Smart Money Mindset

If someone offers you a guaranteed profit or return on your money what should you do? Yes, that’s right, RUN!!

You see in personal finance there are very few things that offer a guaranteed return, in fact I know of only one. (if you know any more please do tell me!). However that doesn’t stop people using phrases like:

• “You definitely get your money back and more!”
• “The stock market always goes up in the long-run”
• “Your money is safe”

When in reality nothing could be further from the truth. The explanation of a guaranteed return by saying “the stock market always goes up in the long-run” is probably the worst, if you don’t believe me ask someone who has spent the last 10 years making pension payments invested into the stock market and after management fees and the timing of his investments has less than he put in!

However there is one place you CAN get a guaranteed return, and that’s in making early debt repayments.

You see finance companies use the power of compounding against you (sign up for my Free Dangers of Debt Report on the right for more information), by charging you interest on interest on credit cards, loans and mortgages.

However by making extra debt payments you can use the compounding effect in your favour, and then some! Take the following simple mortgage example:

• Mortgage: £200,000, 7% interest, 25 years, monthly payment, £1413.56

Over the course of the mortgage the following happens:

• Pay the bank: £424,067
• Pay off what you borrowed: £200,000
• Pay in interest: £224,067

Let’s say that more clearly, you will pay the bank over double what you borrowed! The majority of that being interest!

However make overpayments of just £300 a month and this happens:

• Mortgage paid off in 16.4 years
• Almost 9 years off the mortgage!
• Total future payments saved: £145,597

Yes, for £300 a month you get £145,597 back as your return. That’s a guaranteed return of 7% for those 16.4 years, the same 7% the bank was charging you.

Certainly looks more attractive than the interest you’re getting on your savings right?!

What guaranteed return could you get on your money using this method?

Let me know what you think below!