The 3 Little Pigs Guide to Interest and Debt

Our 3 little pigs had a great start. They all graduated from college and got really good jobs making $50,000 per year. But what they did with their earnings made all the difference.

The first little pig built his home out of straw.
-He bought a $300,000 home on a 30 year mortgage that he financed 100% because he didn't have money for a down payment.
-He bought a brand new truck and bought his wife a nice midsize and both were financed.
-They bought new clothes, furniture, vacations and other items all on credit.
-They were only able to pay minimum payments on their credit cards that had interest rates from 12% to 18%.

*After 10 years this little pig was on the brink of financial ruin. He had more than $50,000 in consumer debt. He missed payments on his home, cars, and credit cards. He had almost no equity in his home and no savings. With debt counseling he may be able to dig himself out but foreclosure and bankruptcy are definite possibilities.

The second little pig built his house of sticks.
-He was wiser about his house choice. He saved for 6 months while living in an apartment and put 3% down on a $200,000 house on a 30 year mortgage.
-He bought 2 used cars for himself and his wife and put a little money down.
-He bought some furniture and clothing and ate out occasionally.
-They saved a couple hundred dollars a month in savings account.

*This little pig was in better shape than the first little pig after 5 years. He was even saving something each month but the interest was not much and he still had a little debt and very little equity in his home.

The third little pig built his house of bricks.
-This little pig saved and saved for 3 years. He let his wife drive the junky car they'd had in college and he rode his bike to work, he rented a modest apartment, ate out very rarely and bought very few unessential things.
-He immediately starting saving for retirement $5,000 a year in a really good IRA at 8%.
-He also started saving for a house putting $10,000 per year into CD's.
-He bought a $150,000 house after 3 years and put 20% down on a 15 year mortgage.
-He saves a couple hundred each month for future needs and wants.

*This little pig is in awesome shape. After 5 years his retirement will have almost $39,333. When he retires if he stays on his current schedule he will have $1,295,000! He already has about $40,000 of equity in his home. And he will have it completely paid off in only 13 years. He and his wife are now able to buy a new car with cash and will slowly buy furniture for their home and take a nice vacation every couple years.

LEARN A LESSON FROM THE PIGS!
*Always live within your monthly income and take out tithing and savings FIRST.

*Think before you buy ANYTHING! Do not make impulse buys. Do you need the item? Do you have room for the item? Can you afford to pay cash for the item? If the answer is no to any of these questions you probably shouldn't buy it.

*Start early to save for the future-make interest work for you not against you.

*Learn about financial savings programs and choose the one that serves your needs best-keep in mind that a traditional savings account usually doesn't even keep up with inflation.

*Avoid buying anything on credit that you can't pay off immediately and entirely.

*Buy unessential items only when you can afford to pay cash for them. This includes vacations, clothing, furniture, and probably cars. Try not to finance anything that is not absolutely necessary. The interest will HURT!

*If you must finance a car for transportation needs, remember functionality and low cost, not comfort or style are the key concerns.

*Wait to buy a home if possible until you have money for a down payment. Ideally 10% or more.

*Make guidelines for spending with your spouse and make sure you both have the same financial goals and commitment to your budget.