Thursday, January 5, 2012

A Little Extra Can Make Miracles

Let us say you are repaying a loan of $1000 in installments. Let us ignore the interest for the present. Assume, you repay $100 per month. You will repay the entire loan in 10 months. Simple arithmetic, isn't it?

Now, let me ask you a question. Now that you are paying $100 per month, can you make it $110 per month?  I am sure adding $10 to the monthly payment shouldn't be a burden. so, at $110 per month, you will be paying $990 at the end of 9 months. This means you have  (almost) completed the repayment in 9 months instead of the scheduled 10 month period. You will have closed your loan by paying $120 in your 9th installment.

So, what do you gain by this? Closing a loan one month earlier may not look like a great deal but look at this way. You have $100 extra on the 10th month, which you would have otherwise used for paying your installment. And if you need to plan another installment payment, you can plan it one month earlier.

You can apply this strategy with any flexibility you need. The extra amount you pay every month can vary. You may pay $20 extra in one month, $15 extra in another month, $5 extra in yet another month or even $10 less in some other month when you are hard pressed for cash.

You can use this idea while depositing money in your bank. If you want to deposit $500, make it a little more than $500, say $520, $550 etc. These little extras together with the interest they earn will build up into a substantial amount over a period of time.

I have been using this simple strategy and have been excited by the results. Apart from the boost it gives to your finances, this "trick" will also give you a lot of psychological satisfaction. I follow this principle when I renew a fixed deposit with the bank. I deposit $5000 with a bank and the amount grows to $5,667 on maturity. I renew it for $6000 by adding some more money from my checking account. This will go a long way in adding strength to your financial base.
Do it once and see the results for yourself!
Good luck!