Welcome to the second video in our series about the 6 Building Blocks to Financial Success. In this video we’re going to talk about creating a surplus income in a bit more depth.
Here we’re going to talk about the income versus expenses argument. We want to make sure that we’re maximising our income and minimising our expenses. Now, it’s not necessarily that easy to be able to increase our income or reduce our expenses but what we want to talk to you about is a way to just look at reviewing your mortgage which is for most of us our major expense, and hopefully that will help you free up some cash flow.
Let’s just say you’re in Sydney like I am and you bought a property a few years ago and let’s just say that property cost you $600K. And you may have had a loan on it of about $480K. Now, the repayments might be principal and interest with your lender and you might be paying somewhere around $2.5K a month. That’s about the normal.
Let’s just decide that we’re going to look at doing it a different way. We’re going to use the same $600K property, we’re going to say we got the same $480K loan but we’re going to look at re-jigging it. So, you haven’t paid anything off your mortgage at all over a period of time which is not great but that’s fine, we’ll just show you the example where let’s just do $240K here and $240K over here.
We’re just going to put it into two parts. One part is going to be principal and interest, the other one is going to be interest only. Now with these repayments here, I’m going to say that those repayments are about $1,150 a month. And the reason why is your old lender has got you on an old deal, the new lender is going to give you a new deal. The new customers, unfortunately, get the better deals compared to the old customers so you need to make sure that you’re constantly negotiating or having a broker constantly negotiating the best deal for you.
We’re going to say that your repayments are slightly going to decrease on this half of the loan. This loan over here because it’s interest only your repayments are going to be about $800 month, So combine that, your total repayments instead of $2,500 a month over here are $1,950 per month, which gives you $550 a month as a surplus income.
So now, that’s $550 a month that we can use to invest or we can look to fund another loan and we can use that money to build our wealth instead of using it to fund our lifestyle. We don’t want to free up the $550 a month so that you can buy a nicer car or save up for a holiday, we want to make sure you’re using it to build your wealth. Just as in the previous example where you may have been paying it off your loan, we want to be able to tap into it and build other assets.
In the next video we’ll take you through the Maximising Savings and Equity video in a bit more depth. Hopefully, this is helping. Hopefully, this is something that your friends and family would enjoy as well. So please like us on Facebook, please tag and comment any friends that you might want to see using this video content. Also, we are on YouTube and we do have our website as well.
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