Wealth or Income: Which is more Important?

When we wish increase our financial well being, should we be trying to increase our income or wealth?
Income is the monthly or weekly flow that we can actually spend. This is what directly affects our living standards. Wealth is our value of assets; to some extent, they can be used to generate income. However, mostly our wealth is tied up and it is difficult to extract money.

The Myth of Housing Wealth.

In the UK, one of the most popular topics at the dinner table is House Prices. Those who own houses, get great delight in talking about how much their house prices have increased. However, even though house prices in the UK have doubled in the past 7 years, people certainly don’t feel twice as better off. True, it is possible to remortgage and take equity withdrawal, but for most people rising house prices don’t help much. You could sell the house, but it is just as expensive to buy somewhere else.

The Benefits of downsizing in House Value.

For most people it is difficult to realise the monetary value of a house into their day to day living. Choosing to live in a less expensive house could improve your monthly disposable income very significantly. For example, if you downsize from a £200,000 house to a £180,000 house, your mortgage can be reduced by £20,000. At 6% interest, this will save you £121 a month on a 30 year mortgage term.

If you are a single person living alone, is it necessary to have a 4 bedroomed house? True, you lose some value of your assets, but you will not notice this. However, the extra £121 a month will make a big difference to your standard of living. Admittedly, there are various costs in moving house. But, the important thing is that when buying a house, don’t necessarily buy the most expensive you can. In the past, housing has been a good investment (may not be in the future short term) but if you buy the biggest house you can, you will suffer with high mortgage payments for 30 years. Choose the right house and you can make significant savings.

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Another way to reduce mortgage payments is to extend your mortgage term. See: Why I extended my mortgage term  to 47 years.

6 ways to get rich at  Money Walks, this weeks host for Festival of Frugality