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Are you making yourself poorer instead of richer?
You can lead a person to water but you can’t make them think! What water? Let’s run with the waters of Babylon. Why Babylon? Well, that was one of the most read books on making yourself rich!
In case you missed it, it was called the The Richest Man in Babylon.
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This very readable book had a basic wealth-building message that if you save 10% of all income you receive, it will be the basis for getting rich.
How come?
Well, because few people do this. And when you do, you end up with money you can invest to grow your riches.
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So what do I want to make you think about? Let’s try and work out why most Aussies don’t care that their day-to-day actions are making them poorer rather than richer. That always gets me.
The answers I get from normal people (the assumption is that a moneyman like me is not normal) is that it’s all too boring.
Is super boring?
Super is boring despite the fact that it’s set to be most people’s most or second most important asset in their lifetime.
Is budgeting boring?
Budgeting is boring. For many it’s too much hard work actually thinking about where our money is spent and whether it would be possible to find say $5,000 a year that could grow into a million or more over a person’s working life.
Too hard or too lazy?
Switching bank accounts is too much like hard work when you know there are better deals out there. There’s that old chestnut “I haven’t got the time”, despite the fact that many people find time for TV shows like My Kitchen Rules and footy matches, which will never improve our material life.
A waste of time…
I could go on but my arguments could only be contested by someone who is a burden to others and a threat to themselves!
Come on, you’re wasting money!
All this desperate thinking out loud and pleas for good sense to prevail comes from Rate City’s revelation that the average borrower on a $350,000 loan, could save up to $82,118 over the life of a loan by switching from a big bank loan to an online lender or another lender with similarly low rates.
And this warning story has even more importance when you know that 75% of all home loans are with the big banks!
How can you save $85,000?
Rate City explains how the saving happens. “For example, the big four advertise fully-featured loans for about 4.5%, along with a hefty package fee of $395 a year, while some of the smaller lenders are offering fully-flexible loans for as little as 3.49%, complete with a 100% offset account and no ongoing fees.”
Right now the best online rate is 3.65%, according to Rate City. You could go up to the 12th best rate and that would be 3.89%. The reason why I went to 12th was because my Switzer Variable Home Loan is also 3.89%. Our loans can be negotiated over the phone but there’s one more important reason I bring up my loans is that we have avoided the stunt that many lenders engage in, which I think is disgraceful.
Trick of the trade
By law, all lenders have to mention two rates of interest when they’re doing ads. They always lead with the headline or advertised rate, which can sound very attractive. However when the comparison rate is shown (this is compulsory under consumer law), the real rate people pay can be a lot higher.
Always check the comparison rate
For example, the rate comparison website, mozo.com.au looked at the top 10 home loans. The seventh best one (not from a bank) was a 3.64% home loan but the comparison rate was 4.11%!
That’s nearly half-a-percent difference! I reckon most Aussies don’t understand the difference between advertised rates and what they actually pay, namely the comparison rate!
What is the comparison rate?
The comparison rate adds in all other fees and charges linked to the loan. Therefore it shows what someone really pays back with a loan.
Here’s one lesson…
So the lesson is that you always find out what the comparison rate is when you borrow or refinance because you can be suckered into paying too much and that could rob you of a fortune over the life of a loan.
Learn these other lessons too!
This is only one important lesson all of us should learn about borrowing to buy a property. There are many lessons you should learn about super. I’ll deal with that next week but here are a few take-outs from my lesson today.
Here they are:
Always look for the comparison rate when you borrow.
Make sure you tell your friends and family about the comparison rate.
Promise yourself to educate yourself on important money matters linked to loans, credit cards, super and tax because you could stand in the way of you ever becoming wealthier!
Stop thinking the money stuff is boring — the things you can do with money can make for an unbelievably interesting, exciting and rich life!
Wish you were better
In all things in life, learn to live by what philosopher Jim Rohn taught us when he advised: “Don’t wish it was easier, wish you were better. Don’t wish for less problems, wish for more skills. Don’t wish for less challenge, wish for more wisdom.”
I will help you be better and I can lead you to the waters of wealth but you do have to do a bit of thinking and you have to be up for getting yourself richer!
