the richest man in atherstone

This series of articles was inspired by a wealth-building strategy created by Stuart Goldsmith. It is called 'Double Your way to a Million Plan' and you can sign up for your free copy on this webpage. For a brief outline of the strategy, take a look at this post.

Things are going well in my Doubling to a Million Project, so much so that I haven't had the time to update my journal as much as I would have liked. At present, I am working on an web application idea that will hopefully help me make it to Step 20 by the end of the year. I'll perhaps talk a little more about that in the near future as it's still in the development phase right now. Meanwhile, here's a breakdown of my income and expenses between April and June 2008:

Income
Advertising on my websites£1739.86
Freelance Work£24.00
PayPerPost£9.92
Squidoo£3.16
Interest£18.31

Total£1795.25

The lion's share of website advertising came from the IceSave Savings Account Review I wrote on this website with the remainder coming from a mixture of Google Adsense, Affiliate Marketing and Banner displays. The freelance work is for the provision of website hosting to a friend and the interest came from my Alliance + Leicester Premier Direct Account.

I also earned about £50 from ClickBank (using the Bum Marketing Strategy) but that is sitting in my ClickBank account waiting to reach my withdrawal threshold (set at $200USD - about £100) and so has not been accounted for in this quarter's report.

Expenses
Web Hosting & Domain Names£18.42
Marketing£40.00
PayPal Fees£1.68
NICS (Class 2)£22.00

Total£82.10

The Marketing category was an experiment with Google Adwords that didn't turn out too well. Fortunately I stopped it before all my funds were dried up, so I still have a little sitting in my Adwords account until I can think of a better use for it. For those not accustomed to Class 2 NICS, it's a fixed National Insurance Payment to the taxman that us self employed people have to make each week.

Profits
£1795.25 - £82.10 = £1713.15

As mentioned in January, I am now paying myself a wage for my Doubling exploits equal to one third of profits earned, so that brings my total to:

£1713.15 (Profit) - £571.05 (My Wages) = £1142.10

I've guesstimated that another third (£571.05) will be deducted as taxes but I won't need to account for this until the end of the financial year so (at least for now) it's mine

Before this quarter, I had earned £506.21 for my Doubling Project, so adding my latest earnings to this, I now have £1648.31. This means I've completed Steps 17 and 18 of the 28-step process and am now part-way through Step 19.

Only two more Steps to go to achieve my goal of completing Step 20 by the end of the year.

Step 17 Complete
Step 18 Complete
Step 19 In Progress
Cumulative Cash: £1648.31

Today, my mortgage dropped below the £60,000 mark (to £57,942.92 to be exact) thanks to an overpayment of £3000.

One of my goals for the year was to do this and I can now happily strike it off the list.

When I moved house 13 months ago, we (my wife an I) took out a £65,000 loan for the property, so to reduce the capital owed by £7000 in little over a year marks a major achievement. From the moment we moved in we decided that we would consistently overpay the mortgage each month with 30% of any extra income we earned. We'd forecast that we should be able to achieve our target by the end of the year. A recent inheritance helped us to do it six months early.

So what does reducing our loan do for us?

Well, had we simply paid the minimum payments each month the capital we'd owe at this moment in time would be around £63,800. This equates to a minimum monthly payment of around £417 (interest and repayment combined) for the remainder of the term. Due to the overpayments, the minimum monthly payment is now around £379 - that's about £38 less, which may prove very useful if we run into cashflow problems when I quit employment in the near future. Over a year that is a saving of £456.

To put it into context, if I were to put the money I have overpaid my mortgage with into a savings account instead, I would need to earn around 7.9% after tax in interest to equal the savings I made by "investing" in my mortgage.

Of course, reducing monthly payments is one just option when making mortgage overpayments. The other is reducing the term of the mortgage. If I continue paying the £413 that I was paying before, the debt would be cleared in 20 years - knocking four years off the mortgage term!

So, there's a lot to be said for overpaying your mortgage. Some people like to use their spare cash to save, whilst others prefer to pay off their debts. I am somewhere in the middle - I can see that both holding onto cash and reducing liabilities have their own merits.

I think it is important to realise that when opportunities to make worthwhile investments are scarce, reducing liabilities such as your mortgage should not be overlooked as an addition to your portfolio (even though the numbers work the other way).

Calculate the savings you could make by making overpayments to your mortgage using my handy Mortgage Calculator.