Reduce Your Mortgage One Pack at a Time

Never having smoked, I can be a little self-righteous about this, but believe me I have my own costly vices. Same principles apply to them, too.

Let’s do a bit of simple math. Suppose you buy a house and have a mortgage of $300,000.00, usual terms, 5% compounded semi-annually, 25 year term, and with the privilege of paying any extra amount you wish once monthly. And let’s say you’re a pack-a-day smoker, living in Ontario where a pack costs roughly fifteen bucks.

So let’s also say you quit cold-turkey and instead pay the fifteen bucks a day toward reducing the principal on your mortgage. Remember that by reducing principal, you also reduce the amount of interest, or “rent” on the remaining balance.

The net effect? At the end of five years you will owe roughly $30,600.00 less on your principal, so that the compounding effect becomes even more powerful. In the final result, you’ll pay off your mortgage in a little over eighteen years instead of twenty-five, roughly one-third sooner.

I could go on to show what would happen to those additional contributions if after paying your mortgage early you kept paying the same amount into reasonably-managed investments, but you get the picture.

Some of us spend way too much on alcohol, on eating out, on three Starbucks a day, or at the casino. We all have one vice or another, sometimes a whole bagful. The math is always roughly the same, not even considering health benefits. I know about the latter because my medical people never miss an opportunity to remind me.

But the same principle also applies to the rest of our lives, in particular our professional lives.

I recall one of my partners who used to arrive at the office every morning at around 0630 to read and summarise all the breaking case reports not only in his exact field, but anything related, including those on court procedure, evidence, and what I would call the “math of law”. Every morning, day in and day out, year in and year out, just an hour a day devoted to becoming better and better at what he did. And just as an hour in the gym every morning will transform your body, an hour soaking up the law every morning will make you a towering figure in the field, which is exactly what happened. Before long it was well understood that if you had a big and ugly problem in construction law, Bill was the guy to call.

Steps such as these don’t make us miserable, in fact, life goes on and looks otherwise indistinguishable, except for one thing: the tiny increments yield outsized yields, whether financially, in satisfaction, or both.

Efforts of this nature don’t look heroic, because they’re small and hardly noticeable day by day. It’s the cumulative effect that counts. This is why when I’m coaching young lawyers I encourage them to do two things: (1) pick a lane, and (2) spend regular serious time becoming the best in the lane.

If you need more help with your financial affairs, speak to your advisor. But if you want to talk about becoming the best you can be at your calling, feel free to reach out to me.