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Top 3 things which keep people from being financially free.

I went back through our past bills when we were beginning our journey to be able to have Kellie stay home with our son. What I was looking for was what were the big things preventing us from being financially free.

What I found were three very big budget busters.

#1 House Payments: Every month, most of us either pay rent or we pay a mortgage. If you are one of the very lucky few, your mortgage is all paid off and your only expense is taxes and upkeep on your home.

House payments are almost a necessity, because of the enormous price tag of homes. Something we can control is how much house we buy. If you have a family of three, do you really need a 3,000 square foot home in the most expensive neighborhood?

Did you know that not all that far back in history the average home size was only 1,000 square feet for a family? Somewhere along the way, we needed 3+ bathrooms, huge rooms, garages, rooms above the garage, etc… Don’t get me wrong these things are really nice and if you can get them with cash, go for it.

To put your family at a financial disadvantage by buying into the more is better mantra though is, well I will be honest, irresponsible. What if tomorrow you lost your job? What if the housing marketing crashes again? There is no need to be house poor. I have heard financial advisers recommend that a home not be more than 25% of your after tax income and for a 15 year fixed mortgage.

#2 Car Payments: I will begin by saying I love nice cars and trucks. Over the years I personally have struggled with #2, because I want a truck really bad! I used to believe like the average household, that a slightly used or new car had a better warranty and less worries.

Boy is that logic severely flawed! Did you realize that slightly used and new cars still have a chance to break down? Duh right? Well this is the argument I hear from folks who think I am crazy for driving a 1996 Honda Accord 70-80 minutes each day commuting to work.

Since I use my own situation as an example usually, here is the scoop. My old car takes approximately $500-$1,000 per year in maintenance. That includes oil changes, new tires, tune ups, new water pumps, brakes, or whatever my Honda needs.

I used to buy a car that was 2 years old from a dealer local who has great prices and a great service team. I thought myself extremely frugal buying something a couple years old and wait for it “reliable”. Bought right into that marketing message hook, line and sinker.

Well, I was spending $2,400/year on the car for the loan. I still had $200-$300 in maintenance if you include tires, brakes, oil changes, tune-ups, etc… The maintenance cost was less, but it does not magically go away and warranties do not cover regular maintenance. Remember a newer car also comes with a higher excise tax in a state like Maine. My 1996 costs about $45 to register once a year. My two year old car used to cost me around $150-$200 to register per year.

You get the picture, older vehicles purchased with cash are less expensive than getting a loan for a car. Don’t be car poor.

#3 Eating out: Who does not love to go out to eat for breakfast, lunch, dinner or even to get a snack here and there? Kellie and I love to eat out and try new foods, oh and we do not have to cook and clean up the mess either.

I am not talking about eating out as a family once every two weeks as a special treat and adventure out. You can budget for those special nights out on the town with the family.

What about the person who stops in the morning for a coffee at the local coffee shop for $2.00 and then lunch for $8.00 and maybe even another coffee during the day meeting friends for another $2.00. All the small expenses do not seem big to someone until we look at the end of the year.

I will be nice and say that someone does not do that every day and every week. You could be spending as much as $2,500 – $3,000 per year just on an inexpensive lunch and some coffee each year. Now take into account you are a couple and you both spend the same. That means your family’s expense just for work related lunches and coffees are $5,000 – $6,000 per year!

Some of the ways eating out gets hidden:

  • It is part of your fuel bill
  • Cash expenditures
  • Change you have laying around for the vending machine
  • Small extra purchases as part of other trips to the store

You need to be mindful when spending and monitoring the family budget. Purchasing the 16oz. soda in the store line can cost you $2.00 and that is considered outside the grocery budget, especially when you can buy a 2 liter bottle of soda for half that.

If you can reign in spending in these three areas, usually your budget will breathe a sigh of relief. What can you cut? Remember it only takes small steps to begin. Every overnight success took about seven years of really hard work to accomplish.

Good luck on your journey to financial freedom and a cage free life.

Also remember if you are having financial issues, you should solicit the help of a professional (lawyer, accountant, etc..).  I usually speak from my own experience, trying to help others from what I have learned going down this path.

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