Pay off your mortgage to get ahead of the ‘lifestyle monster’
Make it regular and consistent.
About seven years ago I was in a conversation with a colleague, talking about what income you would need to be in a position where you could not help but save.
This is a reflection of the lifestyle adjustment that usually follows increases in income.
By this I mean people who earn more will often acquire a more expensive house, drive a flasher car, have more luxurious holidays and so on – otherwise known as the ‘‘lifestyle monster’’.
Back then $250,000 seemed the income needed to get ahead of the lifestyle monster and be able to save. I would say that $400,000 is now more likely.
So if you want to save you have a couple of options: Either earn $400,000 a year or actually put a savings plan in place.
One of your best savings options is to make extra mortgage repayments. There are a number of ways to do this.
The first is to increase your loan repayments. This is simple and effective, as the money automatically goes into your mortgage with the loan now being paid off faster. It is less flexible but more likely to produce a result.
The second is to create a savings facility within your home loan and divert an amount each month into it. Having a separate account means you cannot unknowingly spend this money but it is available if needed.
This is my preferred starting point as it is very flexible. However, the temptation to access it may be too strong for some.
There are other possibilities but the best way to have a successful savings system is to make it regular and consistent. It is far better to save $200 a month than $1000 occasionally.