Borrowing Costs: January 2008
I made an attempt last year to get this series off the ground. However life got in the way of digging through a years worth of financial statements so I put it on hold for 2008.
The focus of this series is on how much of my hard earned income is being used to Finance my life. I wanted to include everything from credit cards and student loans to how much it is costing me to manage my retirement portfolio.
This is the information that I should have been aware of three years ago and will likely be a real eye opener to anyone who has a significant amount of debt of any type.
Here is the Start of the Year:
Here are my thoughts on the categories:
1. Banking Expenses: Our family has rarely spent a significant amount of money here. We don’t use out of network ATMs, we don’t bounce checks, and there are a ton of free checking options for anyone who willing to use direct deposit. Given the major turmoil rocking the financial industry right now, I wouldn’t be surprised to see the banks looking for some way to squeeze some money out of us here.
2.Credit Card Expenses: We had done very well here until last month, hence the $180 out of our pocket. I missed one of my credit card due dates by a day and was hit with a late payment fee and the ubiquitous finance charge. The majority of this category however is the yearly fee for a couple of our frequent flyer cards.
3. Investment Expenses/fees: I have not made any investments this year and thus have yet to pay a fee. This was the category that killed my attempt at following my borrowing costs for 2007. Most of the companies I use to manage my investments don’t go out of their way to show you how much they are charging you to invest with them. My goal for 2008 is to follow this metric carefully because the only thing I can control with my investments is my allocation, costs and tax burden. Control what you can control and don’t worry about the rest.
4. Student Loan Interest: This category is surprisingly low. Out of my monthly student loan payments, only $66.07/month goes to interest and the rest to principle. This is also due to the fact that this only represents the loans I am actively paying off. The bulk of my consolidated loans accrue the interest lump sum at years end(it accrues all year long but the company only sends out quarterly statements) This category will be much higher come next month when my statement is accounted for.
So, I spent almost $250 of my hard earned post-tax income last month financing my modern miracle lifestyle.
That same $250 invested every month for 30 years at 7% average return would be over $300,000 by the time I was 60. Not a million bucks but a heck of a lot better than giving it to the credit card companies every month.
