What is rich now?
Plus, a lesson and spreadsheet on building loan amortization schedules
What do you consider “rich” as an adult?
As a young adult, my most memorable moment in terms of financial freedom was when I realized I could afford whatever I wanted at the grocery store. Being rich meant not having to do a bunch of calculations to be sure I could put a certain item in my cart.
Today, I think of being rich as not having to make difficult, impossible choices. It means not having to choose between paying the mortgage and buying medications. It means being able to absorb unexpected bills for things like home or car repairs. I also think of richness as the ability to be generous, with time, money, and other resources, without having to be concerned about overspending.
I think the purpose of growing wealth is to enjoy choices now and in the future.
Calculations – Loan Amortization Schedules
In an earlier newsletter, I showed you how to use the formula for payment. PMT is the foundational formula for designing a loan amortization schedule. I love loan amortization schedules! You don’t have to love them, but you can still easily design your own. They can be useful to see how payments cover interest and are applied to the loan principal until the loan is paid off.
Here’s a link to my loan amortization schedule spreadsheet.
Just like knowing how PMTs are calculated, knowing how your payments are applied by your bank, credit union, or loan servicing company is empowering. Knowledge = power.
There are a few ways I have used this information.
First, a schedule gives me the loan payoff amount at any given time. So, if I wanted to pay off the loan ahead of time, I know the amount. Or, if I wanted to refinance the loan, I know how much I owe and need to borrow.
In addition, a schedule shows me the impact of paying extra on a loan, when the extra is applied properly to the loan principal. You can develop your own plan for paying extra (if that’s what you want) and you can compare the expected loan principal with the records of your bank, credit union, or servicing company.
Let me know if you need help using this spreadsheet or designing your own.
Kind Regards,
Julie Rains