Last week I watched a "personal budget" YouTube video of a CIBC executive espousing one of the key benefits and absolute necessity of personal household budgeting. "Tracking your spending will show where you're leaking money". I was clapping like a seal... truer words have not been spoken. Then in her example she cited that your lattes may be costing you a fortune. I eagerly waited for her to continue, but that's where the diatribe seemed to end. I had to laugh. Leave it to the bank to have you focus your attentions on the $5 daily treat that sits in one of your variable expense cost centres.
How bout we focus our attention on the biggest fixed cost centre in our monthly statement: the MORTGAGE!! Here are some cold hard numbers for you. The 5yr mortgage interest CIBC has posted on its website today is 5.39%. The first year of a $400K mortgage will have you paying approximately $53 per day. First year daily interest on
$450K = $62 per day
$500K = $70 per day
$550K = $78 per day
$600K = $87 per day... that works out to over $610 after tax dollars each and every week (and that is based on 7 days a week... even when you're not working) and a whopping $31K per year.
You can punch your mortgage into our total cost of ownership calculator to see your daily interest for yourself.
Don't get me wrong. If you're spending a thousand dollars per year on lattes (roughly $5 per work day) and you're struggling with consumer debt, you should absolutely scale it back and apply some of that money to that debt. That is what managing a personal budget is all about. The same is true for shoes, your car payment, and your entertainment expenses. Developing a household budget is absolutely crucial and it is the only real way to manage your salary effectively. But, that spending management applies to ALL your cost centres, not just the ones you can change with a simple coffee shop by-pass. It applies to your fixed cost centres and especially your mortgage.
If you're spending $31,000 a year on mortgage interest and you add in your principal, property taxes, maintenance fees and everything else it costs for house upkeep and your property value is not growing at the same annual overall rate, why the heck would you sign up for their ridiculous mortgage contract?
Visit our discussion forum to read more at http://www.wakeupordiepoor.com/board/thread/45/household-budgeting-what-your-bank-thi/?page=1#post-45.
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