One easy way to build more savings is avoid interest.  It is the biggest waste of money.  Everyone has a limit to what they will earn in their life so why do you want to share it with a lender?  Using cash builds savings and wealth because it provides a natural limit whereas credit cards and lines of credits create an artificial one that places deeds on future income. These instruments are the biggest waste of our savings and creates wealth and jobs for very few. 

Most debit and credit cards automatically offer limit protection, at a cost. Some cards increase their interest rates to 30% as soon as it goes over its limit and there are outrageous fees every time you go into overdraft or overlimit. This is why it is so important to turn down credit limit and overdraft protection.  It is smarter to let the card be declined rather than pay higher interest and fees. 

People like using credit cards to earn points. These are great if you pay your balance off every month. I always recommend people set your credit limit at two-thirds of your monthly spending. This way, you are always paying it off throughout the month and avoid interest.  I use a Cash Visa because there are zero fees and earns cash that can be used towards your balance. Depending on one’s spending, these rewards can build quickly and can cover an unexpected expense or travel. 

There are times when incurring interest does make sense.  Clearly, it is unavoidable for most when it comes to buying a home.  This is the only smart debt to have if you do not go overboard. Using a 5.5% mortgage rate on a $400k loan, the borrower will pay $336,905 in interest over 25 years, with nearly two-thirds of it paid within the first ten years. This is called the rent equivalent and averages $1,123 per month over the life of the mortgage in the above scenario. Borrowing $100k more will add an additional $84k to the interest.  An easy interest savings is always pay your mortgage weekly. Doing so will reduce a 25-year amortization by almost 3 years, most of this will be interest.

This is why it is so important to always stick to a mortgage that does not exceed between three-and-four times one’s household income. If you prefer more discretionary income, stick to the three, but if you are not a big spender than the four is safe. If you cannot stay within these limits, then chances are prices are too high and there is a net benefit from renting. Even though it may feel like one is wasting money on rent, the average home price always reverts to its average of three-to-four times household income. Some people today are already sitting on losses of a few hundred thousand dollars. This will haunt them for the bulk of their working years.

It is rare for the average investor to accumulate anymore wealth from using debt than without.  Under certain circumstances it does occur however it tends to be risky. During Covid one could earn a cashflow positive return by using margin to invest in dividend paying shares. The Covid market also created some very cheap shares, so the following price appreciation also worked well. It is on rare occasions like this that the risk of using debt for investing is low. However, one must learn how to sell. Today the interest rates on investment accounts are now more than dividend yields and the price appreciation of shares and real-estate purchased during Covid has been eliminated.

Recently I was shopping, and the cashier asked if I would be paying the bill with credit or debit.  She was surprised when I told her cash.  This is part of the reason so many people are having money problems. If one is unable to budget, credit cards and debit are an easy way to overspend.  A few businesses today will not accept cash and I refuse to deal with them. I pay cash because it is all I have.  It is amazing how easy one manages their spending habits when that is all you use.