I came up with this title while I was sitting in Starbucks with my laptop open. I wanted to look like one of those super creatives types. An author just needing a quiet corner in a coffee house to finish their latest novel. I don’t think I pulled it off, but it was fun to pretend for the five minutes I lasted sitting there.
Today’s topic takes us back to Finance 101 and some scenarios of how interest works. Let’s set the table today with a home buyer looking to purchase a $300,000 home with a 30 year loan and a 5% interest rate. If they pay as scheduled, their $300,000 loan would have them pay a sum total of $279,767 in interest over the 30 year life of the loan! If they decided to pay bi weekly, instead of monthly, they would save $51,534 in interest! (And the loan would be paid off almost 5 years earlier)
Interest is funny like that. Seemingly inconsequential moves, given time and consistency, create wildly impactful results.
This same home buyer decides to invest $500 a month in the stock market and earns a long term historical return of 9% (and is willing to stick with all the wild ups and downs along the way). Over the same 30 year life as their mortgage, while saving, they accumulate $915,372!
Wait, actually, they weren’t paying attention when they set up their investment, goofed and did $550/month by mistake. Now their 30 year nest egg is almost $100,000 greater at $1,006,909.
When you owe money, interest is the known enemy. Everyday and every dollar counts. When you are trying to grow wealth, interest is the known friend. Everyday and every dollar counts.
A closing note of so much thanks! I have received so many kind words from weekly readers and appreciate you taking your time to read and hopefully drink up some of the wisdom flowing from the ole PubGPS tap.
“An investment in knowledge pays the best interest”
– Benjamin Franklin