To help our clients reach their full financial potential during their income producing years, we start by doing an extensive income and living expense analysis for the purpose of developing a “safe money” plan to building wealth that may be additional or unrealized.
Most of our clients are surprised to see that the gains from their investment portfolio of employee 401K plans, IRA’s etc, may be more than canceled out over the years by the amount of interest they pay on their mortgage, auto loans, student loans and other consumer debt. While no one would say these traditional methods of building wealth are ill advised, they also leave a lot to be desired for reaching full financial potential.
Our goal for our clients is to develop a cash-flow management system that will optimize net income coming through the household and help direct more funds towards pre-paying debt. By shortening the number of years of debt service payments from a typical 30 year time span to 15 years or less, saves our clients tens of thousands of dollars of interest charges and allows them to be able to apply more money towards savings during their prime income producing years.
The chart below is an example of a (30) year $200,000 mortgage at an interest rate of 5.5% which is a typical rate in todays market. It shows the proportion of principal and interest payments for each year of the amortization schedule. Note the amount of interest that is being paid in the first 10 to 15 years of the amortization in contrast to how slow principal is being paid. We then like to show the “True Cost” of a mortgage, which in this case if minimum monthly payments were made over the normal (30) year term of the mortgage, total true cost would be $408,842.
The second chart shows the wealth building potential of accelerating the payoff of this same mortgage to (13) years and the wealth building potential of investing the mortgage payment amount of $1136 per month for a (17) year period into a fixed rate savings plan at 3% compounded yearly. Not only did the “True Cost” of the mortgage drop from $408, 842 to $278,441, but in this scenario, this home owner would have accumulated over $305,000 of cash.
Results like this and even better can be achieved with our cash-flow management and debt reduction system. Let us help you get started by allowing us to do an income and living expense analysis in order to supply a projected date to debt payoff and potential cash accumulation for your situation.
