Attitude What should I be rich for? Reducing expenditures Increasing income Credit Card / Loan Trap Savings Stock Market Buffett collection Hobbies Investing in you Which profession to choose Bibliography Contact

Paying off debt: the Best Investment

You should focus all your attention and money in paying off your debt before you start saving and investing.

How to get out off debt

I can't give much advice on this, since I've never been in debt. The only thing I can tell you is that you should reduce your expenses as much as you can. I can't tell you a lot about how to get out of debt, Bbut Abe Day has developed a fantastic tool to reduce your personal debt in a record time. Click here and get out of debt

And once you are out of debt you can start thinking about saving and investing

The Golden rule to stay out of debt: Spend only what you have

It sounds really simple and logic, and it is indeed. I followed this simple rule and I've never gotten in debt, my personal finance have been mostly outstanding thanks to this simple advice.

I learnt that as a kid, if I wanted to buy something, I earned the money and then I bought it. Never the other way round. It is a really good habit.

If you follow this simple rule you'll do something a lot of people fail to do: Keep out of debt.

Sometimes the simpliest idea is the most effective.

3 top reasons why you shouldn't borrow money

When you borrow you owe more money than you borrowed: It just doesn't make any sense, if there isn't the need to buy something really important (like a house) you should keep your hands out from borrowed money.

You have to pay back the borrowed money plus the interest, and the interest to pay back is normally higher than the one you would get in a savings account.

Pressure for future earnings: the risk of investing a part of your money is higher, the pressure to make a return is higher. If your investment goes wrong, you will regret losing money that could have used to pay the money you owe. On the other hand, if you are debt-free and you lose part of your saved money your life won't change.

Debt in personal finance = never grow rich: don't get me wrong, you can get rich and have some debt, if you win the lottery or sell your business, etc. But you won't grow rich if a big chunk of your monthly available income is used to pay off debt year after year.

The only exception to the Golden Rule

To the golden rule ("Spend only what you have"), there's only one exception: a Mortgage to buy a house.

Buying a house or an apartment means spending a lot of money. Most of people don't have this amount of cash in their bank account, so the only possibility to buy is to apply for a mortgage.

There are many factors to take into account when taking a mortgage:
- deposit: the deposit you pay should be at least 35% of the property's total price. If you don't have enough savings for that, rent or go to a house share.
- interest: go for a fixed rate mortgage. A variable rate mortgage can be more tempting, but it can give you ugly surprises if the interest rates go up.
- monthly repayments: the should be a maximum of your 40% of your monthly income (and that's pushing it). Don't take a mortgage if this percentage increases, any salary/income cut and you'll struggle.
- years: If possible go for a maximum of 15 years. In 15 years and at 5% interest you pay back $300.000 if you borrowed $150.000... try to imagine how many times you pay the money back if you go for 30 year mortgage...

If you buy a house with a mortgage on these conditions you still have some room to save and invest some money.