Shortbread: Required reading

If you are serious about all things money, you must put The Wealthy Barber on your reading list. Like right now! Here is just one of the many nuggets from the book that can literally transform lives:

Wealth beyond your wildest dreams is possible if you follow the golden rule: Invest ten percent of all you make for long-term growth. If you follow that one simple guideline, someday you’ll be a very rich man. -David Chilton

The Wealthy Barber: Everyone’s Commonsense Guide to Becoming Financially Independent by David Chilton


 

Money Skills: Simple Magic, Once in a Fortnight.

In Ye Olde England, nobles and peasants alike used a measure of time that has long been out of general usage, at least in the states, the fortnight.

fortnight is fourteen days. The word derives from the term fēowertyne niht, literally meaning “fourteen nights.” We here across the pond prefer to say biweekly, but the Brits still like sprinkling their discourse with ye olde words on occasion.

So, what do fortnights have to do with money?

Something that happens every fortnight happens every two weeks, which is how your clients may want to pay their monthly mortgage, and here’s why.

A biweekly mortgage payment allows the borrower to make payments every two weeks rather than once a month on their thirty year mortgage. So rather than making 12 whole monthly payments, the homeowner makes 26 half payments over the course of the year. This may not seem like much of a change, until you look at how the power of accelerated payments can save the homeowner a bundle in interest payments.

As an example,  if I make twelve equal monthly mortgage payments of $1000 that means I will have paid $12000. However, if I pay 26 half payments (that’s $500 every fortnight!) I will have paid $13000 in twelve months. So I end up paying $1000 more over the course of a year, but its not a budget buster for most money conscious families, and there is so much to gain. The extra $1000 works out to $2.74 a day!

Mortgage payments are comprised of interest and principal. The early years are heavy in interest and it may take some homeowners years to build up a good store of equity, the extra payments each year serve to pay off the interest owed much more rapidly, so it is common that a traditional thirty year mortgage can be paid off in twenty years. That’s cutting ten full years off of the debt service by making those extra payments each year.

Your client should schedule a call with their mortgage lender and ask for an amortization schedule which will show exactly how this fast pay approach can keep tens and hundreds of thousands of dollars in you client’s pockets. The lender can then help your client establish the non-traditional payment plan.

And while they are at it, right now (if you are reading this in December 2020) is a great time to talk about refinancing to save even more money. 30 year fixed rates are in the 2.5% range, some lower.