Taking Control of Your Finances: A Simple yet Powerful Strategy
My early twenties were marked by a familiar struggle: low income, low expenses. With multiple part-time jobs in college and a modest lifestyle, I didn’t feel pressured to save aggressively. However, as I approached my mid-twenties, I realized that I wasn’t saving for long-term goals, such as buying a house or retirement.
Everything changed when I got married and combined finances with my partner. We faced a new reality: our incomes were about to increase significantly, and we needed to prepare for the future. Instead of splurging on luxuries, we made a conscious decision to “hide” our newfound wealth from ourselves.
Automating Savings: The First Line of Defense
I started by diverting a substantial portion of my salary towards retirement and a Health Savings Account (HSA). By automating these deductions, I ensured that I wouldn’t get accustomed to having the extra money in my checking account. This strategy can be applied to debt payments, too – simply automate a payment that’s slightly higher than the minimum, and adjust as needed.
As my income increased, I continued to bump up my retirement savings, eventually reaching 15% of my salary. I also max out my HSA each year, taking advantage of the tax benefits and building a medical emergency fund.
The Power of Extra Mortgage Payments
When we bought our first home, we opted for a conservative approach, purchasing a 100-year-old house in a less affluent area for under $100,000. Our monthly mortgage payments, including insurance and taxes, were surprisingly low. To take advantage of this opportunity, we decided to pay ahead on our mortgage, allocating a significant portion of our income towards principal repayment.
By doing so, we accelerated our mortgage payoff, eventually becoming debt-free in just three years. Today, we’re redirecting that allocation towards a new goal: adoption.
The Key to Long-Term Success
The principle of “hiding” money from ourselves may seem simple, but it has been instrumental in our financial journey. When faced with an increase in income or a decrease in expenses, we can choose to either indulge in the extra room in our budget or redirect that money towards our goals.
By adopting this mindset, we’ve been able to achieve significant milestones and set ourselves up for long-term financial success. Remember, it’s the small, intentional decisions that can lead to a life of financial freedom and security.
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