One of the best pieces of advice that has helped me save a lot of money was:
Don’t buy a house that you can’t afford.
Nowadays, people are getting ultra-long mortgages, with some even lasting 50 years.
I’m sorry, but if you need to get a mortgage on a house that will last several decades, you can’t afford that house.
Because the longer and bigger your mortgage is, the more interest you need to pay on it.
The shorter and smaller your mortgage is, the less you’ll have to pay in interest.
What I did
In 2022, I bought my first house and took out a 15-year mortgage. My deposit was large enough that my mortgage costs me less than 25% of my take-home pay every month.
Although my house is nothing luxurious, it could be more accurately described as a shoe box.
It’s a meagre 2-bedroom terrace house. And I’m happy with it because it costs me hardly anything, and instead of wasting money on a bigger mortgage on a bigger house, I use the money I save to invest in myself.
I invest in myself by:
- Having more experiences (like travelling to Rome, which I did last year).
- Buying and reading good books that stand the test of time. When we improve our erudition, we are more effective in the world and can more easily achieve our goals.
- Investing in index funds like the S&P 500 (so my money makes money) and putting more money in high-interest savings accounts, so I’ve always got money when I need it (you can’t put a price on this).
- Invest in courses. I paid for a content marketing course a few years ago, and it’s served me very well for my online writing.
Don’t keep up with the Joneses
On the outside, the Joneses look like they’re doing well; they have a nice property, nice cars, and their garden looks pristine.
But you don’t see the stress of having hardly any money left over at the end of the month and the thousands of pounds in mortgage interest they have to pay every year.
By keeping up with the Joneses, you relinquish control over your life, and your finances start controlling you instead of the other way around.
If you’re someone who makes a decent living but is constantly short of cash, then I’m sorry, but you need to have a long, hard look at how you manage your finances.
For every expensive thing you’re thinking about buying, think “Is this necessary?”
Benjamin Franklin, one of the most erudite men to live, said:
“Make no expense but to do good to others or yourself; i.e., waste nothing.”
And I agree with this advice.
Do we really need the most expensive house money can buy?
Do we really need the most expensive car?
Even if we did have these, would they improve us or help others?
The answer is a big fat no.
Happiness isn’t found in what we buy but instead comes from how we think.
If you can drive your Fiat Panda as you would a Ferrari, and drive a Ferrari as you would a Fiat Panda, then you are close to being indifferent to wealth.
I recommend you consider practising becoming indifferent to wealth because, yes, money does make our lives easier, but it doesn’t make us happy.
We can only be happy by living virtuously and helping ourselves and others.
We will never be happy if we look for our happiness in expensive trinkets.
You don’t need to buy a house above your means to be happy
Buying a house worth £500,000 or £100,000 doesn’t matter. If you have a house you can afford, it’s the best thing you can do for your sanity (when you’re thinking about buying a house).
In the United Kingdom, a bigger house means you pay higher bills, higher council tax, more costs in maintenance and if you have a huge mortgage, remember you’ll be paying a fortune in interest rates over the term of the mortgage.
Remember, it’s better to have no mortgage if you can, but unfortunately, this isn’t feasible for most people. So if you do get a mortgage, I recommend paying no more than 25% of your take-home pay per month over 15 years. That way, you’ll be living within your means.
Why buying a house is better than renting (for most people)
When you rent a house, you’re literally throwing money down the drain that could be put toward a house deposit.
The only exception to this rule is if you’re only going to be in a location for a short period of time. In that case, renting is fine because you wouldn’t buy a house somewhere you’re staying temporarily.
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