Take Care Of Your Financial Big Hits
When it comes to managing my finances and saving money, I like to look at the big picture. If you focus on the big hits in your finances, it makes it that much easier to handle the smaller items where you can make incremental improvement over time. When I look at my own finances, taking care of the big hits enable me to be lazy: I don’t do budgets and I don’t really track expenses that hard.
Here are my two big hits: housing and transportation. Once you tackle these two main expenses, everything else will be easier to manage because they are typically a much smaller part of your budget than the two main cost drivers. I have tamed the two big expenses for many years which has created the cash flow to be an investor as well as enjoy my life more with entertainment and travel. Read on to see how I save almost $30,000 per year.
I AM REALLY RICH
When I tell people where I live, they think I am rich. I live in a wealthy, status driven suburb outside of New York. If I followed the path that the typical resident of this community takes no doubt I would have to be rich to live here. But, I took another route that gets me all the benefits of living in this community without the high cost. All the while leaving lots of money leftover.
My housing secret: renting instead of buying. The numbers are so compelling as I will show you. First, the median house price in this community is about $700K. For demonstration purposes, I will select a home below that amount @600K. For a rental comparison, I will use my rental home which comes in @1,800/month for a 2 bedroom apartment.
Owning A Home
Home Value: $600K
Mortgage, 30 year fixed 4.5%: $2400/month
Down Payment: $120,000
Monthly Taxes: $1,000/month
Yearly community utilities: $600/year.
Yearly Insurance: $600
Renting A Home
Monthly Taxes: Included.
Yearly community utilities: Landlord pays.
Yearly Insurance: Landlord pays.
My transportation secret: keeping the old car versus a owning newer one. An old car will save you money on car payments as well as insurance. Even after factoring in higher expenses due to expected maintenance, the old car will save you money every year you keep it.
Own Older Car
Own Newer Car
Down Payment: $4,000
Car Payment: $350/month
Adding It All Up
As shown in the spreadsheet above, the yearly cost of keeping the old car and renting is about $24,000 ahead of owning and buying a newer car. Also, because no down payments were laid out, the bank account has $124,000. I didn’t even consider the interest you could earn on the money in the bank account. So, the bank account will increase $24K per year every year you keep the same home/car situation.
FORGET THE STATUS
If you keep your home and car expenses to a level you need versus what other people may expect of you, it’s easy to get ahead with your finances. I don’t need the status, expense, or hassle of owning more expensive digs. I don’t need to impress anyone.