Pay off your mortgage faster (and make compounding work for you, not against you)

Knowledge is power. I know that sounds like a fridge magnet, but I really do mean it, especially when it comes to money.

I grew up in a family where education was seen as the way out and the way up. Both my parents came from humble beginnings.  My father didn't finish school, instead needing to go out and earn money for the family.  My mother came out to Australia when she was 7, and my grandmother was fixated on becoming educated as a way to make a better life.

That belief stuck with me. And while I'm not going to sit here and tell you that you need a finance degree to manage your money (I went and got one, and even that didn't fully prepare me), I will say this. If you don't know something, the answer isn't to opt out. The answer is to learn enough to take action.

This is what most women I work with are missing. Not intelligence. Not capability. Just the simple maths nobody actually showed them in a way that is relevant to everyday life, and getting ahead.

So today I want to walk you through something that genuinely changes lives. Compounding: both sides of it.

Compounding is just money making money

The technical term is compounding, but in plain language it's just money making money, on top of money.

You start with $100. It earns 10%. Now you've got $110. The next year, that 10% gets calculated on $110, not the original $100. So your money grows on top of itself.

It works the same way with debt, except in reverse. Interest gets charged on what you owe, and if you're not paying it down fast enough, you're paying interest on interest. That's the bit nobody really explains when you sign for a $500,000+ home loan.

Compounding either works for you or against you. The good news is you actually get to choose which.

The fortnightly trick that saves $62,000

Let me show you what I mean. I built a loan calculator inside the Prosperess app because I wanted you to see this for yourself, not just take my word for it.

Here's a pretty average example. $500,000 home loan. 6% interest. $3,500 a month repayment. Without doing anything different, that loan takes 21 years to pay off.

If you change nothing about how much you pay, but you split that monthly payment in two and pay it fortnightly instead, the loan term drops by 3 years. And you save more than $62,000 in interest. Same money. Same pay packet. Just split differently.

Why does it work? There are 26 fortnights in a year, but only 12 months. So when you pay fortnightly, you're actually making the equivalent of 13 monthly payments per year, not 12. That extra payment goes straight onto your principal. And the principal is what your interest is calculated on, so the loan shrinks faster, and so does the interest.

Most people don't know this. The bank isn't going to ring you up and offer to set it up for you. That extra interest is part of how they make money.

One thing to keep in mind is that this only works if you don't have an offset account attached to your mortgage.  The next example is for you if you do.

What happens if you find an extra $100?

Let's say you stretch a little. You find an extra $100 a month, on top of the fortnightly switch. On the same loan, that knocks more than another year off and saves you another $23,000.

Find $200 a month? You're looking at almost $44,000 saved.

I had clients recently who were on track to pay off their loan in 22 years. We added an extra $500 a month and switched them to fortnightly repayments. They went from 22 years down to just over 8. They wanted to retire in 7. With their old plan, that was a fantasy. With the new approach, it's actually almost possible.

This is what I mean by self-empowerment. They didn't earn more. They didn't sell anything. They just were shown the maths and made a couple of small changes.

Now flip it

Same principle, but instead of debt, we're talking about money you put aside.

Say you put $50 a month into a balanced ETF earning around 8%. That's the kind of return you can realistically expect from a diversified index fund over time. Not every year, but on average.

In 20 years, that $50 a month becomes about $28,000.

Push it to $100 a month and it's $56,000.

$150 a month and you're sitting on $85,000.

I keep these figures conservative on purpose. But even at conservative assumptions, the maths is hard to ignore.

And before you tell me it's too late for you, let me challenge you on that. The average lifespan for a woman in Australia is 87 and a half years. If you're in your late 40s or early 50s, that's another 30 plus years of compounding ahead of you. Plus your super is doing its own thing on the side. Plus you have time to add to all of it.

It is not too late. You just haven't started yet, which is an important difference.

Don't rely on discipline. Rely on automation.

Here's the part where I'd usually expect you to say "yes but I won't actually do it."

So don't rely on yourself. Set up an automatic transfer. I have one going from my account into my Vanguard account every month. The first time I set it up, I didn't leave enough in the account and it bounced. Once. Now it just happens. I don't think about it. I don't miss the money because I never see it.  Automation creates the habit for you.

Discipline is overrated. Automation is often underrated.

Knowing this is the thing

What I want you to take from this is that the gap between you and a more confident financial life isn't about being smart enough. It isn't about willpower. It's information.

Compounding either works for you or against you. Once you can actually see the numbers in front of you, you make different decisions. You can prioritise what to pay off first. You can decide whether another $50 a month into investing is worth it. You stop wondering and start doing.

If you want to play with the same calculators I used in this episode, they're built into the Prosperess app, and there's a 21-day free trial. Punch in your real loan numbers. See what fortnightly does. Run a future projection on what $100 a month aside actually looks like in 20 years.

You don't need to be good with numbers. You just need to see what the numbers actually do.