The Mortgage Free Program takes through in five steps of getting clarity on your finances, avoiding what we call the Deadly Decade, trying to pay your home loan off at least 10 years earlier by setting up your accounts correctly, automating your payments, and then reviewing your progress.
1. Budget
It starts, like any good financial program, with working through a budget to give you clarity on where your spending is going.
2. Split your home loan
Next, we suggest that if you’ve got a home loan, splitting it into two. The reason we suggest that is we want one larger portion and one small portion where we can set a goal to try and knock over in the next three to five years. For example, if your total loan amount is $500,000 we suggest splitting that into one that is $450,000 and another smaller one of $50,000 with the goal of paying this smaller loan off in the next three to five years.
3. Set up separate accounts including your emergency fund
Step three involves setting up your accounts so that you have your income being paid directly into your bills account, and then based on the budget that you have completed, have a set amount being transferred into your everyday living expenses on a weekly basis.
The reason we suggest transferring on a weekly basis is because you are able to track it very easily and curb any unnecessary spending. We then have an amount going into any savings goals that you may have such as holidays, wedding, children’s education, investment property, and finally your emergency fund. The emergency fund is your financial buffer based on the total cost of your living essentials for three to six months.
4. Automate payments
Step four, automate all your payments. Your income is paid directly into your bills account and all bills are automated so that you don’t need to touch this account. You shouldn’t even need a card for this account as the bills should all be paid via direct debit or BPAY.
Then you automate your weekly allowance to be transferred into your everyday living on a weekly basis. Then the amount you have for your savings goals and emergency fund should be allocated and automatically transferred on a weekly basis into the respective accounts.
5. Review your progress
Step five we review your progress to make sure that you are sticking to those amounts you created from your budget. This is a matter of checking your banking app to make sure that you’re sticking to your allowance every week for everything that you’re spending via tap and go.
If you stick to that (and interest rates stay relatively where they are at the moment) then you should be able to achieve your goal of saving at least 10 years on your mortgage.
