Instead stop wasting yours and become rich.
HOW ? Easy, you pay all your purchases cash. Thus you
don't pay any interest on loans. You pay a very high price –
in the form of interest – for having something today rather
than tomorrow when you have saved enough to pay cash.
But if you want to be really smart about it, you go one step
further. You exploit every possibility to benefit from cash
discounts, on your insurance bills, subscriptions, garage
bills, down payments on your taxes, etc.
To illustrate here is a practical example:
If you pay the premiums for the full year in January rather
than 1/12 each month, your health insurance provider
offers you a discount of 2.0%
On a monthly premium of, let's say, CHF 500,00 or
CHF 6'000 p.a. you save CHF 120.00 p.a.
"No big deal ?" Read on !
The 2.0 % translates into an annualized interest of 4.52%.
How come ? Well, if the choice was to pay the totality
of the annual premium in January or in December, the
2.0% discount would indeed be worth 2.0 % p.a. But since
you pay otherwise, with monthly payments, 1/12th of the
annual premium every month, the calculation becomes
a little bit more complicated. In fact, by the end of June,
you will have paid already 50% of the annual premium,
won't you ?
Although, by paying your June premium already in
January rather than in June, you pay it only 6 months
earlier than you would by paying monthly. Right ?
But you still get 2.0 % discount also on the June premium.
Obtaining a discount of 2.0 % for a 6-month period is
about the same as a yearly discount of 4.0%. Correct ?
By making an exact calculation, individually for each
month of the year, you arrive at an annualized discount
of 4.52%. Not bad considering that the banks pay you
these days 0.25% p.a. on your savings account.
Hold it, that's not all ! 4.52 % of the annual premium in
our example of CHF 6'000 is the equivalent of CHF 271.20,
Right ? This saving is like income, net of taxes. If your
marginal tax rate is, e.g., 25%, CHF 271.20 after tax is
worth CHF 361.60 before tax.
Now, ask you banker how much you would have to
keep on your savings account for a full year to earn
CHF 361.60 interest.
Well, to save her or him the embarrassment, I'll do the
calculation for you. At the present interest rate of 0.25%
the answer would be CHF 14'464.00.
Take responsibility for your own money management
instead of criticizing you banker.
Now imagine you do this systematically with all your
insurance premiums, subscriptions and other payments
where you have the choice between paying annually or
monthly, between 10 days with 2.0% off or 30 days net.
Then you multiply your total annual savings by the number
of years you still plan to stay on planet Earth. Assuming
further that you will regularly invest your annual savings
and earn, on average, a modest 2.0% p.a., you will
probably be able to buy yourself, e.g., at retirement, a
Ferrari (cash, not on lease !) or a small chalet in the
mountains without having worked even one hour more.
In other words, rather than letting your bankers make the
fat profits by cashing in on the difference between the 9.5%
they charge you on your loans and the 0.25% they pay you
on your savings account, you can make the profits yourself
by – EASY – paying cash. A l w a y s .
PS. Don't worry about your banker friend because – other
than you – few will heed my advice. Most people
prefer to blame their banker.
NB. Above calculation contains a gross error. Ask your
banker to detect it and please report back to me.
