I've been banging on about how it's better to focus on the big wins rather than saving $5 on a latte every day for a while now. Better to focus on chopping 20% off the your two biggest annual spends than to worry about saving 3% on 25 little things.
Any time you make a major purchase, there is a huge opportunity to optimise that purchase and save yourself loads. Buying a house just happens to be the best example of this.
Even though buying a house is not usually a particularly good investment, once you have a mortgage, you can optimise it to hell!
Instead of paying off your mortgage once per month, set up a system with your bank to pay it twice per month. No, I don't mean you have to pay twice as much, I'm just saying make your repayments fortnightly rather than monthly. By paying every two weeks it WILL mean several years less of payments!
As you know if you pay monthly you will make 12 x monthly payments. However, if you pay fortnightly you will make 26 x fortnightly payments (so the equivalent of 13 x 4 weekly payments). You are in effect making one extra payment each year.
Let’s take a look.
Scenario 1: Typical Mortgage of 6%, $300K, 12 monthly payments of $1798.65, total interest paid over 30 years, $347,514.57
Scenario 2: Making an extra payment each year of 6%, $300K, 26 fortnightly payments of $899.38, total interest paid over 25 years, $276,591
You just saved almost $71,000 in interest payments. Boom! That’s like 14,000 lattes or one every day for the next 38 years.
Brian MacLean looks into tips, ideas and strategies you can use to get ahead financially..