27 Apr Using Lazy Dollars – Key to Using Your Line of Credit
Using an on-line savings account is a great strategy to build your emergency fund. Rescheduling the payment of your living expense to the end of the month is a great way for your dollars to earn the most interest possible. This eliminates the problem of leaving your money sitting in a checking account earning nothing and underfunding your emergency and long term savings accounts.
Lazy Dollars Keep Us from Saving
Too many of us don’t save enough. We were about the hassle of quickly accessing our money. Depositing all your dollars in your checking account or your line of credit solves this problem. Let’s revisit our most recent example using our mortgage.
Recap of Our Example
Your take home pay is $5,025 each month and it’s deposited on the first of each month. You have $1,000 left after you pay all your bills. You anticipate you receive a 3 percent raise and you plan on saving 25 percent of each year’s increase. This is your positive cash flow. You have a $285,430 4.0 percent mortgage that you’ve had since September 2013. The monthly principal and payment of $1,362.69 is due on the 1st; however you have a 15-day grace period. You’ve saved four months of expenses totaling $16,100. Even though the interest rate on your mortgage is just four percent, you want to pay down your mortgage. Consequently, you want to continue saving $300 each month. This is thirty percent of your positive cash flow. The interest rate on the line of credit is 4.0 percent.
To Use or Not to Use Your Line of Credit
If you’ve never tried putting all your dollars to work, you probably want to be sure that your checking account balance is never less than $300. If you’re saving $300 each month, this leaves $400 to apply each month as an additional mortgage payment.
IMPACT: Your mortgage will be paid in full in almost eighteen years and in fifteen years your savings will total $157,035.
Before you begin using your line of credit, you know that you’ll stick to your budget. This enables you to put aside 30 percent to savings and apply 70 percent to your mortgage. Your mortgage will be paid of in thirteen years and in fifteen years your savings will total $213,860. You will have avoided paying your lender $119,275 in interest.
What Made the Difference?
Planning for fun and knowing your monthly cash flow enabled you to keep your dollars working all month long and use CashMap’s line of credit strategy to leverage the bank’s money and continue to save AND get out of debt. Knowing what you need and when you need it freed you to take your destiny in your own hands.
Small Changes do Bring Big Results
I’d say adding an additional $56,725 in savings is worth a few minutes of your time. Over the next twenty years, the difference grows to $185,564. Wouldn’t you agree? Small changes truly do bring Big results!
Ready to start your journey towards financial freedom? Get started today!
Thanks for joining me. I’d love to hear from you. Please send your questions, topics or suggestions to dennis@cashmapconsulting.com. You can also follow me on twitter at cash_map.
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