Unbelievably, I have not cracked up yet, but who knows what tomorrow will bring. Golf is easy if you follow three simple rules. Life is easier if you take those rules and apply them to the important things. Most people who have played golf or currently play the game will probably agree that golf isn't hard if you follow the proper strategy, BUT, the really difficult part is actually following what you know is right. So what are these simple rules? The first one is brought to us by the women who play the game and it is simply “swing easy”. Women do not try to over power their swing because it just isn't in their makeup. I also believe they realize that distance is not the goal, accuracy is number one. The second point: course management. Number three is being able to forget the past (your last hole) and concentrate on the present.
That's it! Could a game be any simpler? No, however it isn't that easy to be that disciplined. Did you forget the movie Tin Cup? Kevin Costner was doing just fine, thank you, until he violated all three rules at one time. He felt that swinging hard would let him clear the water, it didn't. He ignored course management, which suggested he could do better by "laying up" and he couldn't get his past out of his mind which led him to his disastrous decision. Has this happened to me? Almost every time I play the ?@#+ game. And also to most of my friends and associates as well.
As many times as I have told myself and had professionals tell me to swing easy somewhere in the deep recesses of what passes as my mind, a little creature assures me that one mighty whiff (ala Casey at the Bat) and the ball will go the distance to the green. It doesn't happen. Then I revert to course management and take a shorter iron which will get me most of the way to the green. I will go the final distance on the next shot. Unfortunately I slice the ball and I regret my decision to revert to the "course management thing". Knowing that I made the same questionable decision on the previous hole I revert to the power again and knock the ball over the green and into the water. The game isn't that easy!
I bring all this up to emphasize a point of view: life and golf are easy if you just do what you know you need to and forget all the other nonsense. In the book "The Millionaire Next Door" the author makes the point that it isn't what you make but what you do with it that makes the individual successful. Why can't we simplify our lives and take the tried and true easy path to financial security. Some times I feel that most people find value in esoteric concoctions just because they are. To me it is just a case of swinging to hard .
Let's take a look at swinging easy, course management and concerning ourselves with the present and future, not the past. Sounds easy but is it really easy? The most I can say is it could be. Some examples from my industry, the mortgage market, should illustrate the points.
1. People will take a 30 year fixed and pay extra each month to get the principal paid down quicker.
2. Others will take a bi-weekly mortgage payment, even though they aren't paid that way, as they believe in the magic amortization that comes with the bi-weekly.
3. Some will take a low rate short term mortgage, 10 or 15 years fixed, and then when they need more money will take a fixed rate 2nd mortgage or a Heloc which is a variable rate second. It doesn't matter if the new mortgage is twice the size of the first because the first has a very low interest rate.
4. Last but certainly not least some borrowers opt for the option arm because they have four ways to pay the loan and can choose which way they want each and every month.
Let me begin my analysis of these four examples by stating that nothing is inherently wrong with these examples, as there isn't any rule that says you can't swing as hard as you want. These examples all exhibit poor course management and most come from some perceived mistake that might have been made earlier by the borrower.
With that caveat, I will begin to show a better way to go:
1. If everyone understood that nothing beats a lower interest rate ,then number one above wouldn't occur. It is fine to pay extra on a 30 year fixed as long as you are paying on a loan that has an interest rate no higher than the prevailing rate. If your rate is higher than you are swinging to hard to do something that can possibly be done without extra payments on a new loan at a lower interest rate.
2. The magic of a bi-weekly mortgage is 13 payments a year, not 12. Again this can work if the interest rate is in line, but it will work better if you make two payments at the first of the year instead of spreading out the second payment all through the year. Two payments at the first of the year reduces the principal immediately and all subsequent payments will have more principal being paid and less interest.
3. It is always a smart move to hold onto a low interest short-term mortgage unless your second mortgage is large enough and has a high enough interest rate to make the blended rate of your mortgages higher than current mortgage rates. It isn't good course management to hit the ball too far and sacrifice the next shots because you over shot the intended landing zone. If you don't pay attention to the blended rate then once again you are overpaying on your loan.
4. People are equally enamored by the fact that you have so many options on an option arm as they are excited by the low teaser rate even though it means negative amortization (Adding to your loan balance instead of seeing it go down). If you realize what could happen to your loan because of the teaser rate you might not be so excited. Today's decision can really hurt in the future. An interest only loan gives you the three options: interest only, 15 year payment and a 30 year payment at better rates and without any negative amortization.
You can simplify all of this by concentrating on what you are trying to do at the time you are finalizing the loan(s). You can continually manage the loan, compare, and contrast it to the current rates periodically during the life of the loan. And last but not least you can do whatever you can comfortably do to payoff the loan and not try anything more because you think you can. Don't over swing.
Now that I have put this on paper I am going to devise a way for me to follow my own rules. I am not going for the fences, not take the unnecessary risks, forget the old rounds of golf, and be cognizant of all the rounds I have yet to play. Why don't you do the same?