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A couple of years ago, I was drowning in mortgage debt. I always assumed that having a mortgage wasn’t that bad; everyone had one. Actually, I never thought there was much room for improvement when it came to my finances. And then you hit that point when you realise that you might not know everything yet. That’s when I started devouring everything related to personal finance. And these are the 4 pieces of financial advice that really turned things around for me.
Dave Ramsey’s Snowball
One of the first financial gurus I heard about was Dave Ramsey. I liked his Babysteps method from the start, since it is easy to start and doable for everyone. The idea is to start paying off your smallest debts. The money you save by doing that can be used to pay off the rest of the debt. That way, it will have a ‘snowball effect’: the amount used to pay off your debt will increase with every payment and you’ll be debt-free before you know it.
This way of paying off debt might not make sense financially; usually the advice is to pay off the debt with the highest interest rates. However, it does make sense from a psychological standpoint. Paying off 4 small debts in 2 months will motivate you more than paying off € 1000 on your mortgage.
Dave’s advice has helped me a lot when I was paying off my mortgage. At the time, I had six mortgages with a total of well over 400k. When I looked at the 400k, I could get a little depressed. However, if I looked at the separate parts and started by paying off one small mortgage of € 15.000, it was a lot more motivating.
By looking at it that way, I realised that every small thing you do really matters. In 6 years, I paid of well over € 70.000 in mortgage debt. On my own!
Suze Orman: Pay Yourself First
Suze Orman was the first financial to introduce me to the idea of ‘Pay Yourself First‘. The idea is that you save money first and then spend it. If you know how much money you get every month, and you know what bills you will be receiving, you can also decide what you want to save. Or, as Suze would call it, how much you can pay yourself.
I’ve always been a saver, but this advice has really been a game-changer for me. 7 years ago, I decided to give it a go and started saving automatically. I have been able to save a lot more using this method, then when I did if I just saved what was left over at the end of the month.
Benjamin Franklin: compounding
Most of you will know Benjamin Franklin as one of the Founding Fathers of the United States. However, he was also kind of a financial genius. A year before he died, he gifted the cities of Boston and Philadelphia 1000 pounds. Both cities had to keep it in a fund for 100 years. After that, they received a part of the amount. The remaining amount would be given to the cities after 200 years, to be used for the common good.
This idea seemed rather ridiculous at the time. People didn’t realise how much money the 1000 pounds would be worth one – or even two – centuries later. However; Benjamin Franklin was a firm believer of the compounding theory, and he was right. After the first 100 years, Boston already accumulated an amount of 131.000 pounds and 200 years later, it turned into 5 million dollars. Philadelphia made about half of it, but that’s still a lot!
This has shown me how important the aspect of ‘time’ is. We don’t have 100 or 200 years to save up, but if you start early, it will pay off. That is one of the reasons that I am saving up for my pension now. What I don’t need now, can do some ‘compounding magic’ for the next 30 years. Though I might need to rethink that, as I’m working towards early retirement 😉
Tony Robbins: “Be in the market!”
I’ve never been a great fan of investing. Until last year. Before that, I always thought that I didn’t have the money, the time or the knowledge to invest wisely.
So what changed?
During one of his talks (I like to listen to them while I’m in the car), he talked about a research that showed that the best investors are either dead or forgot that they had investments.
So, you don’t have to be active or good, you just have to be IN the market.
And yes, there have been crises, and yes, people have lost money. But if you look at it from a historical view, the market is always growing. If you would have kept your investments during the 2008-2009 crisis, you would have earned all your losses back by now. And more! However, you do have to stick with it and only use money that you really don’t need for anything else. That way, you won’t be ‘forced’ to take it out at an unfavourable moment.
You will find a way
Finally, one of the things I have learned through trial and error: you will find a way. If you are struggling with saving money, want to make more money, are working on your business, or whatever… Just keep in mind that you are really more creative than you might think.
If you have to make do with less money, you can do it. If you’re willing to have an open mind and flexible approach, you’ll be suprised by the possibilities you have. And if you use those possibilities at moments when it’s not really necessary, you will experience real freedom. And isn’t that what it’s all about?
What is the best piece of financial advice that you ever got?