I travel a lot. My survival weapon for traveling is headphones. I talk to people all day so when I board my four hour flight to Phoenix, I want to just zone out. But occasionally a conversation is inevitable. The last time this happened I was pleasantly surprised by a very thoughtful question I received. The guy I was chatting with asked me, “What are three financial concepts everyone should know and understand?” GREAT question. Unfortunately, I was dead tired and gave him a mediocre answer. But I couldn’t stop thinking about the question. So I took to the airwaves this weekend to give Dave a better answer.
The first financial concept everyone should know and understand is that your housing decision can break you. Not only is it the most money you’ll likely ever spend on a single purchase, it is also the longest time commitment. Then of course, there is the amount of interest paid over the life of the loan. Oh, and don’t forget how housing expenses take the largest percentage of your budget each month. The housing decisions you make really matter. And though it may be wildly unpopular to say, you should absolutely not buy the amount of house the bank says you can afford. You also should seriously consider a 15 year mortgage. Dragging out any debt over the course of 30 years is never a good idea. Underhousing yourself frees you up to do so much more with your life.
Secondly, get out of your past. Successful people live in the present. Having a financial relationship with your past is holding you back. You shouldn’t be a 32 year old with student loans. You graduated 10 years ago, what are you waiting for? It’s time to move on. Paying off debt and ridding yourself of old financial obligations is the only way to do so.
Lastly, you are not a passenger of your financial life. Things don’t happen TO you, they happen BECAUSE of you. That high car payment you struggle to make every month? That’s all you, you signed the paperwork. This month’s surprisingly large utility bill? That’s you too. You need to take credit for what you are doing to your financial life. Take losing your job for example. If your company is downsizing there is likely nothing you can do to prevent it. But if you have an emergency fund and a career back up plan, the job transition will be much smoother. Successful people don’t complain or blame others. They accept responsibility and take action.
To hear more about these three concepts listen to me discuss them on The Pete the Planner Radio Show here:
Peter Dunn a.k.a. Pete the Planner® is an award-winning financial mind and a former comedian. He’s a USA TODAY columnist, author of ten books, and is the host of the popular radio show and podcast, The Pete the Planner Show. Pete is considered one of the foremost experts on financial wellness in the world, but he’s just as likely to talk your ear off about bass fishing.