Audio Transcript Auto-generated
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Hi, I'm Maria Waldmann, and I will be your investor
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for today.
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I have made six categories in which I explain what
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investing is like in the real world, and they go
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as follows.
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Savings account, CD mutual fund stock portfolio.
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What are the best options and real estate investments?
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So let's start with saving account.
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Let's say you invest in a savings account 1% a
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p r.
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And this goes for every single investment.
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The higher the risk of losing some of your money,
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the higher the potential return.
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So let's start.
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What is this savings Captain?
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How does it work?
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It's an account opened at the bank, which bears interest
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and usually provides a lower rate of return but provide
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security with investment.
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It is also insured by F D I C up
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to $250,000.
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So what are the pros and cons of savings account?
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The pros are that are that it's very secure.
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You can withdraw money at anytime you want.
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There no instructions The concert that there is a low
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interest rate all together in a safe and accessible at
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a lower interest rate.
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A good use of a savings account is for emergency
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fund. When you need Teoh withdraw money at any given
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time. So what is a P R A.
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P R stands for annual percentage rate, and it is
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basically the annual interest you receive on your investment.
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So 1% a PR must mean that you are No
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1% interest per year and your money increases by 1%.
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So what's the formula and finding a PR?
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The formula to finding a PR is a equals.
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P Times one plus R over end to the power
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of NT a sense remount.
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P stands for principal amount of money.
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R equals interest rate and equals the number of times
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interest is calm, pounded, or the unit of time and
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T is time.
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What happens if you invest half of the money?
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Your initial amount of money invested is $20,000 but by
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investing half of it, you only invest $10,000 meaning after
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five years, you would get $10,510 instead of 2120.
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So how did I find this calculation?
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Try as calculation you to use the formula from the
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previous life, which is a equals p times Wimple czar
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over and to the power of anti and it results
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in 21 or 20 for $20,000 investment at 1% a
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PR for five years.
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If he divided this number in half, you get precisely
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$10,510. Here's what the formula looks like when everything is
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plugged in a equals 20,000 times one plus 10.1 to
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the power five a equals 20,000 times 1.1 to the
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power five a equals 20,000 times 1051 a equals 2120.
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Divided by two equals 10,510.
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The next category is a CD investment.
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Let's say, invest in a five year CD at 2.75
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a PR at $20,000.
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So what is a CD and how does it work?
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I see it.
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He is a certificate of deposit.
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It is also an interest bearing account, but it is
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different from a savings account and is insured by F
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D. I.
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C. Up to $250,000.
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So what are the pros and cons?
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The president that there is a higher interest rate than
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a savings account.
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It's pretty secure in.
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It is safe to use.
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It's conservative and there's a guaranteed interest rate.
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The cons are that you have to put in the
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money for a specific period of time, and you can't
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access it readily.
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You can't withdraw early on.
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If you do, you pay a penalty and the interest
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rate is lower than the stock market.
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The good news subsidy is not for emergencies, but for
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future use.
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So what happens if you inherited 25,000 set of 20,000?
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The difference will be the extra $5000 inherited, which would
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be approximately $500 per year, 2.75% a P R.
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So the calculation money is increased for five years.
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At 2.7% 2.75% appear.
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$20,000 equals $22,905.47 which is almost $3000.
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Learned over five years, $25,000 equals $20,000 $20,631.83 which is
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basically $3631 earned over five years.
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The difference is about $600 but you would lock it
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up for five years of the CD that therefore you
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would have money but not readily available.
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Does an additional $5000 investment significantly impact your investment in
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comparison to the initial $20,000 investment?
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Yes, it does significantly impact your investment comparison to the
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initial $20,000 investment, but only if you don't need that
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$5000 immediately for an emergency.
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So let's go into a mutual fund investment.
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Let's say, Invest in mutual Fund April at 8% a
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P R.
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With $20,000.
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What is it, mutual fund?
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And how does it work its investment?
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Where a financial company, R money manager, pulls together money
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from different investors and invest in other, um, investment vehicles.
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The money manager creates a portfolio and all this of
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all investors in the pool and invest in stocks, bonds
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and other securities and provides them with accounting.
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It's called mutual because each investor shares in all of
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the investments.
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So what are the person cons of it?
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The pros are that there is a higher rate of
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return. There's diversification.
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There's the power of money or economies of scale.
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There's professional management, and there's variety of investment.
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The concert that it's not safe and not insured by
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F. D.
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I C and feezer fees for commissions for professional management.
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There's also the risk of losing your money because of
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dependence on stock market and last finales.
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It's hard to choose which fund to invest in.
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Ah, good use of a mutual fund is pulling together
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money to buy large stocks.
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In addition to looking at your five year investment, Find
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out what a 10 year investment would do for you.
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What the original investment of $20,000.5 years and 8% a
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P R.
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It would give you $29,386.56 which is almost $10,000 gained
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for 10 years.
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It will be 43,000 $178.50.
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You would get $23.23,000 dollars.
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The longer the compound period, the higher the game.
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The last category is stock portfolio investment.
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Let's say you invested stock portfolio at 10%.
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A pure So what is the stock portfolio and how
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does it work?
