There’s a great thread on Quora about decisions and habits that have saved people a large amount of money …
What habit/decision has saved you a large/huge amount of money?
If you get a chance, read through the answers — there’s a lot of really good stuff there.
Given the opportunity, I contributed with a tip straight out of the Automatic Finances handbook.
The Decision That Saves You a Lot of Money
I want to leave you with one actionable, easy-to-implement financial move that is guaranteed to save you tens of thousands of dollars on something you’re already spending a lot of money on.
What separates my advice from everything else you’ve received is that it’s a specific thing you can do.
Paying yourself first is hugely important, but it’s kind of vague.
Investing is incredibly important, but you need to know a bit about how to best invest (spoiler alert: index funds).
Increasing your net worth is the end game, but there’s a lot of ways to do that.
My advice for you:
- can be implemented today
- is guaranteed to save you a lot of money (it’s math!)
- increases your net worth, decreases your debt and will give you much more cash-on-hand in the future
Wow! Sounds too good to be true.
It’s not.
I promise.
I’m doing it, and it’s going to save me nearly $40,000.
Ready?
Let’s do it.
Here’s what you need to do.
If you own a house, and you have a mortgage on it, make biweekly payments instead of monthly payments.
“What?” you ask.
OK, let’s talk about this.
You have a mortgage, and you probably pay it monthly. If it’s a 30 year mortgage, that’s 360 payments over the entire lifetime of the loan.
But if you’re like most people, your job probably pays you every-other-week — which means that you get paid 26 times per year, not 24.
A bit more on this from my blog:
So while in most months you have two pay periods, every six months you’ll have an extra pay period — and that’s where you’re going to pay yourself first.
For those additional two weeks, make additional payments on your mortgage, and you’re going to save a ton of money. It’s called biweekly payments, and it’s going to save me almost $40,000 in interest and nearly 5 years on the life of my mortgage.
Since the additional payments are principal-only, you’re paying off the real amount you owe the bank — not the gravy interest on top. If your bank doesn’t allow you to make additional principal payments, refinance to one that does now.
How can I find out how much I’ll save?
Bankrate has a great biweekly payments calculator where you can plug in how much you’ll save — both in dollars and years on your mortgage.
I’m 2 years into my 30 year mortgage, but since I’m making the equivalent of an extra payment each year, I’ll be done in 25 years and save nearly $40,000 in interest.
Here’s the most important tip for implementing this trick.
If you want to make sure that you save thousands of dollars and years on the life of your mortgage, there’s one thing you need to do.
It’s crucial to set this up when you implement your biweekly payments.
When you talk to your loan provider or log on to your online banking, you absolutely must automate your biweekly payments.
Automating your finances is the best way to ensure that your system works as it should. (Here’s more on automating your payments.)
Set up your biweekly payments today, and you’re guaranteed to save thousands of dollars you would otherwise be spending.
Photo by Olga DeLawrence on Unsplash
