3 minute read
FINANCE
Why comfort is the enemy of financial progress
Are you feeling fairly comfortable right now? Not ‘laid up on the couch reading the paper’ comfortable, but financially comfortable.
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Hannah McQueen, Enable.Me
Why do we ask?
Well, it’s almost never been cheaper to borrow money, which means even if your mortgage is on the large side (let’s face it, houses are crazy-expensive) - it’s hurting less to pay it than it was a few years ago.
You might even be feeling better than comfortable, because the data suggests your house is worth more than you paid for it (or potentially much, much more) and the housing market means any commission you might receive on houses you sell is probably quite healthy right now too. Plus, you can’t exactly splurge on an overseas holiday just at the moment (thanks COVID!). Cha-ching! That’s why builders and plumbers are busy putting in new kitchens and bathrooms, new car salesmen can’t keep up with demand, and baches are selling like hot cakes.
So, what’s the problem with that?
Well, while low interest rates present an opportunity to borrow more cheaply than ever, they also present an opportunity to get ahead faster than ever.
But the key here is it’s just an opportunity to get ahead faster – progress is not a natural by-product of low interest rates. Right now, you have the chance to double down and get mortgage-free much faster. But saving yourself thousands (or hundreds of thousands) in interest is only part of the allure – it’s also about giving yourself the freedom to make different choices, the ability to feel much more secure next time the property market slows down, the chance to plan to retire in comfort, to grow wealth or to be more ambitious for your family.
Smashing the mortgage might seem quite simple to you, it can be as easy as upping your repayments – but then, why haven’t you done it already? Plus, if you did do that, can you be sure you can meet those repayments when the housing market ceases to be quite so buoyant?
In reality, just like we know that eating well and exercising will help us lose weight or get fit, that doesn’t mean we’ll do it, or stick to it.
Money is emotional and complex, and even those who balance budgets all day long in their career can find their personal finances in disarray.
Making serious, sustainable financial progress requires a plan, the right framework, the right mindset, the right strategy – and all of that requires the right advice.
Instead, low rates allow those with a mortgage to feel more comfortable – and comfort can be the enemy of progress.
It means you’re less likely to be champing at the bit to get rid of your mortgage faster, because it’s not exactly cramping your lifestyle right now. You’re less likely to want to look too closely at your spending because there’s plenty of money coming in to allow you to enjoy your life. And why would you focus on a strategy to grow your wealth, when it feels like your house is doing that for you?
Well, for a start - while your house might well be worth more, so is your neighbours’ house and likely every other house on the market! So, it doesn’t actually change much - you might feel richer, but unless you’re downsizing to a tiny house or moving to the sticks, the paper value of your house doesn’t mean that much.
What the current conditions represent is a window of opportunity. Your biggest cost – the mortgage - is currently the cheapest it’s ever likely to be, but it won’t stay there forever. In fact, that window is already starting to close with bank rates starting to move up. If you’ve bought a house in the last seven or eight years, you’ve probably never experienced rising interest rates!
