The Afterburn Effect Applied To Personal Finance

One of my favorite episodes of Seinfeld involves a plot where George puts in a furious workout which leaves him still sweating after he gets back to the office.  This leads to him being accused of stealing from his employer, as they figured he was sweating from being nervous.

In reality, this type of sweating is actually a good thing when it comes after working out.  It’s known as the afterburn effect, and basically says that after a rigorous workout, your body will still burn extra calories for several hours following a workout in addition to the calories expended during the workout itself.

I’ve actually applied this to my workouts, trying to work out harder for a slightly shorter amount of time versus a moderate workout.  After the moderate workout, your body basically wraps up, whereas after the rigorous workout, additional calories will continue to be burned.  So, even though the calorie meter might read the same, the net calories could be wildly different based on the type of workout you do.

Did you know that the afterburn effect can apply to personal finances?

I think that it can!

Let’s look at an extra mortgage payment.  If you take part of your tax return and make a 13th payment on your mortgage, you’ll see an immediate decrease in your balance, which is the equivalent of the calories burned during a workout, but the afterburn kicks in when you look at the interest payments moving forward.

Let’s look at a hypothetical mortgage for six months.

Without an extra payment, the portion applied to interest might look like:

Month 1 – $500
Month 2 – $498
Month 3 – $496
Month 4 – $494
Month 5 – $492
Month 6 – $490

This would total $2,970 in interest over the six months following the extra payment.

With an extra payment, it would probably look something like this:

Month 1 – $497
Month 2 – $495
Month 3 – $493
Month 4 – $491
Month 5 – $489
Month 6 – $487

This brings your total to $2,952 over the next six months.

That’s an $18 ‘savings’ over the six months.  That isn’t money in your pocket, because your payments will stay the same, but it will grow your principle balance (and thus your net worth) by that amount.

Now, you can say, “But, Money Beagle, what’s the difference? It’s only $18”

This is true, but I have two things in reply to that:

  1. The net effect is greater than $18.  I only showed the first six months, but in reality, an extra payment will affect every mortgage payment for the rest of the length of the loan.  This could really work out to an extra couple hundred bucks.
  2. On top of that, the effect adds up quickly.  What if you made a second extra payment split up through the year?  Suddenly you’re looking at $36 over the next few months and probably could be $1,000 savings over the life of the loan.

Bottom line, pennies can add up to dollars which can add up to lots of dollars.

It’s not just debt.  Add an extra 1% to your retirement 401(k) contribution.  $20 per paycheck might not seem like a lot, but that’s $500 a year which can be worth $10-20k in a few years, and could add a couple of hundred thousand dollars or more to your retirement balance when you finally decide to call it quits.

Plus, it ties back to the workout analogy.  You’re not going to lose 10 pounds with one intense workout, but if you put in an intense workout three days a week for a few months, you’ll see those ten pounds work out.  Same goes with extra payments, the effects seem minimal with each individual ‘financial workout’ but the effects can and will add up if you apply this principle regularly.

And, I believe this can tie back to the afterburn effect?

Do you or have you exercised to the point where the afterburn effect was noticeable?  What other applications in the personal finance world can you apply this principle to?

Making One Good Decision Is The Key To Everything

Monday through Friday, my alarm goes off at 5:04AM.  I have two options:

  1. Get up, go downstairs and exercise.
  2. Flip the switch, resetting the alarm for 5:39AM.

That’s a gap of thirty five minutes.  It’s thirty five minutes of extra sleep or it’s a thirty minute workout.

My goal is to work out three times a week minimum.  More would be nice but anything less than three and it’s not a good week.

I don’t do anything too intense. I have a recumbent exercise bike in the basement, so I’ll head downstairs to use that.  Sometimes I’ll lift some of the dumbbells that we have down there.  During spring and summer months, I’ve been known to walk around the neighborhood and enjoy the sunrise.

But, it all starts with that first decision.

Measuring My Progress by kretyen, on Flickr

I’ve found that the decision on whether to wake up or sleep in goes much further than that.  It can lead to an overall impact much greater than that of just the workout.

In an average workout, I burn, for the sake of argument, 150 calories.

That means that the difference between a day when I get up versus a day when I don’t is 150 calories.

Not too shabby, right?

Except it often goes further.

On a day when I work out, I know that I’ve already started things on the right foot.  So, when it comes time to pass the candy jar later in the afternoon, I’m more likely to pass on a day when I’ve worked out versus on a day when I haven’t.  That can be 100 calories of no-candy eating.

When I get home from work, I’m normally hungry and I’ll usually have a snack at the same time that Little Boy Beagle wakes up from his nap as a way to tide me over until dinner.  One of my favorite things to snack on is graham crackers.  I’ve found that on days when I work out, I might grab a sheet, break it in half, and eat just that.  On days when I don’t, I’ll eat an entire sheet or maybe even more.  That can be another 100 calories!

Add those three things up and we’re talking a difference of 350 net calories in a single day, but the ‘indirect’ benefits have already become more of a factor than the direct benefits derived from the actual workout.

The same can hold true with financial decisions.  If you’re on a strict budget, and you go out on a whim and spend $10 that wasn’t accounted for, that might look innocent enough especially when you figure that $10 isn’t going to really break the budget that much.

Only that $10 purchase can open the door.  After all, if you can afford $10 without an impact, what’s going to stop you with the next thing you want that’s $20? After that, it could be $40.  Keep going and you’ll suddenly be wondering how you spent $500 over budget at the end of the month.

All because you made the $10 decision that started the whole thing.

I truly believe that making one good decision is the key to making a lot of other decisions that will help things go your way.

Don’t worry about every decision being the right one.  Just focus on the first one you make being the right one, and you’ll have a much easier time of it and you’ll find that many other decisions will simply fall into place.

And, for the record, today I got up at 5:09!

Why I Haven’t Started Exercising Yet

I have an exercise bike.  It’s in our new office / exercise room in the finished area of our basement.  Now that we have finished it off, added a small heater, TV, and other cool elements, there’s no excuse for me to not use it.

mb-201101runningBut I haven’t started yet.

And that’s sort of on purpose.

Why’s that?

Well, everybody makes resolutions at the beginning of the year to exercise more, lose weight, get in better shape, blah blah blah.

We’ve all heard it.  We’ve all done it.  Very, very few have actually followed through.

I think that the beginning of the year is an arbitrary time to stop exercising.  I think setting it as a big goal tied to the success of the entire year makes it a pressure filled goal that only leads to increased chance of failure.

I want to exercise.  I will exercise.  It’s just that I’m not going to do it with all the fanfare.

Besides, I’ve been getting lots of exercise with the various projects tied to getting all of our rooms ready.  As soon as that happens, I’ll start my workout program.  Chances are when I start, over half the people that resolved to do so will have already quit.