I was talking with a mortgage lender today, Brad Bailey from First Colony Mortgage. I showed him how my formulas work: $1=$5, and $2=$1,000. If the typical homeowner were to pay just $1 extra towards their mortgage, they would save $5. If they were to pay just $2 per month extra, they would save $1,000. If they prepay just a little more, they’d save a lot more.
Being a finance guy, he said he loved the idea and was always thinking about ways to save money. I told him about dropping cable TV, and how it was hard for me at first, but when you’re saving $100/month, and when you see that that $100 applied to the mortgage saves $10,000’s, it makes it much easier to live without cable.
Brad’s eyes lit up. We were speaking the same language. He said, “People just don’t realize how much they’re spending. If you are even talking about lunch every day, that’s hundreds of dollars every month! It adds up!”
I was excited to see him get excited, and I responded: “It doesn’t just add up. It multiplies up!” I hadn’t ever thought about it like that, but that’s exactly what compound interest does for you when you put it to work for you. It doesn’t just add up. It multiplies up! Just saving on lunch every day could add up to hundreds of dollars. But if you were to consistently invest the savings into your mortgage, you’d save thousands of dollars.
Let’s do the math!
Let’s assume you save $5 on lunch every day for a month. $5 * 30 days = $150.00 saved in a month. Way to go! You’ve got an extra $150. $150 * 12 = $1,800 per year. Now that’s awesome! But don’t just stop there. (Read this blog post on the dangers of saving money.)
Look what would happen if you were to invest the savings into a typical mortgage. Your savings don’t just add up. They multiply up. How much would you save? You could save even more!
So, just by saving a little on lunch every day, this family would save nearly $100,000. They’d also save 5.6 years of mortgage payments. That’s something to munch on!
