Financial Success - The Solution is Simple
/“What is the secret to a life that is free of financial burdens?”
I get asked this question a lot, in some form or fashion and not always in direct context to mortgage financing. Some people are buying their first home and trying to put together a game plan. Others are moving up in the world and trying to manage career and family. I’ve even had this question come from opposite ends of the time spectrum – high school students, trying to comprehend what a budget is, on one end, and soon-to-be retirees who are trying to figure out how to make their dollar last longer, on the other end. Even if the definition of financial success varies slightly depending on the generation or situation, people want a simple, easy to follow guide.
Well, here is the simple answer – practice stewardship. And here is the quantifiable answer - set up a budget and live on 80% of what you make each month. There you have it, nothing complicated about it. We should treat all of our earthly possessions as if they belong to someone else and it is our responsibility to take care of them. We need to spend our money in a manner that allows us to set aside 20% every month for giving and saving (10% each is a good guide). I will never overextend when I only spend 80% of what I make and I will have a safety net set up from saving at least 10% every month to help with any future, unforeseen need for an immediate cash outlay that is more than the monthly income allows. I know, it’s not rocket science - the solution is pretty simple.
Why is it then that 75% or more of the people I talk to on a daily basis don’t live this way with their finances? It’s kind of like the strategy to lose weight. Everyone knows the simple answer is to exercise and consume fewer calories. So why can’t people stick to what they know works? It’s because knowing what to do and doing it are diabolically different things. Maybe the simpler answer for both scenarios, physical and financial health, is to have self-discipline. Drink water when I want Coke. Save the money even though I want the new outfit. Drive the clunker another couple years when I “deserve” a new car. Go for a walk when I’d rather sit and watch TV. Get up earlier in the morning when I’d rather sleep. Live on a budget so you can experience financial success.
If you are ever interested in reading prior weekly emails, please visit my Facebook page. Mike Smalling Mortgage Advisor
The Week Ahead
This week, the important monthly Employment report will come out on Thursday due to the holiday on Friday. As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month. Before that, Pending Home Sales and Chicago PMI Manufacturing will be released on Monday. ISM Manufacturing will come out on Tuesday, ADP Employment will be released on Wednesday, and ISM Services also will come out on Thursday. Mortgage markets will be closed on Friday in observance of Independence Day.
The Week That Was
It was another good week for mortgage rates. Weaker than expected economic growth data and increased concerns about Iraq were favorable for mortgage rates. These factors outweighed the negative impact of improving data in the housing sector, and mortgage rates ended the week a little lower.
The biggest surprise last week took place when first quarter Gross Domestic Product (GDP), the broadest measure of economic growth, was revised substantially lower from -1.0% to -2.9%. This was the fastest rate of decline since the first quarter of 2009. The news caused mortgage rates to move lower. The improvement in mortgage rates may have been even greater, but investors took into account that unusually bad winter weather was the main cause. Consumers postponed shopping, and businesses scaled back inventories. Much of the missed economic activity during the first quarter was simply delayed, and GDP growth is expected to rebound to around 3.5% during the second quarter.
The housing data released last week showed nice improvement. May Existing Home Sales increased 5% from April, which was the largest monthly gain since August 2011. Total inventory of existing homes available for sale rose 2% to a 5.6-month supply. May New Home Sales jumped 19% from April to the highest level since May 2008. The April Case-Shiller 20-city home price index showed that home prices were 11% higher than one year ago.