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Stock portfolio is when you buy individual stocks in the
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stock market, usually through a broker online in different companies,
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depending on your preferences.
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UNIPH individual stocks make up your portfolio.
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You can either buy and hold stocks, or it can
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actively trade stocks on the market.
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So what are the pros and cons?
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The pros are that if, if the economy grows, stocks
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grow. There's also a higher rate of return than other
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securities. It's easy to buy.
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You can pick and choose cos you like, which goes
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for all of them, really, Their value grows.
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Many stocks also paid dividends, um, and payments of a
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company's available cash.
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The cons.
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The cons are that it's very risky and traded at
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the market.
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Markets fluctuate and are volatile or explosive.
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If you buy stocks on your own time, you have
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to research well because you're managing it yourself.
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And because the market fluctuates, it causes stress for you,
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the investor.
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And also there's the professional competition, which is hard.
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Ah, good use of a stock portfolio is that the
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investor holds shares in different companies or diversification.
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So what happens if you double the amount you invest.
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If you invest $20,000 at 10% a PR over five
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years, you get $32,000.32,210 dollars and 20 cents.
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If you double with the money, you invest 40,000 over
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five years, a 10% a p r and you and
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gets you would get $64,420.40 the amount of the and
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also process flee doubles.
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So which, which investments of this for you?
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I personally would choose a CD because that it is
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very safe.
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I would get a guaranteed rate of return after the
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period is over, and I can forget about my investment
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for a while.
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Unfortunately, I won't be able to use that money for
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the dozen made time, period.
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And the interest is lower than the mutual funding your
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stocks. But the risk is lower than either because my
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wrist challenges so low.
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I prefer safety over high rate of return, and here
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is what all of the investments look like on a
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graph. So, as you can see, the um, the savings
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account is the lowest.
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The CD is second lowest, the mutual fund is third
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Lois, and then the stock portfolio is the highest.
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Here. We go to real estate investments and best in
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$180,000 home, taking out $160,000 for mortgage for 30 years
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at 5.7% appear monthly payments.
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The formula for finding monthly payment on a $180,000 home
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is a equals.
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P Times one plus R to the power of why
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times x r Divided by one plus R to the
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power of why minus one.
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So if you use this formula and plug everything incorrectly,
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the monthly payment for the mortgage would be $933.72 determine
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the total amount paid over the life of the mortgage.
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Take the payment for 12 months for 30 years and
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months and multiply it by the monthly payment.
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So $933.72 times 360 because 30 years for 12 months
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a year.
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And that would give you $336,139.20 which would be the
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total interest paid over the life of the mortgage.
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Total interest paid would be that number 33 $336,139.20 minus
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160 thousands equals 176,000 $139.30 and 20 cents.
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This is the difference.
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So why is it so much money?
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Why are you paying so much for $180,000 home?
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You're paying a lot for this home because you pay
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for the privilege or the right to use the money
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for housing and basic terms.
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You read the loan money and pay the rental fee
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for loaning the money isn't worth it to get a
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mortgage, if you can pick out right.
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No, if you have funds, it is better to pay
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outright toe own the property as soon as you pay
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for it because you do not pay interest or twice
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as much as the house was worth.
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The only caveat is that most people don't have that
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kind of money readily available.
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So if you calculate the value of the home after
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30 years, assuming a 5% interest increase every year.
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Um, this is what you would get.
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After about 30 years, you would get $777,949.63 which is
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the total amount paid over the life of the mortgage.
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And you would profit.
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You get a profit of $441,810.43 if you calculate the
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mortgage of if you calculate the value of the home
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and the mortgage after five years, it will be worth
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$229,730.68 after, according to a mortgage calculator.
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Initial amount was, uh, you get you get the initial
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mountain divided by 12 because that's how many months or
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a year and then you multiply it by five.
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Because that's waiting.
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Period. Mortgage will be $148,000 on 148,000 $196.96 after five
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years, according to Mount Mortgage calculator.
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If you sell the house after five years at the
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value of $229,730.68 and pay off the remaining mortgage of
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$148,896.96. How much?
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How much would you have left?
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So the prophet you would make would be $81,000.533 530
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$81,533.72. The percentage return would be 76,000 but and $23.20.
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If you subtract the profit by the amount spent, it
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would be $5000.505,510 dollars and 52 cents, which would be
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the net profit.
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And if you divide in the net, profit over the
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total amount paid you would get a 72% are 7.2%
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interest to find the monthly payment total paid over the
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life of the mortgage, and the total interest paid for
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a 15 year mortgage at 60 at 6%.
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So the monthly payment will be $1000 $1350.17 and it
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gets slightly higher every month with interest.
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Total interest paid over the life of the mortgage will
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be $83,030.77.
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The total paid over the mortgage would be $243,030.77 compared
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to 30 years.
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With 5.75% interest.
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It would be $93,808.42.
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Your total payments are $93,108.43 less than 40 for a
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30 year mortgage.
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So would you rather take out a longer mortgage at
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a lower percentage rate or a shorter mortgage with a
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higher percentage rate?
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Personally, I would rather take out a shorter mortgage because
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I would end up spending less overall.
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But I would pay more every month if you can
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afford it and pay other bills.
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Shorter mortgage is a better option.
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Thank you for listening by