How can spending more can save money? Surely, the best way to save money is not to spend it in the first place?
As a general rule, I agree. I try to spend only on what I really need and think twice (or three or four times) before opening my wallet for things I only want.
However there is an area where spending more makes complete sense: your mortgage.
At the moment, interest rates are so low that your savings hardly pay anything. The good news is that you also pay less interest on what you have borrowed. So, if you have a repayment mortgage, your monthly payments are lower than they were a few years ago.
I use that to my advantage: every month I use any money left over from the month before to make an extra payment and I ask to have the term reduced. It means that, not only am I paying the principal (the amount of money I borrowed) faster, I am also reducing the amount of interest I am paying for the privilege of owing the bank.
Important note: Check with your bank that you can pay lump sums without penalties. Not all mortgages allow that.
I have chosen to pay lump sums every month rather than increasing my monthly payment because I can’t be sure I would be able to pay extra all the time. I don’t have a steady income and I don’t want the stress of wondering where the money would come from.
I started overpaying in October 2015 when I finally became debt-free and I have already reduced the length of my mortgage by almost 2 years (that’s 20%) and saved about £800 in interest!
So yes, sometimes spending more is a great way to save money.