Thursday, September 06, 2007

For Bellezza . . .

My cyber-friend Bellezza writes about her teenage son and wonders about his search for independence and where it will lead him. I know all about that concern. My son is just a bit younger than hers, and I wonder too. The reality is likely that her son and mine will both grow up just fine. They may stumble along the way, as we all did as teenagers, but we all turned out OK, didn't we? Let's hope our children will too.

One thing Bellezza has brought up a time or two is that her son has taken up smoking. As any good parent would, she worries about that. As I read her latest post, I was reminded of something I used as an example in an eBook I wrote years ago. The book was titled The Success Primer, and is about money and how to deal intelligently with income and expenses. It was written when assets, including houses, where much cheaper than they are today and interest rates were a bit higher, but the fundamental ideas in the book still apply. In it, I wrote a little snippet about smoking, displayed below. If you find it interesting or useful, you can download the entire eBook for free, with my compliments, by clicking here: The Success Primer.

The SUCCESS Primer:
Financial Planning For Beginners

Quit Smoking and Save a Bundle on Your Mortgage

A young couple has just bought a house with a $110,000 mortgage, interest at 8.25% compounded and paid monthly, a 5 year term and a 25 year amortization period. Alice has just quit smoking, and figures she will save about $126.00 per month as a result.

Alice, and Ted her husband, now make monthly mortgage payments of $967.30. Alice is thinking of using part of the money she now saves by having stopping smoking to increase the monthly payment by $32.70, making it an even $1,000.00 per month. The rest will be set asideto help pay for an annual holiday.

Ted doesn’t think an extra $32.70 every month is worth the trouble.

Who’s right? Assuming that this $32.70 increase would be faithfully applied to the entire 25 year amortization period, what would the interest savings be?

Believe it or not, it’s $54,155.00! Instead of taking 25 years to fully pay off the mortgage, it is now only going to take 17 years, 3 months. Our calculations presuppose a constant rate of 8.25% over the entire life of the mortgage. Is it worth making a slightly larger payment? You bet!

Now, what would happen if Alice put the entire $126.00 towards the mortgage payment? The new monthly mortgage payment would be $1,093.30 ($967.30 + $126.00) and the results would definitely make the larger payment worthwhile. The interest saving compared to the original mortgage without additional payment would be $72,414.00 and the mortgage would now be fully paid off in 14 years, 4 months.

Now, if Ted would only sacrifice his beer budget....

Bellezza. . . I know your son doesn't have a mortgage and won't have one for years to come, but the logic of saving the money and investing it still applies. Just think of all the things he could do with the money that he is squandering. Good luck!


  1. Atavist, your post touches my heart. You not only comfort me emotionally, but have a wise word to apply practically as well. Who knew that a "small" amount such as 32.70 would turn into 54,155! Not I. But, this will be a valuable lesson for my son. Which I will show him tonight.

    My father saved his money from the age of 11 on. When he married, he was able to pay for most of his house in cash. What is wrong with people today, that don't have that kind of discipline? I can't understand the need for a.) immediate gratification without any thought to future impact and b.) the "need" to have something bigger and better than the generations before us.

    But, I guess that's a topic for a whole different post.

    In the meantime, I'm awfully glad to correspond with men like you who bring an important perspective to raising boys.

  2. A possible incentive for the young man... he'd be able to afford a reliable vehicle and insurance.
    That should get any young man's attention!

  3. I so wanted to download your primer but noticed an '.exe' on the end of the URL. Not that I should mistrust your generous offering but I am curious to know how this page and the download process works.

  4. Lin: The executable file installs our proprietary ebook system on your computer. There are no dll files, no adware, no snoopware, and there is nothing that will harm your system in any way. It is sort of like installing Adobe Acrobat, except that our system is our own and the installation includes both the reader and the text in a small file. When you are done and if you should wish to get rid of it, it is easy to uninstall and it leaves nothing behind.

  5. My son just recently turned 29 and quit smoking. Financially, though we were good examples, he has struggled since he started his first real job. We saved him too often. He is my baby after all. It was doing him a disservice, though we should have realized this much sooner. He is doing much better now. But, allowing your children to learn their own lessons is very difficult.

  6. luckyzmom: I am generally pretty strict about things, but I can be a softy too, on occasion. The problem is though, as you point out, that we humans only appear to learn by doing and establishing cause/effect relationships. Rescuing our offspring every time they stumble is our instinct, but not always the best thing to do.

  7. It is so hard to watch our children make mistakes, to not heed our teachings and advice.

    I wonder if we hurt more than they do?

    Parenting is so hard. Sons aren't easy. Mine is still smoking.

  8. My friends with older kids tell me it all comes around and that everything works out well in the end, usually. It's a good thing to look forward to.

  9. Sieg, I talked with Mark and decided not to try the download given my computer's touchy ways. I have lots of little ghosts left from old programs which are causing me no end of grief so perhaps it would be wise of me to not add any more. I so miss my simple old computer!

  10. No problem, Lin. Whenever I encounter weird stuff on my system, I sometimes wish for the days of counting on my fingers and writing with a quill. Not for long, though. Computers are both a blessing and a curse, aren't they?