Your Average Daily Balance, Your Savings and Your Line of Credit

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Your Average Daily Balance, Your Savings and Your Line of Credit

When someone tells you that something you’re unfamiliar is really easy, how do you react? If it looks easy are you willing to give it a try or do you roll your eyes and say, “That’s easy for you to say!”

Managing your average daily balance is easy. The easiest way for me to convince you is for you to create your own example. Consequently, I’ve created an easy to use tool called ‘Creating Your Own Average Daily Balance’. To view the template, please click on the link.

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Creating Your Average Daily Balance Scenario

On the worksheet named ‘Directions and Selections’, start by entering the dates and the amounts for your income and expenses. Next, enter the interest rate for your savings account and for your line of credit. If you’d like to see your potential savings that can be yours, enter your loan information.

In field “w”, you’ll see the recommended amount for your first withdrawal from your line of credit. This will be your first additional payment to the loan you want to pay off. If you’d like to adjust this amount, follow the directions listed in fields “x” through “z”.

Compare Your Savings by Comparing Three Approaches

I’ve created three worksheets for you to compare: ‘Savings’, ‘Line of Credit’ and ‘Typical Use of a Line of Credit’. The ‘Savings’ worksheet will show you how much interest you’ll earn. The ‘Line of Credit’ worksheet will show you the impact your income can have on lowering the interest you’ll owe and the interest savings you can realize. The worksheet, ‘Typical Use of a Line of Credit’ will show you how much you’ll pay in interest when you use your line of credit the traditional way.

Compare What You Do Now vs. Putting Your Lazy Dollars to Work

I recommend that you create a scenario that reflects what you currently do. Check with your financial institution and confirm the beginning and ending dates they use to calculate your interest. Enter the beginning date in field “a” in the ‘Directions and Selections’ worksheet. To make it easy, enter “1”. This will create a first to thirtieth billing cycle. How much interest did you earn in your savings account? (Look at the bottom of the page on line 74.)

Now move to the ‘Line of Credit’ worksheet. On lines 6 and 64, you’ll see the dollars withdrawn from the line of credit and applied as an additional payment. On line 74 you’ll see the amount of interest that you’ll be charged and on line 73 you’ll your potential interest savings.

Lastly, move to the ‘Typical Use of a Line of Credit’ worksheet. If you have a line of credit, this sheet will show you how much you’ll pay by withdrawing money and waiting for your bank to send you your bill. Why is it so much higher? The amount you owe the bank was high the entire month. Your income was sitting lazily in your checking account. It wasn’t being used to build your financial wealth.

Purchase ‘Create Your Average Daily Balance’. Play around with your saving’s interest rate, your line of credit interest rate and the beginning date of your billing cycle. See the impact it will have on what you are paid in interest and how much you’ll owe. When you see how easy it is to put your dollars to work, move on to the next step and purchase, ‘Create Your Own Line of Credit Scenario’. Once you’re comfortable, you’ll be ready to begin using a line of credit to build your wealth.

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Thanks for joining me. I’d love to hear from you. To learn more about how to keep your dollars working for you 24/7, let’s chat. The concepts are easy but they’re a bit counterintuitive. Take advantage of our articles, interactive materials, videos and, e-books.  Please send your questions, topics or suggestions to dennis@cashmapconsulting.com. You can also follow me on twitter at cash_map.