I have written numerous posts recently about the house we are buying. Last week I told a colleague about our mortgage: a 30 year fixed rate loan at 5%. My colleague's advice: "don't stop living". I asked him what he meant, and he explained that in the first few years of the loan, every dollar of principal you pay back, saves you about a dollar in interest payments over the life of the loan (depending on your interest rate and length of your loan). His advice: if you become hyper aware of this you will become overly conscious of your spending. Sure you would pay a dollar for a can of soda, but would you pay $2 for that same can? By buying that soda you are spending a dollar you could pay down on your mortgage and save an extra dollar in interest. You are in fact paying twice for that soda!
Yikes. I never thought of that.
There is a huge financial incentive to do the exact opposite of what my colleague advised. Do we really need those extra channels on cable if they are costing us twice as much? Do we really need to take that family vacation? How about that lunch out? But then, there is the issue of living life...
Interesting conundrum. Any advice or opinions?
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