By John Cranley
My story, describes just one of the many basic financial mistakes that most people make during their working lives. I am writing this with the hope that it may just trigger your financial alarms bells and save you and yours from potentially loosing thousands like silly oul me did.
I got my first Job in 1997 after graduating from college with a degree in Computer Engineering. I was on a starting salary of $29000. I also moved out of home and shared a rented house with some old college friends. The rent was approx $180 per month.
After a few months I took out a car loan for $22000 @ 9% per annum. Life was great and like most 22 year olds, I lived from pay check to pay check and had a great social life.
When I turned 24, I decided to start planning for my future and save some money. I cut back on my social life and was careful with my spending. Eventually I could save about $400 dollars per month.
I asked my bank manager for advice about my extra $400 and he suggested I put it into THEIR savings plan every month where It would earn 3.2%. I was chuffed with my-self. Like my parents and teachers had thought me, I was saving a percentage of my salary. And 3.2% is a nice no risk return from a reputable financial institution.
(THIS IS WHERE MY MONEY DECIDED TO HEAD FOR THE TOILET)
(! TIP Banks are out to make a profit for themselves. )
If I had just sat down and thought it through for a few minutes I would have saved myself a large sum of money. Also, if my bank manager had my true interests at heart, he would have explained this simple principal to me. But if he were to do that, my gain would take from the banks profits.
The simple Maths. My Loan was costing me 9% and my savings earning me 3.2%. If I had simply put my $400 extra towards repaying the loan every month here is what would have happened.
I would have decreased the term of my loan substantially and as well as paying off the loan early I would have saved approximately $2,200 in interest repayments. If I had continued the saving scheme, I would have earned interest of $683. That means I would have been $1,520 ($2,200 - $680) better off if id concentrated on repaying the loan.
That’s $1,520 I wasted. As foolish as my mistake was, the sad fact is, a huge number of people are doing the exact same thing. People are putting money away for their future, kids education etc, while also repaying high interest loans, consumer debt and credit card debt.
I was fortunate in that my loan was only over five years, yet people go through most of their life saving this way. Over 20 years my loss would have compounded to 10’s of thousands.
Now I’m not saying by any means that banks and loans should be avoided. Even the mega rich get loans. The difference is, they can make the loans work to their advantage. The points I’m trying to bring across is that one should pay close attention to how they repay their loans.
Keep in mind that your bank will bring out new products every year, saving plans, pension schemes etc and their staff are often given huge commissions when they sell the products.
High interest loans and credit card debt should always be paid off first. Then when your debts are cleared, keep the habit of re-investing your cleared loan installments towards savings and other higher yield investments.
I was almost at the end of my 5 year loan, when I was shown my silly mistake by a friend of mine who was giving me financial advice. He thought me to think practically about money and he also pointed me towards some financial self help books which have really helped get control of my financial destiny. Two books I highly recommend are, Think And Grow Rich by Napoleon Hill and Rich Dad Poor Dad by Robert Kiyosaki. I urge you to study them.
I’m now 31 years old and I’ve now got my financial life well under control. You are probably thinking, (If this jackass can get control of his finances then so can I). YES you can. Make a commitment to start your financial education today and stay focused. Save/Borrow and Invest wisely. CAN.
I hope this simple story pushes some buttons for you. I wish you and yours happiness and prosperity.
Originally a computer programmer,John is now making more money through wise investing and basic financial strategies. John's aim is to provide free content and links on his website which will give people great tips and directions on their journey to financial freedom. John truly believes that you dont need to be a Financial guru to gain Financial freedom. http://www.cash-brain.com
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