Saving for your escape to adventure

January 5, 2009 by  
Filed under Money Space

Back in the October 2008 edition of The Calm Space when the theme was adventure we spoke about the concept of saving and preparing for adventure (from a financial perspective).

So it should be hardly surprising when I say this month’s theme of Escape is, in my mind, very much connected. Escape can mean and be achieved in so many ways and is conceptually unique to each of us. Let me look at the financial perspective a little.

The practical side of the issue relates to how to best fund your escape to adventure. In October I suggested that if we had our financial house in order we would have the funding necessary to achieve our adventure and escape. One of the tried and proven methods is saving, but, just how best to do this.

Over the years all sorts of methods have been espoused. Most are just variations of the central theme with a few little sexy bits thrown in to attract attention. So, I will just look at one method you might like to use which is relatively simple with the advent of internet based banking facilities offered by most banks.

Given our love of property, and the likelihood of mortgages on our own residence, this might be a good place to start. The old home loan is not what it used to be, so we should take advantage of the increased flexibility offered through these products and save some money at the same time.

If we accept that paying down the home loan as quickly as possible saves us money in the long run, then perhaps this is the ideal method of providing a funding facility for our escape. Every dollar paid off the home loan saves us interest (and the time left to clear the mortgage) and this could mean a pretax return of up to 13% depending upon your marginal tax rate and the interest rate on the home loan. I believe anyone would agree that this is a healthy return in the current investment environment.

So if you have your financial house in order and have significant equity in your home, some regular extra savings could be used to reduce the home loan even further until you are ready for that escape. A suggestion could be to use a clear credit card to pay for the escape and have up to 55 days interest free before you need to draw the funds from the extra available savings in the home loan to pay off the credit card without incurring interest. The other side of things is that the home loan would have effectively reduced during the saving period and the extra 55 days from the credit card.

This is one method of having your cake and eating it too. This all assumes you check out the exact arrangements as it would affect you, since my suggestion is only general and you will need to take your own circumstances into account before implementing any action. You should always run this past your financial adviser as well to ensure it meets your individual needs and circumstances.

One more thought. Given the current focus on the current financial crisis in the media is important to ensure your debt profile is appropriate given your overall circumstances and structure. Any thought of escape must be considered in context of your overall position.

Whatever your escape enjoy it! I believe we work to enjoy the opportunities for life experiences, so it is the old saying, “we work to live and not live to work”!

All the best for the New Year, may your financial & other goals be far exceeded!

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