How to invest free money: to make a contribution or to repay the loan?
Get Rich / / December 20, 2019
We offer our readers a wonderful material, which affects the very sad, so very current topic personal finance. Many of you have loans that you regularly extinguish. But imagine that you have received the 13th salary, Christmas Bonus or other nice extra income. What to do with it? To spend? Put on deposit or to repay part of the loan over the plan? The answer to the question "What is more profitable," and gives the material below. Also there you will find a friendly loan calculator in Excel format.
Recently, I had Free money. And as always, when they occur, there was a nice problem - where to spend them? All sorts of useless purchases, I immediately dismissed. I was interested in how they can be used more? So my choice fell on two possible options:
- Contribution;
- Or the repayment of a part of my old loan. Oddly enough, this too can earn.
What follows from this is more profitable? And how? At the same time I was not interested in the moral side of the question: "How nice to have money on deposit .." or "to live well without credits." A purely economic.
So, given that:
- We have in stock 10 000 rubles free;
- In August 2011, we decided to make repairs in the apartment and buy a ton of bananas. To do this, we took a loan in the amount of 100 000 rubles;
- The loan was taken in August 2011, thus the loan already repaid within 15 months;
- Monthly payment on the loan: 2540 rubles, way of repayment - Annuity (annuity - when the loan is repaid in equal installments. For example, a 2540 rubles a month. Conveniently. But overpay more than in other cases).
- Term: 5 years;
- Interest is calculated on a monthly basis in the amount of the remaining debt;
- Alternatively, consider a contribution at 10% per annum with interest once a year.
In both these cases, something is happening in our lives. Try to understand that.
Now we move on to the fun. Understand how much we earn, in both cases, and that we will be enough.
To do this, try to calculate the return on our investments in deposits and loans, the so-called ROI.
ROI - return on investment rate. Expressed in%. It involves comparing the amount of income from investments and the most amount of investment. For example, I put in the bank to 10 000 rubles, and a year later get back 11,000 rubles. It turns out I have earned 1000 rubles - this is my income. It constitutes 10% of the initial investment. It is believed this is the case:
(Amount of income / Amount of initial investment) × 100% = (000/10 1 000) × 100% = 0,1 × 100% = 10%
This figure is needed in order to compare the different investments and investment. Where the ROI is greater than 0, and there is more profitable. For example, it is better to invest 5,400 rubles and get 500 or 7800 to invest and get a 600? ROI will help answer this question. In the first case, ROI = 9,3%, while in the second, 7.7% (try to calculate their own). In the first embodiment more. He profitable. It turns out more profitable to invest the 7800 in the place where the give 500 rubles for 5400. In this case we get 722 rubles instead of 600. Imagine, you would have invested 100000?
In the case of the contribution is clear - how much money is earned, and so is the income. That is 10% of the 10 000 = 1000 rubles of income. Consequently, ROI contribution = 10%.
With regard to credit - everything is a little more complicated. We need to understand one simple thing. In fact, the income from such investments is to reduce the amount of monthly payments. Because cost reduction leads to an increase in the amount remaining in your funds. For example, you pay on the loan 10 000 and began to pay 9000. Benefits? Of course, even an extra 1000 - it's nice. So, the important is not the size of the amounts of payments and the fact that you have them reduced. In business, it uses a simple approach: what is saved - it is earned. Use it and you will. The less we pay, the more money we have left for our needs.
So, what we have with credit. After spending calculations (with the help of a bank employee or tabletsYou can upload to work in Excel or Google Docs), we show that by investing 10 000 to our credit, we lower our monthly payments to 341.24 rubles. That is, to earn additional income in the amount of 341.24 rubles. It would seem a little bit. But for the year (12 months) for 4 nabezhit 094.89 rubles. That is more than the deposit. Fine! We can spend that amount for the next New Year or put them one more time to repay the loan. By the way, what here ROI? You can calculate it yourself. He will have equal to 40.9% or 41% for good measure. Thus, it is clear that, by reducing the payments we receive ROI = repayment of the loan 41% per annum.
So what happens?
Bonus!
In addition, there is another point that should be discussed. This is the amount of overpayment on the loan. IN file It is a calculation that shows that by reducing the debt on the loan, the amount of the overpayment will be reduced from 52 thousand. up to 49 thousand. rubles - more precisely at 3 157.72 rubles. This amount is saved, and thus earned for the remaining 45 months (remember, we pay the loan over 15 months).
Thus, the monthly yield = 3 157.72 rubles / 45 months = 70.16 rubles / month. Per year = 70.16 rubles × 12 months = 841.92 rubles. It can also be considered an additional advantage of early repayment of the loan, and indirect income from the investment = 8.4% (841.92 rubles / 10 000 × 100%).
Total, total yield of early repayment 4 = 094.89 rubles (reduction of payments) + 841.92 rubles (reduction of the amount of the overpayment) 4 = 936.81 rubles = 49%. Now we accurately enough at the beginning of the New Year celebration!
So, how do you choose an attachment to us mere mortals?
1. If you already have available funds, then decide if you want to earn additional income?
2. Analyze what your available investment alternatives.
3. Determine in what form you will receive income from these investments? In the case of deposit - is the interest on the deposit, in the case of credit - reducing the size of monthly payments and reducing the amount of overpayment on the loan.
4. Determine the amount of income. In the case of a bank deposit - is% of the contribution, in the case of credit will help you a table or calculations banking specialist.
5. Calculate the amount of annual income. While in rubles.
6. Calculate the return on investment (ROI). The resulting annual amount of income divided by the sum of investment and multiply by 100%. You will receive the percentage of return on investment. Resulting from different investment percentage can be compared between themselves, identify the most profitable investment.
7. Voila! Congratulations! You are on your way to riches!
Personally, I calculated (and is the key word here) that my Free 10 000 is much more profitable to invest in credit repayment and get with this 49% per annum. I hope that this article will help you make the right decision in difficult, but such a nice question, as an investment. Manage their finances wisely. Include soobrazhalku :)
upd. By the way, we have continued to study the theme of personal finance, in a new article about depreciation of money. Welcome!
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You may be interested in other articles of the author:
- Keep the money at home? You lose 13% per year!
Refinancing: or how else to save money on the loan?
- How much is your credit?