9/30/2008

Tuesday Tip: Does $20 REALLY Matter?


Two weeks ago, I shared a tip of how avoiding "It's Only" shopping for even $5 a week (around $20 a month) could save you $260 a year. Now here's a new way to view $20.

Say you apply an extra $20 a month to your house loan. Here is a link to a mortgage calculator to figure out how much you'll save through the course of your existing loan by adding even a mere $20 to the principal.

One example. Say you have $150,000 left on your loan to pay, at 6% interest and you have 25 years left on the mortgage. If you just paid your basic payment of $966.45 a month for the remainder, you'd have 300 payments to make. Now, if you applied $20 extra a month to the principal of your loan, you would only have 287 payments left to make. Or you'd save yourself 13 payments, cutting off a little over a year of your loan! Look at it this way: $20*12 months*25 years=$6,000 you'd apply. It would result in $12,563.85 you wouldn't have to make or a total savings of $6,563.85!

That's what you could save by shaving off $5 or so a week. And what is $5? A few Starbucks coffees. Making one less convenience meal a week and opting for a cheaper homecooked meal. Cutting back on bottled water and getting a filtered pitcher. Downgrading your cable and/or phone plans. Or simply cutting spending.

So next time you think $20 doesn't make a difference...remind yourself of how many house payments you'd save!

Side Note: Depending on the type of house loan you have, this calculator may not work. Also, paying the $20 on your house loan may not be your best option if you have existing debt and/or other loans with higher interest. The purpose of this tip is not financial advice but to merely show you that $20 can go a long way! :) (I also had fun playing with the calculator so I thought some of you might, too!!) It's just a way to get you to train yourself to never think that making small cuts to your spending habits doesn't add up. Some people think 10 $.50 off coupons a week aren't worth clipping/using. Those few coupons could be the $20 you use!

Happy Tuesday!

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