If you haven’t noticed by now, I’m a big fan of incrementalism. Like an establishment politician, I believe in taking reasonable baby steps toward an idealized future (and unlike said politician, some day I’ll actually get there… at least where my personal finances are concerned).
You can make really big progress on your debt and savings gradually, by degrees, and it feels so much more manageable and easy than committing yourself to meeting your financial goals in big chunks.
Take, for example, the debt-killing power of rounding up on all your bills.
How it works
Look at your debt—your student loans, for example. The monthly minimum payment is probably not some nice even number. It’s probably something impossible to remember and calculate in your head, like $194.79 or whatever. But when you’re thinking about your finances in broad terms, you probably think of that number as “about $200 per month.”
Well… so why not make it $200 a month?
Rounding up your debt payments to the nearest increment of $10 or $100 can save you a metric fuckton of cash in the long run. Yes, even if it means adding only $5.21 to your payment every month. And most of us, no matter how strapped for bus fare and ramen money, can figure out how to squeeze an extra $5.21 out of the monthly budget.
Trent Hamm over at The Simple Dollar laid out the very simple math of rounding up using a hypothetical mortgage. I highly recommend you read his breakdown of the savings, and that you do your own math using a mortgage calculator. The proof is in the pudding, as they say. The cold, hard, numerical pudding.
In the student loan scenario I laid out above, rounding up by just a few dollars could potentially save you hundreds of dollars in interest, and end your loan payments months earlier than if you’d simply paid the minimum monthly payment for the life of the loan. And all for the low, low price of $5.21 a month!
Obviously it’s not as significant as the savings you’d gain by doubling your loan payment every month, or by rounding up to the nearest $50. But it’s much better than nothing.
Calculations made simple
Who the hell can remember an exact bill like $194.79? It’s much easier to remember a nice round number like $200. And for your budgeting purposes, it’s so much simpler to figure out your finances in round numbers rather than odd ones. Thinking of your debt in terms of a $200 student loan payment, a $300 car payment, and a $1000 mortgage allows you to calculate your monthly debt allowance in your head instead of with a calculator. So rounding up isn’t just for debt-crushing go-getters—it’s for us lazy fuckers too.
We’ve already established that you’re basically thinking of that odd number as $200 anyway. So why not make it official and save yourself a headache? Round up across the board with your debts and look like a mathematical and financial genius! Make a habit of rounding up on all your bills and you’ll start making real progress on your debt without even noticing.
Effortless and magical
Effort-free debt elimination feels a little bit like magic. When my husband and I bought our house, we committed to rounding up our principal payments to the nearest second hundred every month. Ideally, we’d like to double our principal payments to cut the life of the loan in half, but we have more pressing financial obligations right now, like my husband’s student loan debt, so doubling the mortgage payment will have to wait another couple of years.
We live in a rapidly gentrifying neighborhood, so naturally our property taxes went up by a few dollars a month recently. Because we’re already rounding up our mortgage payments by a significant margin, we didn’t have to change a thing. The extra property taxes are just absorbed into the same hefty automatic payment we’re already making. I read the notice of the tax increase when it arrived, shrugged, and went back to playing Skyrim.
The moral of this story is that paying down your debt should never interrupt your dragon slaying activities. And it doesn’t have to.