8 Ways To Change Your Financial Life - Page 2 of 4

8 Ways To Change Your Financial Life

The bling-bling and the automobiles all look good and they do wonders for our egos. But they also drain a lot of cash from our bank accounts. Money manager William Thomason has noticed as much. “The simple fact is that the rich often make conscious decisions to cut back on what can often seem like frivolities,” he notes. “That might mean traveling coach, or buying a car off lease, or even dressing down, but at the end of the day, that is what preserves capital.”

We are not here to preach. Of course, we all know that a dinner of steak, potatoes, and vegetables might run $30 at our favorite restaurant, yet amount to no more than a few dollars if prepared at home. But having spared you that lecture, we will note another fact concerning the cost of a big ticket item such as a car. (You might want to verify this fact for yourselves.) Say that a new 2004 sedan retails for $21,000. Purchase the car off of a two-year lease, and it will run you $14,000. The difference? “Basically, you’ve let someone else take the hit for the car’s heavy depreciation,” says Thomason.

There is always the temptation to follow the lead of your friends, neighbors, or idols. Yet, for all the pressure to follow others’ paths, sometimes you just have to face the fact that your circumstances differ from those of the crowd.

Financial planner Bolton says that sort of clear-sightedness helps you not only focus on your goals but also produces significant cash flow. Take the question of whether to get a 30- or 15-year mortgage. Bolton says most of his clients have a knee-jerk reaction to the matter: They instinctively opt for the 30-year option. Closer scrutiny, however, often leads to a change of mind. For one thing, Bolton points out, encumbering oneself with a 30-year mortgage does not make sense if you intend to stay in your home for only 15 years. As of mid-March 2004, the 30-year mortgage carried a 5.1% interest rate while the 15-year one was only 4.4%. Over the long haul, that difference can amount to as much as hundreds of thousands of dollars in extra payments on your loan.

Tackling debt might strap your budget for a while, but that doesn’t mean you should forget to save or invest during this period. In fact, financial planners say it’s a good idea to start investing a little something — say, $25 or $50 — every month. Such investing helps you establish the habit of setting aside a portion of your income. Then, over time, as your credit card, car note, or student loan balances shrink, it will be easier to allot more money toward your longer-term goals. “There are patterns to wealth accumulation,” says Thomason. “The sooner you get the knack of it, the sooner you benefit.”

Admit it. We all get hypnotized by the big numbers. The things