A Brighter Way
A Brighter Way
Many people think they need to have a large amount of money in order to start saving or investing. Others often think about paying off their mortgage early, but don’t actually follow through with it because they feel they can’t pay enough extra on the principal to really make a difference. However, a small amount can make a big difference when spread out over a long period of time.
The real secret to saving for your future is to start as early as possible, and to invest on a regular basis. Do you eat lunch in a restaurant everyday? If you were to pack your lunch just once a week instead of going out to lunch, you would probably save at least $20 per month. If you invest that $20 per month and earn just 5 percent interest per year, you would have a total of $16,715 at the end of 30 years.
If a couple goes out to dinner and a movie once a month, they could easily spend $50. If they skip the trip to the restaurant and the theater and rent the DVD in, that $50 per month would grow to $41,786 over a 30 year period (at 5 percent interest). We can all probably think of a few things that we could give up in order to invest a little extra each month.
This concept works the same way when working to pay off debt early. The monthly payments on a 30-year $150,000 mortgage at 5.5 percent are approximately $851. The total interest would be $156,605. If you pay just an extra $50 per month on the principal, you will pay off that mortgage 46 months early and save $23,168 in interest. If you pay an extra $100 per month, you will pay off the mortgage 80 months early and save $39,885 in interest.
If you want to get really ambitious, apply for a 15-year loan instead of a 30-year loan. Assuming the same interest rate, your payment would only increase by $374 per month, but you would save almost $86,000 in interest. (In most instances the interest rate for a 15-year loan would actually be less than the rate for a 30-year loan.) Of course, the higher your interest rate, the more you will save.
As you can see, a little extra per month can make a big difference. Of course, every person’s situation is unique. Your Rea & Associates representative would be glad to meet with you to discuss your particular situation. Please give us a call.
This article was originally published in Illuminations: Facts & Figures from people with a brighter way, a Rea & Associates enewsletter, 10/5/2005.
Note: This content is accurate as of the date published above and is subject to change. Please seek professional advice before acting on any matter contained in this article.
