Every now and then I will post articles from different authors that I feel are beneficial for the readers of this blog. Here is an article by Dr. Richmond Mccoy.
Approximately three-quarters of U.S. pension funds do not have enough money invested to pay out expected pension benefits. Most of these companies are betting on a stock market upswing to build up their investments. If it doesn't happen, they'll have to cut into their profits or cut back on future benefits.
What are you relying on for your retirement? Social Security? Your pension plan? Your investments?
The best way to ensure your financial future is to pay down debt and build a diversified base of investments for the future.
Most of us can't rely on Social Security, company pensions or inheritances to help us through retirement. We need to wake up and take control of planning for our own future by saving money on interest through smarter borrowing and by paying off debt faster.
Interest is the greatest expense we will pay. We must learn to negotiate interest we earn as well as interest we pay on the debt we use. For example, the chart below shows us how interest affects the debt we pay and the number of years it will take us to pay it off. This example is based on a principal balance of $3,000 with a minimum payment of $60 per month.
| Amount of Loan | Monthly Payment | Interest Rate | No. of Years | Total Interest Paid |
|---|---|---|---|---|
| $3,000 | $60 | 19.8% | 32 Years, 5 months | $9,483 |
| $3,000 | $60 | 16.8% | 21 Years | $5,055 |
As you can see we must begin to take a closer look at our debts and begin to reduce the interest we pay on them. The chart above shows a difference of over $4,000 dollars over the life of the loan just by paying 3% more in interest. Our lifestyles are impacted greatly due to the overwhelming interest we pay on our debts. We reduce our spending power, we reduce our earning power, and we blindly go on month after month paying the minimum payments on our credit cards, mortgages and other revolving debt—ultimately missing the opportunities to establish wealth long-term.
Why is it important to negotiate your interest on both your debts and your investments?
- By negotiating your interest rate with your creditors you reduce the amount of money you pay to use their money. When you use your credit card you are really taking a loan from the credit card company that extended you the credit. In essence what you have done is you have taken care of the loan paperwork in advance and in exchange the company has provided you with a card to make the purchase for any item you may desire without having to do the paperwork every time. Think about this—if you had to fill out loan papers every time you charged something at Target, wouldn't you give more thought to your purchase, especially if the product you are buying does not outlast your billing cycle (which is usually 28-30 days)?
- Also of great importance is negotiating your interest on your investments. The more money you can make on your money is more beneficial to your long-term financial plan. Wouldn't you consider changing your local bank if you could get 1% higher interest on your money market or CD? The days of loyalty to a particular company are past. We are more savvy investors, more educated and have a tremendous amount of information and resources at our disposal.
Pay attention to INTEREST in every situation. Don't fall for the common mistakes of introductory offers and no pay—no interest plans that backfire when you can't meet your minimum payments. Protect your future; increase your quality of life by paying attention to your financial agreements. Sit down and write a list of your creditors and list the interest you owe each of them. Make a list of your investments and the interest you are earning so that you will be more informed about your financial matters. Pay off the highest interest rates first and then add those payments to the bill with the next highest interest you will pay off your debt much sooner than you expected.
To Your Great Success
Mel Richardson
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