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The Money Sense Page is a powerful no nonsense way of looking at your finances using common sense.
Example #1
Samuel's age twenty four he lives in Pooville CA. After his parents dragged him from place to place as he was growing up, he swore to himself that he would do better for his family. Samuel worked hard and has graduated in the top of his class from Learnum University. He recently tied the knot. After searching for months the newly weds found the house of their dreams for only $730,000.00. Samuel and his wife are about to sign a thirty year mortgage. Samuel works at the local high school where he teaches biology. He earns around forty thousand dollars a year. Sally his wife doesn’t work. Each of them has car payments, credit cards, and other normal bills. Do you think purchasing a $730,000.00 home on an annual salary of $40,000.00 make good money sense? What about their other bills, will they be able to pay them and their mortgage? What if this Mortgage was the only bill they would have, would it be ok to purchase this home? The answer is - No to both.
$730,000.00 is the total price of the house, divided by 30 years equals $24,333.33 a year in mortgage payments, and then you use that number to divide again. $24,333.33 a year divided by 12 months equals a monthly payment of $2027.78, and that is without interest. A loan with no interest doesn’t exist. However, just for grins and giggles let say it does. Now take Samuels annual salary of $40,000.00, then divide by 12 months, and you will see that it equals $3333.34, which is his monthly salary. Samuel makes $3333.34 a month as a teacher, his house payment will be $2027.78 with no interest, insurance, or closing costs added in. Does it still look like a good idea? Many experts agree that your house payment should not be higher than one week’s salary. If you can achieve this, then there will be enough money to cover living costs and other bills such as car payments. Is this scenario a good or bad money sense plan? The answer is no, this does not make sense, and he should back out of the deal immediately. Never live above your means!
Kim age 35, grew up in a small town just outside of mobile, al. she works as a night clerk for a local hotel. She is single with three children all under the age of thirteen. She earns $7.50 an hour, and she works forty hours a week. $7.50 times 40 equals $300.00 in weekly income. Between taxes, insurance, and 401k her employer deducts 25% from here check every week. Now let’s take the $300.00 a week in income and times that by 0.25, which is the 25%, the total is $75.00 deducted for taxes, insurance, and 401k. $75.00 subtracted from $300.00 equals Kim’s bring home pay of $225.00 a week. Times her weekly salary by 52 which is the number of weeks in a year, and you get $11,700.00 a year. Kim needs to purchase a mini van, her 73 Chrysler is on its last legs. Kim and her family live in an income based apartment. Her rent is $200.00 a money. The mini van she needs isn’t new but it's nice and runs well. Her payment will be $230.00 a month for three years, so let's figure out what Kim will be paying a year for this vehicle. The mini van will run her 230 a month x 12 months = $2760.00 a year. She pays $2400.00 a year in rent. Kim has no other bills except for utilities. Do you think Kim will be ok if she purchases the mini van? The answer is yes. If Kim can manage not to accrue anymore bills between now and the time the mini van pays off, her and her children will make it. Good job Kim - keep on, keeping on.
Samuel and his wife are considered a middle class family. Their lack of money sense could have caused them great hardship over the years to come. Kim, while considered to be living below the poverty level, has always used good money sense, and although she doesn’t have an education, her family will actually be able to buy and do more than Samuels, because she uses good money sense. Please note that money sense has absolutely nothing to do with how much education you have. You can make a million a year, but if you don’t use good sense you will still struggle. The best and fastest way that I know how to get you to realize your money sense potential is to ask you to pick a budget and stick with it. If you have questions please contact me. My team and I will be glad to answer your questions.
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Example #2
