I love coffee! The very thought of drinking less makes me quiver with fear. But, sometimes one must take the emotion out of decisions and just look at cold, hard facts. How much is my coffee costing?
In a previous article on being more conscious with cash, I discussed how I buy 2 coffees each day, along with a breakfast and lunch. I’m not good at planning meals to bring to work but I have decided to spend slightly less. The savings I calculated was only R150 per week, but I’ve decided to look at how this could affect my home loan (mortgage bond) if I pay R600 extra per month.
If I saved on coffee and paid my home loan
These calculations may seem impressive but they’re actually quite simple. You could learn to do them yourself with my short Udemy course, “All your home loan calculations“.
The calculations can get messy so take note of the following assumptions:
Home Loan Value: R1,500,000
Interest Rate: 11% (annual)
Total Loan period: 20 years
For this example I will assume 2 years of the loan are already complete, and that up to now no additional payments have been made. Also, the R600 p.m. will remain constant (with other words I won’t save more in years to come)
This may all sound complicated, but the end result is simple to see. If I pay R600 p.m. extra into my bond until my bond is paid off I will:
- Save a total of R236,000 (rounded to nearest thousand)
- Pay the loan off 22 months earlier
That’s pretty amazing don’t you think? Considering that I am making this extra saving by cutting down on my weekly coffee/food expenses at my office. In fact, it was quite easy to find the extra R150 per week. Imagine if I actually analyze my expenses properly and relook at my insurance policies, health care, mobile phone contract, bank charges, etc. Imagine the savings I can make then!
What if you don’t have a home loan?
That’s really not a problem. If you invest money or save it in an interest bearing account for the next 15 – 20 years you will have quite a large lump sum. We’ll look at how to use the Future Value formula in Excel to calculate this.
Good article… As the saying goes, little drops of water make the mighty ocean… While the damage of coffee to the body is minimal, think of smoking… Smoking helps in keeping the debt always high by not enabling an early payoff, increasing the health costs and the insurance costs.