Every Penny Counts

I'm a "paperless" kind of girl. I don't like clutter and I detest junk. If I can get an electronic copy of something, by all means, please deliver it to me that way. Most of my bills are sent to me electronically or I get an e-mail letting my know that my invoice is ready for viewing. On Saturday I guess I was bored or something because I decided to look at the details of my AT&T bill. Now my phone bill does not change materially each month, it may fluctuate a couple of cents or maybe even a dollar but it's pretty much the same. Turns out my boredom was not in vein because these two items caught my attention:

$6.00 - voicemail service
$7.50 - inside maintenance plan

It's been a very long time since I reviewed my phone bill with this much attention (can you say 5 years). Let's do the math, $6 + $7.50 = $13.50 per month * 60 months = $810!

That is enough money to pay an additional 6.5 months of principal payments* on my mortgage. Guess who's about to get a call from me? You got it, AT&T. Oh, did I mention that I have an answering machine at home? Yeah, it's electronic and connected to my cordless phone. It's been "off" since I had the phone.

*I have a 30 year mortgage which equals 360 payments. When I say extra payments, I mean extra principal payment. If you look an amortization schedule, you will see that each total payment is comprised of interest and principal. For example:

Monthly Total Payment = $1,000
1. Jan: Interest $900 ....... Principal $100
2. Feb: Interest $897 ....... Principal $103
3. Mar: Interest $890 ...... Principal $110
4. Apr: Interest $883 ....... Principal $117
so on and so forth until you get to payment # 360.

If I paid $1,000 for December's mortgage plus an additional $323, then I have paid 3 extra principal payments (Jan - Mar). When I send in my $1,000 payment in January, I've moved 3 months down the amortization table to April or payment #4, and have saved myself $2,687 worth of interest (add Jan - Mar's interest). My payment made in January will be broken up as $883 to interest and $117 to principal.

Think of it this way, the amortization table tells you how much you paid to borrow the related principal amount. Taking #1 above, essentially the bank is charging me $900 to borrow $100. For February, the bank is charging $897 to borrow $103. When you prepay principal, you do not pay the related interest. Ah ha!