This month, several major television networks have announced plans to offer a la carte streaming programming online. For just a few dollars per month, you can stream just the shows or channels that you want without having to shell out big bucks for hundreds of channels you don't watch.
With these new services now coming to market, and existing online television options from Netflix (NASDAQ:NFLX) or Amazon (NASDAQ:AMZN), the typical household can get all the TV it wants for a fraction of the price of a cable bundle today. Here's the trick though -- the money that you can now save by cutting cable can be your ticket to saving thousands of dollars on your mortgage. Let's break down the math.
Uncut the cable and pay off your mortgage
The average cable bill for an American household is about $80 per month. We'll round up to keep the numbers simple, and just say $100 per month. I personally know many cable subscribers who pay closer to $200 per month. For these people, these technique will save even more money over the long term.
Let's also assume that our typical American family has a 30-year, $200,000 mortgage with a fixed 4% interest rate. If that household were to cut the cable and replace it with a Netflix subscription -- a little less than $10 per month -- and $10 per month in a la carte purchases, it would create $80 in savings per month. Instead of spending that $80 per month going out to eat or to the movies, this family could simply use the money to pay a little extra principal on its monthly mortgage payment.
At first, this may seem like peanuts -- $80 dollars is like a drop in the ocean compared to their $200,000 balance... right?
The savings are huge
That little extra payment every month, made possible by switching from bundled cable to a la carte television, will save this family $22,364 in interest payments during the life of its loan. Those "peanuts" will enable this family to pay off its loan four years early.
For many families, that means retirement can come four years earlier. It means financial freedom comes four years earlier. It means that the household's net worth increases that much faster.
For those of you paying even more for cable each month, the savings add up dramatically fast. Adding $150 extra per month to our same hypothetical mortgage will save $36,686 in interest, and pay off the mortgage six years and nine months faster. An extra $250 per month will save nearly $52,000, and pay off the loan just shy of a decade early. A decade!
Simple changes can yield gigantic results
Let's face it... controlling your household expenses can be a pain. Going out to eat or to the movies is fun. Changing your routine is hard. Pinching pennies is a stressful exercise for anyone.
The beauty of this opportunity is that you aren't really giving anything up. You can still watch your favorite shows or your favorite sports teams. Your quality of life is virtually unchanged. Instead of flipping channels on your cable box, now you're flipping channels on your Roku for a sliver of the price.
Taking these savings and putting it to use in a productive way could just as easily boost your retirement savings or your brokerage account. The key is that, what was once a non-productive expense, is now a productive asset, working for you instead of against you.
Jay Jenkins has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and Netflix. The Motley Fool owns shares of Amazon.com and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.