Value of prepaying

Financial Planning - Financial planning in general. (Moderated) 

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Subject Author Date Value of prepaying Ron Rosenfeld 08-09-2008  Re: Value of prepaying joetaxpayer 08-09-2008  Re: Value of prepaying Ron Rosenfeld 08-09-2008  Re: Value of prepaying John A. Weeks I... 08-09-2008  Re: Value of prepaying Ron Rosenfeld 08-10-2008  Re: Value of prepaying Gil Faver 08-10-2008  Re: Value of prepaying Ron Rosenfeld 08-10-2008  Re: Value of prepaying Don 08-11-2008  Re: Value of prepaying Ron Rosenfeld 08-11-2008  Re: Value of prepaying Sgt.Sausage 08-11-2008  Re: Value of prepaying Chip 08-11-2008
Posted by Ron Rosenfeld on August 9, 2008, 4:57 pm I have an option to prepay my ISP bill. $419.40 for one year, versus $39.95 per month for 12 months. What is the best way to figure the advantage/disadvantage of prepaying? --ron -------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup. Posted by joetaxpayer on August 9, 2008, 5:29 pm Ron Rosenfeld wrote: > I have an option to prepay my ISP bill. $419.40 for one year, versus > $39.95 per month for 12 months. > > What is the best way to figure the advantage/disadvantage of prepaying? > --ron Well, you can do a net present value of each payment, and calculate the 'return' on your $419.40. Or I can multiply, see you are paying $419.40 instead of $479.40. Since the average of you payment stream would be six months, it seems a 14% return for 6 months, or nearly 28% per year. This is 'back of the napkin', but close enough for your question. I'd do the above NPV a bit later. ( I am covered in paint right now, and this is my break) Joe -------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup. Posted by Ron Rosenfeld on August 9, 2008, 7:29 pm wrote: >Well, you can do a net present value of each payment, and calculate the >'return' on your $419.40. > >Or I can multiply, see you are paying $419.40 instead of $479.40. Since >the average of you payment stream would be six months, it seems a 14% >return for 6 months, or nearly 28% per year. This is 'back of the >napkin', but close enough for your question. I'd do the above NPV a bit >later. ( I am covered in paint right now, and this is my break) > >Joe Yes, I did the NPV calculation and got around 28%. I also used Excel's XIRR function and got closer to 35%. Your back of the napkin answer, though, is more than close enough to convince me that it is a worthwhile "investment". Thanks. --ron -------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup. Posted by John A. Weeks III on August 9, 2008, 11:43 pm > wrote: > > >Well, you can do a net present value of each payment, and calculate the > >'return' on your $419.40. > > > >Or I can multiply, see you are paying $419.40 instead of $479.40. Since > >the average of you payment stream would be six months, it seems a 14% > >return for 6 months, or nearly 28% per year. This is 'back of the > >napkin', but close enough for your question. I'd do the above NPV a bit > >later. ( I am covered in paint right now, and this is my break) > > > >Joe > > Yes, I did the NPV calculation and got around 28%. I also used Excel's > XIRR function and got closer to 35%. > > Your back of the napkin answer, though, is more than close enough to > convince me that it is a worthwhile "investment". Even if it isn't worthwhile from the NPV point of view, it is from the time point of view. That is 11 payments that you don't have to worry about getting lost, writing checks, getting mishandled, or whatever. I'll take that time savings and reduction in worry any day of the week. -john- -- ====================================================================== John A. Weeks III 612-720-2854 john@johnweeks.com Newave Communications http://www.johnweeks.com ====================================================================== -------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup. Posted by Ron Rosenfeld on August 10, 2008, 12:22 am wrote: >Even if it isn't worthwhile from the NPV point of view, it is from >the time point of view. That is 11 payments that you don't have >to worry about getting lost, writing checks, getting mishandled, >or whatever. I'll take that time savings and reduction in worry >any day of the week. That could be an issue for some, and would be for me if I were still mailing paper checks. But I bank through USAA bank. They have free bill paying over the Internet and I can set up a payment to repeat monthly, for 12 months, about as easily as I set up a single payment. Yes, I suppose there is some chance of the payment getting lost, but I've been doing electronic bill paying from my bank, using CheckFree, for many years and checks getting lost in the mail is pretty darn rare. Most don't even go through the mail, but get deposited directly into the biller's bank. --ron -------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup.