It’s hard to change spending habits.  It’s not uncommon for people to set a new financial goal for themselves, such as regularly contributing to an existing retirement account, starting a new solo 401(k), buying a rental property, or even replacing your aging car, but setting the goal is the easy part.  Following through on your new financial habits is much more difficult.  The best tool that I’ve found for meeting my financial goals is this: positive financial momentum.  Little steps in the right direction help me build my resolve and keep the ball moving in the right direction.

Shortly before I turned 21, while I was attending college and working part time, I bought a condo.  This was in the year 2000, well before the housing bubble, in a time when you could scrape together a 3% down payment and that was enough.  In the fall of my senior year, I closed escrow.  It felt like a huge accomplishment.

I wasn’t making much money at this stage of my life.  But I did know how to work an amortization schedule.  I plugged in my loan information, and decided to see what would happen if I stepped up my payments.

How Much Would You Save By Paying a Little Extra?

My mortgage payment was only $965.94 (those were the days), and like I said, I didn’t have much money to spare.  But back in 2000, the interest rates weren’t like what they are today, either.  I think the interest rate on my mortgage was 7.75%.  I figured out that if I rounded up my payment to $975, paying just a tiny $9.06 extra per month, I would save $9,097 over the life of the loan.  If I rounded up the payment to $1,000, paying just an extra $34.06 per month, I would save $35,506 in interest.  Wow!

Since I discovered that, I’ve been paying extra on every loan I’ve ever had.  I paid off my first car loan $20,000 at 9% interest for 5 1/2 years in just 4 years, which doesn’t sound that amazing except that I was still in school for the first year and three months of it, and struggling to pay my new mortgage during that time as well.  I used the same philosophy as the mortgage, rounding up the payment to the nearest $25, and if I had even more than that in my bank account, I paid another extra chunk, whatever I could afford.  When I had a car loan and a mortgage, I would round both loans up to the nearest $25, but I would allocate all extra payments after that to the higher interest loan.

This month makes fifteen years from the date I first bought the condo, and in all that time, I have always paid more than my regular monthly payment amount on every loan I’ve ever had.  In July 2008, I moved from the condo to a SFR nearby.  Because of the housing market conditions, I had to keep both properties, which made extra monthly payments tricky due to the condo’s negative cash flow, but I still found a way to make it happen, even if it was small.

If you Refinance for a Lower Payment, Keep Paying Your Old Payment

When I first bought the SFR in July 2008, my initial mortgage payment was $1,950.  When interest rates dropped, I refinanced, and my payment dropped to $1,750.  I kept paying $1,950 or more each month.  It didn’t hurt at all, since I was already used to paying that much.

In late 2014, I was finally able to sell the condo.  After unloading that payment obligation, I reassessed my current income and expenses, and challenged myself to see how much I could pay per month on my house.  I figured out that with little to no lifestyle change (because I’m pretty darn frugal anyway), I could pay about $3,600 per month.  The closest loan I could get to that was a 10-year loan at 3% interest.  My loan payment is $2,974.07, but I’ve been paying $3,600 just about every month.  I should be paid off in about 8 years, when I am 43 years old.

How Much Extra Can You Spare?

The thing that made the most difference for me was getting the ball rolling early, and keeping it moving in the right direction, even with tiny little extra payments of $9.06.  If you get used to making small payments, you can challenge yourself to throw a little extra at your debt payments.  How much can you pay down per month without even noticing?  For most people, it’s at least $20.  Maybe even $50, or $100, or a few hundred.

Just like with anything else, it doesn’t pay to be unrealistic.  If you bring home $5,000 a month in take-home pay, you probably shouldn’t set a goal of paying $4,000 per month on your debts and mortgages combined.  Start with what you’re paying now, and add an extra 2% of your take-home pay.  For $5,000 a month in take-home pay, that amounts to an extra $100.  If you can pull that off for a few months, and you don’t really feel the pinch, add another 1–2%.  Hit the highest interest rates first, and run yourself an amortization schedule if you want to motivate yourself by seeing exactly how much you’re saving.  You can download amortization schedules for Excel from Microsoft’s website, or build your own here.

What do you do to keep your financial momentum?