I once worked with a man who came into a large sum of money. Shortly thereafter, he showed up to work in a brand new Tesla Model S. It was 2014 and Tesla’s were still very rare, even in New York. The car was incredibly impressive and people actually lined up to get a look at it.
I never speculate about other people’s financial situations, but this person was a VP at a tech company, and seemed to have a good head on his shoulders. One day we were talking about his Tesla when he casually mentioned he knew the car was a huge splurge, so he bought an equal amount of Tesla stock with the rest of the money he’d come into. This blew my mind.
First, I immediately recognized that we were talking about $160,000 or more between the two purchases. It was way more than I made in a year. It was also a crazy gamble, putting that much money in a stock that had very recently gone from trading in the teens to the hundreds. But presuming he’s held that stock, today he’d be looking at a 50% ROI. Basically, half of his car would have been free.
A few years later I started to think about what he had done and considered it on a smaller scale. What if I were to spend an equal amount of money on a new thing, and paying off the thing that its improving? For example, I don’t have Tesla money (yet), so I drive a Toyota. Lets say I buy a full tank of gas every two weeks at $45/tank. In my vision of equal and opposite spending, I would then take $45 every two weeks and send it to the car loan.
To simplify this notion, if I bought my car for $10k at 4% interest with a 48 month loan, and sent just this extra $90/month, I would wind up saving $242 in interest and shorten my loan by over a year!
What if I applied this to my house? I buy a lot of little things for my house. My wife buys a lot more. Keeping up with this on the day to day would probably be manageable to a point. I would wind up matching roughly $300 in spending with additional mortgage payments each month. That would amount to almost exactly one extra payment a year. If I went out and bought a new 4k TV, I’d be forced to budget double the cost in order to meet this standard. It’s doable, but it would sting. The point being I would have to think very carefully about my major purchases, and the reward would be significantly reducing my mortgage over time.
This is a concept I’d like to spend more time analyzing. It could be a fun way of both tracking my household spending and gamifying the process of reducing my mortgage. More to come on this in the future.
Freed by 50 