How to afford Cardiff By The Sea Real Estate
I read a book recently called “The Barefoot Investor” by Scott Pape. Scott is an Australian writer who wrote this book to help people learn how to manage their money, become financially responsible and independent. Things we should, but disappointingly do not learn in school.
Before I start, I want to point out that I am not a financial advisor; I am just looking to share something that works so well for me and others and is totally achievable and realistic.
I always thought of myself as somewhat financially savvy but as I read the book, I realized just how poorly I had been managing my income. As a thirty something year old I learned how much more financially advanced I could be if I had taken some simple steps to manage my finances properly and consistently.
There are three main points I wanted to touch on. These 3 simple changes made a significant impact on my financial stability.
- How to structure your bank accounts
- How to ensure your future is financially secure
- How to pay off debt and buy a house
Structuring Your Bank Accounts
We all have bank accounts. Our income comes in, we pay the bills. We go shopping, eat out and buy our family gifts for Christmas and birthdays. Some of us are even lucky enough to have a savings account where we save any excess dollars for a future holiday or downpayment for a house!
But what we don’t realize is that if we don’t have some sort of structure to the way our money flows in and out, it is extremely easy to spend more than you earn without realizing it. This is doubly important if you are using credit.
Even if we are managing to save, doesn’t it make sense to save the most amount of money possible without dwindling it away every week?
So here’s how Scott’s book lays it out.
- Find a bank that charges no annual fees.
- Set up five separate accounts.
- “Fire extinguisher/mojo”
- And lastly, a high Annual Percent Yield (APY) savings account
- Route your income as follows:
Daily account – Let’s say you earn $1000 dollars per week, send all that money into your daily account. From this account you can pay for all of your subscriptions, rent, phone bills, electricity. Everything you NEED to live; nothing more. Make sure this DOES NOT exceed 60% of your income. If it does, you need to cut a few of those netflix accounts from your life…Sorry. The reason is this leaves $400 of your weekly income to be split between the other accounts inline with Scott’s recommendations.
To do this I recommend setting up some automatic transfers.
Spending – It really goes without saying that sometimes we need to let off a little steam, to hang with friends, go out to dinner or splurge on that massage or handbag we’ve been wanting. But how can you ensure you’re being financially responsible?
Set up an automatic transfer from your daily account straight to your “spending account” for 10% of that $1000 dollars a week. You now have exactly $100 dollars to spend on anything you want that week. Manage to save it all?? Next week you have $200!!! See how easy that is? If you can hold out from spending all that at once you can build on that at $100 per week to spend on WHATEVER YOU WANT WITHOUT FEELING GUILTY!!!
Vacation – We all need time for ourselves. Visiting family, friends or just getting out to town to reconnect with our family. Whatever it looks like for you, there’s no reason that when done correctly, you can’t have your cake and eat it too, so to speak. Transfer 10% into this account every week and don’t touch it until there’s enough saved for that vacation on Groupon you’ve been dreaming of.
Fire Extinguisher – So Scott came up with this term in his book. What he means is that until you have no debt (other than a mortgage) you are never truly financially free. Until you are completely debt free – no credit cards, no holiday loans, no car loans, ZERO DEBT, transfer the remaining 20% to this account and use it like a fire extinguisher to pay down all debt as fast as humanly possible.
This is a real way you can become financially free and responsible without killing yourself that actually WORKS. This is non-negotiable. If you want to own your own house one day you need to minimize your debt.
A HOT TIP with a caveat – find an institute that will allow you to consolidate all of your debts for an interest free period. However, if you sign onto this deal for a period of say, 18 months, make sure you can have this debt completely paid off before this ends or you will run into some heavy interest repayments!!! Your current bank most likely offers something like this so be sure to check with them.
Once your debts are paid off you’ll continue placing 20% into this account until you save up an amount that will allow you to survive for a period of no less than 3 months with all of your current bills and outgoings taken care of if you were to lose your job/income.
60% of our weekly income of $1000 is our living expenses.
$600 per week for three months is approximately 12 weeks.
$600 x 12weeks = $7,200 dollars.
Now the high yield savings account – Congratulations once you reach this point, you now have no debt, you have 3 months living expenses in your extinguisher account, you might even have a little extra money in your spending account to buy yourself a new iphone or laptop!
Now the fun begins. You can start really planning for your future!
Find an account at a DIFFERENT BANK with a high APY. Somewhere over 3% is perfect.
You’re now at a point where $1000 comes into your daily account lets say every Tuesday. First thing on Wednesday, 10% is automatically transferred into your spending account, a further 10% is transferred into your vacation account, your extinguisher is full, so the remaining 20% will go into a high yield account ready to pay your dream home deposit.
If you want to take it one step further, you can look into one of the many index funds available that will gladly grow your money for you while taking only a tiny fee.
So next time you think about jumping on Google and searching for Cardiff By The Sea homes for sale, remember that if it’s what you truly want, structure your finances accordingly and go for it.
For other great posts checkout Realtors in Carlsbad and Solana Beach Realtor FAQ blog.