniques. But I also know that you can always improve your financial situation.
An excuse I hear all of the time is, “Well, our needs are met, what more do we need?” Yes! These people are right. That’s a good place to be and an OK attitude to have. In fact, people like this are head and shoulders above others. But then I ask them, “Wouldn’t you like to maximize your financial freedom by becoming a more generous giver of your time and money than you ever thought possible?! Doesn’t that sound a little more fun than just being self focused and responsible with your finances?”
By staying where you are at financially, you may not fail in one sense of the word, but you may lose out on the extra blessings that are available while here on earth. At least that’s my opinion.
{ 7 comments… read them below or add one }
I live on a poverty-level income. How am I supposed to NOT spend at least 1/3 of my income on shelter?
I’ve heard this 33% rule of thumb before, and I like it… but… is the rule generally supposed to be 33% of Gross Income or of Net Income?
It makes a big difference.
This is a great list, full of sound, simple concepts. I’ve got two of the three down pat, but need to work on the other. My financial todo list hasn’t changed in a couple of months. A few minutes discussion with my wife, and a few clicks of the mouse – my accounts will be shifted around for the better.
Thanks for the reminder!
Terry, I too, live at poverty-level income. I used to spend well over 1/3 of my income on the very cheapest rental situation I could find (with roommates). It was over 1/3 of my income not because I was living large, but because I made almost nothing. (Now I’m living at home with my parents again, thank God they’ve let me come back).
Some people can’t HELP spending over 1/3 of their income on housing, not because they’re living large – they have the very cheapest housing they can get to keep a roof over their heads – but because no matter how much they try, they just can’t find work that pays a living wage (and many can’t afford to go back to school either).
It bugs me when financial articles assume that everyone who spends over 1/3 of their income on rent is living in a nice place. Some people can’t “choose” rents that are less than 1/3 their income because such a fantasy place doesn’t exist. :/
All true. The first point especially hits home! People are playing with fire when the disregard truths like the above!
S
To me, “mistake #1″ drives home an underlying premise that our income is our best money making tool, but, if it is consumed by your housing costs, it drastically reduces our opportunity to use it how we want; whether that is to tackle debt, enjoy, save for near or short term goals, or something else.
Comments by Terry and BD painfully reveal how hard it really is to get by when so much of the income is going just to keep warm and roof overhead. As BD aluded, a over-housing problem doesn’t exist, but an income problem. To borrow a line from Dave Ramsey, you need a bigger shovel work with.
Maybe it’s just it’s rejection after rejection in the job hunt, or an injury or disability. I hope that doesn’t discourage you. I recall someone calling into Ramsey’s show offer a suggestion that she was disabled but found a really good job working on the phone from home. I know a lot of big corporations have internal or contracted help-desks and travel agents that can basically work from home with the proper setup and training. I do pray and offer encouragement to strive on if you’re struggling!
I’ve been blessed, thus far, to not be in a position where the minimum housing costs are more than 1/3 of my TAKE-home. Someone asked about gross or NET income and to which the rule applied. I would argue for gross. You only get to work with the money you take-home, so why even consider NET? It’s more about having flexibility with your income, not some exact equation.
Good read. I see a lot of abandoned homes around here. Many of them high end homes that the people who bough them could not really afford. When buying a home you need to look at more than just your house payment you need to look at heating and cooling expenses, taxes, water sewer and so on.