Today Jay and I swap stories about the habits that help us grow wealth.
Here’s a sampling of the many habits we share in today’s episode:
- Increase your savings by 1% every month (Paula)
- Sell one item on Craigslist every week (Jay)
- Max out your retirement accounts (Paula)
- Pay bills a month in advance (Jay)
- Set your bills on auto-pay (Paula)
- Pay cash for a rental property (Paula, of course!)
- For properties with mortgages: Double the principal portion of the payment and/or round up to the nearest hundred (Paula)
- Keep a buffer in your checking account (Jay)
What are our favorite financial habits?
Jay loves tracking his net worth every month. He’s watched it rise from $40,000 to half a million dollars, and he’s confident that tracking this number helps him make better decisions.
I’ve developed a super-simple budgeting technique that I love. Here’s how it works: choose the amount you want to save. Pull this from the top. Relax about the rest. Don’t worry about tracking tiny details. You’ve hit your savings target; the rest is yours to enjoy.
Check out the many habits we share in today’s episode.
Roy Lagro
It’s official, I now have a new favorite Podcast to listen to. After feasting on the first 3 in one sitting I’m feeling like I’m had a figasm (the financial cousin of an orgasm) and can’t stop thinking about money stuff now. I loved all of the ideas that were discussed in this one. Many of them are things that I’ve already been doing or have consciously chosen not to due based on my financial preferences. But I love hearing about your reasoning’s behind the madness. And it’s great that the two of you have such different viewpoints but share a common goal, it adds so much extra depth to the show. Keep it up.
J. Money
Hahahaha… omg, I am dying over here.
DYING, I say!
I think we need a testimonial page and only show THAT on it…
I want Figasms taking over the world! LET’S DO THIS!!!
Marina
I’m officially a fan.
Paula: when you double your principal payment on your mortgages, does this also reduce interest over the life of the loan? So if you’re paying off the loan faster, in theory you borrowed the money over a shorter period of time and would therefore owe less interest.
Is this in fact the case? And if it is, does your lender automatically adjust your interest payments?
Thanks and keep up the great work!
Roy Lagro @ Band of Savers
Paula, I hope you don’t mind if I take a quick shot at answering Marina’s question.
Marina, short answer: Yes.
Each time that you make a mortgage payment you are decreasing the original loan amount and paying the interest that was incurred on the amount of the loan that was outstanding. So each time you pay down additional principle on the outstanding loan amount you are reducing the amount that is going to be accruing interest that month (and forever). So the interest rate isn’t ever going to change (unless you refinance) but the dollar value of the interest paid will decrease with each payment, and even faster if you pay additional principle payments. This schedule of loan repayment is referred to as the amortization schedule and by paying extra principle you get onto an accelerated amortization schedule.
Example: If you have a $300,000 loan for 30 years at 5% interest you will have a monthly payment of $1,610.46 and end up paying a total of $279,767.35. But if you round up your monthly payment to $1,700 and have the additional $89.54 go towards principle then you will cut off 3.36 years of payments and only pay roughly $243,400 in interest, thus saving you at least $36,367 of interest payments over the life of the loan.
Make sense?
Paula
Wow — Roy, that’s an EXCELLENT answer! +1 to that!!
Marina — Yes to everything that he said. Your literal interest rate won’t decrease, but the amount of interest that you pay over the lifetime of the loan will go down.
Essentially, you’re fast-forwarding your spot in the amortization schedule.
Marina
Thanks guys!
Malisa
Can anyone help me find an HSA please? I’m self-employed.
I’m addicted to this podcast!
Paula
Hi Malisa –
I use HSABank.com … they have an annoying fee that’s around $2 or $2.50 per month, but otherwise, I’ve been happy with them. They let you link your account to TD Ameritrade so that your HSA funds can be market-invested if you choose.
Malisa
Thank you Paula! Signed up today! Keep up the great work! It’s life changing!