From Here to Financial Happiness

Day Seventy Five The Virtuous Cycle

When you take those first steps toward a better financial life, progress can seem agonizingly slow. It takes time to pay down debt and build up savings. But if you keep plugging away, you will find yourself in a virtuous financial cycle that feeds on itself – and propels you to astonishing riches. That virtuous cycle has three elements.

First, as you step up your savings rate and start to accumulate some wealth, you should be able to cut your living costs, which then allows you to save even more. Where do those cost savings come from? As you build up your bank and financial accounts, you're less likely to incur fees for overdrawing your account or having balances below the required minimum. As you whittle down your debts, you'll pay less in interest each month – and you may reach the point where you never need to borrow, even for large purchases like cars and homes.

As your savings grow, you might also be comfortable raising the deductibles on your health, homeowner's and auto insurance, and lengthening the elimination periods on your disability and long‐term‐care insurance. That'll trim your premium payments and give you yet more money to save. You might even decide you can drop some policies entirely.

Second, if you buy a house, you'll lock in your housing costs at current prices. True, your property taxes, maintenance expenses, and homeowner's insurance premiums might rise over time. But if you take out a fixed‐rate mortgage, your monthly ...