At this stage I have a confession to make. When I started my company, Mortgage Australia, in 2000, I had no financial background whatsoever. My degree from the University of Western Australia was an Honours Degree in Psychology, followed by a couple of years at Curtin University of Technology doing the Masters of Organisational Psychology course.
I don’t come from a banking or financial sales background, and I’m not stuck in that way of thinking.
However, I now know my six years studying psychology at university is my greatest strength. I became an avid student of ‘Behavioral Finance’. This is a relatively new field of psychology that looks at how people make financial decisions, how they manage their money in relation to investing, spending, and borrowing.
But, don’t worry; this is no touchy-feely therapy session I’m about to give you. I’ve learned that, for people to get the best financial results, especially concerning their mortgage, things need to be set up in a way that makes it easy for them to pay it off fast—as opposed to it being set up in a way that makes it easy for their bank to make the most interest.
The key word here is ‘easy’. All people, myself included, want to take the easy road; the path of least resistance. It is very difficult for people to keep making sacrifices over a sustained period of time. It is much better to put a little extra effort in at the beginning to have it set up right, and then let it go largely on autopilot from there.
To me, paying off a home loan is like trying to lose weight. If you spend hours every day on a treadmill and eat only the right foods, you will lose weight. In the long run, though, very few people can stick to such a strict routine.
In the same way, you can pay every cent you earn into your home loan, work a second job and live like a pauper for years; but again, very few people can do that for the long haul. What you need instead is a realistic, sustainable, and natural process that is set up properly in the first place that requires minimal effort to maintain. Ideally, it is completely self- sustaining with just an occasionally required adjustment.