More income? Less costs??

Posted: Jul 12, 2006 12:00 AM

A more modern approach to “which came first the chicken or the egg?” is the debate among business men and families alike: which is creates the better results—more income or less expenses? This battle roars in my little world as I am trained as a financial marketing person and my wife is a C.P.A. Whether examining our Companies or our personal life, we always see it slightly different: I am for more income and she is for less costs.

I do join her side when it comes to personal finance especially when examining a borrowers income and debt structure. While I refuse to give up my belief that a panacea for everyone would be more income, a practical approach seems to point out that isn't always the easy solution for most people. So I look at the debt structure and realize that by restructuring the debt, I can give people more spend able income. Once you have more spend able income, you can create more earned income with careful planning and investing.

Fortunately the economy currently makes it very easy to restructure debt if you own a house. Long term interest rates are equal to or lower than short term interest rates (inverted yield curve), and thus, it is easy to roll the short term debt into the long term debt and save time and money.

Example :
Home mortgage $250,000 @ 5.875% = 30 year $1478
Equity Line $50,000 @ 8.25 % = $350
Credit Cards $25,000 @15.00 % = $560
Auto Payment $14,000 @ 6.75 % = $430
Totals $339,000 6.93% =  $2818

A 15 year fixed loan for $339,000 at the bottom of the 6% range would have a monthly payment of $2860. A 20 year fixed in the middle 6% range would have a monthly payment of about $2530. Both loans save the borrower years of payments and one saves monthly income as well.

We currently have an economic reality that makes the above example easy for most borrowers to accomplish and results in cost cutting in turn allowing you to make better income. Use this information to your advantage and as my son might say, "Go with the flow—the cash flow!”