In light of the first interest rate rise occurring in 6 months on 2nd November as I write this sitting at my local café enjoying my $4.00 latte I was thinking about the longer-term effect of my coffee habit. Not from a health perspective but from a financial well being perspective.
Now I must disclose now that I feel coffee is an essential lifestyle item and there are plenty of other ways to have it in your life! However here are some money mechanics that are pretty powerful for anyone with debt particularly a mortgage.
If I have 2 coffees a day at my local coffee shop (sorry Blue Olive I do still love you!) each work day that totals about $40 per week which is on average using 40 work weeks is around $1,600 per annum. The same can be said for drinks out or lunches every day or eating out for dinner. Focusing on your priorities and what is important to you around having financial security can help keep you focused on getting a better outcome!
Now for the fun part: The Money Mechanics!
If you have a $400,000 mortgage paying an interest rate of 7.25% over 25 years your monthly repayment will be $2,891.23. The total interest you will pay over the lifetime of the loan would be $467,368.24 and remember you also have to pay back the $400,000 principle amount.
I have put together the following table to show you what an extra repayment each month, fortnight or week can do to your mortgage and the amount of interest you pay.
| Extra Repayment Amount | Time saved on your mortgage | Interest saved on your mortgage |
| $100 per month | 1 year 5 months | $27,139.16 |
| $100 per fortnight | 2 years 9 months | $53,328.52 |
| $100 per week | 4 years 10 months | $90,913.29 |
This is based on a mortgage at a 7.25% interest rate, if you look at your credit card which has a 16 – 20% interest rate the interest saving can be just as impressive if you only make the minimum repayment each month.
My challenge to you this month in light of the interest rate rise is to get creative about the ways you can get together an extra $100 per month to start paying down your mortgage or other debts to get more in your pocket long term. This saved money can be used for other things such as purchasing some investments, saving for your retirement or focusing on your longer-term retirement or holiday plans.
If you need assistance in exploring these further talk to a professional but most importantly start your journey to being free around your money and creating wealth with understanding.
Scott Malcolm (scott@money-mechanics.com.au) is Director of Money Mechanics (ph: 6257 5557) a fee for service advice firm who are authorised to provide financial advice through PATRON Financial Advice AFSL 307379.
The information provided on this article is of a general nature only. It has been prepared without taking into account your objectives, financial situation or needs. Before acting on this information you should consider its appropriateness having regard to your own objectives, financial situation and needs.