If your Mortgage/Rent payment is higher than your Savings deposit you are in Trouble

The title of the article says it all. Simply put, If you are paying more for your home than you are into your savings every month it is just a matter of time before you fall into major trouble. After a decade of being a mortgage broker and two decades of working with people’s investment needs I have noticed a trend that supersedes all others. 90% of the middle class pay more toward mortgages than toward retirement. This is very dangerous.

Growing trend among American professionals

The professional with all of her bills paid on time, perfect credit, and everything going according to plan is who I’m talking to. This article isn’t about those struggling but about those who are seemingly doing better than ever before.  The last boom in the economy came just in time for my generation. Chances are that if you are a professional person you have earned between $75,000.00 and $125,000.00 a year for the last decade. Last year I interviewed over 100 such professionals average age 39 with 15 plus years in the work world. For the last decade almost all had earned between $750,000.00 and $1,000,000.00 but not more than 6 had saved more than $100,000.00. I’m not talking about people who bought a lot of fancy cars and partied it all away. I’m talking about average joes who purchased their piece of the American dream.

Why is this trend a disaster waiting to happen? We live in an era of “defined contribution “plans(ie IRA and 401k) not an era of “defined benefit” plans(ie, pension plans) like the last generation. All we will have when we retire is what we have saved and the interest in can produce.  If the majority of our income goes toward houses, cars, private schools and taxes we are going to have a huge number of very poor seniors about 25 years from now.

Our system allows you to spend 30% to 40% of your before tax income on housing. Our system also takes about 30% of your income in taxes. The taxes you pay locally pay for public schools but many parents are sending one or two children to private school at an average cost of $1000.00 per month. The car payments average $450.00 per month.  The last consideration is being able to set aside 10% to 15% of income for savings.

Upward Mobility has a cost

For most the cost will be financial stability in their senior years. A $320,00.00 home with a $2500.00 payment will cost you $900,000.00 in mortgage payments. $2500.00 monthly payments into your savings over thirty years at 6% earns you $2,600,000.00 which will totally secure your retirement. So the house is costing much more than money.

The same is true for cars and expensive private school educations. Making these purchases before setting up a proper savings plan is costing you. It feels so good right now to live in a great community, drive a great car, and send your kids to great schools.  You won’t feel the pain until you turn 50 and realize you have a few years to correct your financial mistakes. Of course most never do.

Everyone teaches you that the answer to this problem is simply to make more money. It’s not. With more money you will make the same errors in judgement on a larger scale. Ask anyone making $300,000.00 in 2008 who lost their job and now can’t find one.  Ask them what kind of house they bought when they were making $300,000.00 a year and ask them how hard it is the pay for it now.

Common Sense is not so Common

You can fix these financial issues pretty easily if you have courage, a goal, and the heart to follow what you know to be right. Use my plan and you can have your cake and eat it to. Use the plan that 90% of African-American professionals are using and you can eat your cake for a little while until it runs out.

Tomorrow I will give you the steps to getting on track to have the best decade of your life.

Wishing you Wealth Wellness and Wisdom

Manager of Wealth

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  1. #1 by LaKeisha on July 25, 2011 - 8:00 pm

    Great article!! I don’t dispute that this is valuable, right and is the best approach, but how do you get started?? Tell us how to start…it is breaking a cycle.

    • #2 by managerofwealth on July 25, 2011 - 9:30 pm

      Hey Keisha
      That is what we will be talking about tomorrow. I see so many struggling with this that i had to speak on it. I hope you will share with others.The cycle must be broken.

  2. #3 by tammy on July 26, 2011 - 6:29 pm

    I really enjoyed this article. It gave me a mental boost of why I need 2 refocus my spending habits. Thanks Mark!

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