In this episode, your Cash Flow Consultant goes through another case study in Dynamic Banking.
Hi folks. In today’s episode, we will be
going over a dynamic banking scenario
for an awesome educator up in Portland,
She’s hoping to retire in eight
years or so and we want to make sure
that she can have all of her debt paid
off by the time she’s ready to retire.
We’re gonna go over the whole plan in
detail, including how our average daily
balance is affected month after month.
So, stay tuned. We’ve got a lot of information
coming your way.
Let’s start with a brief overview of the
So with dynamic banking, we are looking
to maximize our cash flow by funneling
all of our income for a month,through a
line of credit and then from the line of
credit, we’re paying our bills.
We’re not letting our funds sit in a
checking or savings account at any point
during the month if we can help it.
Money that’s sitting in a checking or savings
account for the most part is earning you
zero benefit. Meanwhile you have loans
out there that you’re paying interest on.
So, this method will maximize your cash
flow. Take a look here, our teacher in
Portland, between her and her husband
we’ve got $7,500 in income, $5,500 in
expenses, three hundred and five thousand
debt and about two thousand cash flow.
Now, these numbers are rough numbers. She
didn’t have her exact budget figured out,
but I figure after taxes their income is
about seventy five hundred and they were
thinking four thousand for monthly
So, I pumped up another fifteen
hundred each month just for having fun,
vacations, being able to enjoy your life
while you’re trying to pay off all of
So, realistically there’s a
number of reasons that this plan could
end up being paid down a lot faster than
what we’re anticipating here today, but a
lot of that will just depend on how
closely somebody can stick to the plan
and how aggressive they are in saving on
their extracurricular expenses.
we’ve got a truck payment, five hundred
and five dollars a month, thirty-three
thousand dollar balance at five percent
interest. We have a trailer payment two
hundred and thirty one dollars per month,
twenty two thousand dollar balance, four
and a half percent interest.
We have a mortgage
$1229.81 a month, four point two
five percent interest and two hundred
fifty thousand dollar balance. Now, again,
these numbers are approximates.
Okay, so our educator friend has not got her line
of credit yet, but she has excellent
credit. I don’t anticipate she will have
any trouble getting a line of credit. So
I’m defaulting to a line of credit.
I’m recommending she gets about twenty five
thousand dollar line of credit. Her
interest rate will likely be better than
six point two five percent.
Again, that will lead to a quicker payoff than what
we’re anticipating today, but I had to
have some numbers in order to make a
plan here so she can see the value in
So, to finish off the
plan here, we’ve got paychecks going into
a line of credit. We want to be sure to
use a rewards credit card for as many
daily expenses as possible.
The reason being this is interest-free
money. If you pay it off each month, you
will not pay any interest. So, it helps us
to keep the average daily balance on
that line of credit as low as possible,
leading to the lowest possible interest charges
Let’s look at this in action.
So we’ve got a $12,000 balance. We’re going
to do a chunk of 12,000 towards the
truck loan to start off this plan.
You can see we’ve got a 12,000 dollar
balance on day 1. Day 2, we get our
paycheck, that gets deposited midway
through the month. We make our mortgage
payment, You’ll see this as higher than
what we show on the other screen and
that’s just because this includes taxes
And down here at the end
of the month you will see our credit
card charges getting paid off
and our final balance at the end of the
month after our $2,000 cash flow – $10,000.
So, we started at 12,000, we’re down to
10,000, but the magic happens in between
those numbers. So, let’s take a look.
You can see our average daily balance over
here, it starts off at 12,000, goes down
below 5,000. Jumps up a bit and then gets
back up to 10,000 at the end of the
Our average daily balance, five
thousand eight hundred and thirty nine
dollars and sixty eight cents, in this
scenario. For an interest cost of thirty
one dollars for the month.
So, we borrowed twelve thousand dollars and we paid
thirty one dollars of interest that
month. Month number two we’ve got our
$10,000 starting balance. Same scenario.
We get paid. We make our mortgage payment,
and at the end of the month we have an
$8,000 balance, but our average daily
balance this month is three thousand
eight hundred, thirty nine dollars and
sixty eight cents. For an interest payment of twenty dollars and 38 cents.
You can see it in graph form. Here, we start out at 10,000. Our check, paycheck, goes in, make our mortgage
payment, pay off the credit card and we
finish off at $8,000.
Month 3, we start off at $8,000, yada-yada-yada
and at the end of the month were down to
$6,000. Average daily balance $1839.68, for an interest
charge of nine dollars and seventy seven
cents. This is amazing.
Take a look. $8,000. Paycheck goes in,
mortgage comes out, credit card comes out,
and we finish off at $6,000. So, we
essentially used $8,000 throughout the
course of that month, for nine dollars
and seventy seven cents.
Remember, that $8,000 was put towards the truck loan. So,
we shifted $8,000 from that truck loan
into the line of credit and it only
cost us nine dollars and seventy seven
cents for this month’s worth of interest.
So, let’s tie this all back together. We
use our rewards credit card for daily
expenses. Our paycheck goes into our line
of credit. Our regular expenses come out
of the line of credit.
To start off with,
we chunk $12,000. There’s our paycheck
going in, expenses coming out. End of
month one, we’re at 10,000. Same thing
happens, end of month 2, we’re at 8,000.
End of month three, we’re at 6,000. And at
the end of that month, we make our next
We add a $6,000 chunk, it goes back
up to 12,000 and the process repeats.
Okay, now there’s a reason that we’re
only doing $6,000 chunks and we’re only
going up to 12,000.
One, it leaves us a lot of room, if our
line of credit is 25,000, that leaves us
$13,000 in case of emergencies. Because
we are not putting any money
towards our savings right now, right?
So, we have to have money in case of an
emergency. That happens by doing smaller
chunks. The other reason for the smaller
chunk is, the truck loan, the trailer loan,
and the mortgage all have a lower
interest rate than our line of credit.
So, if I were to throw a huge chunk from the
line of credit, if we were to do 25,000
from the line of credit, we’re going to
end up paying more interest than we
would have if we had that money sitting
for the truck loan. The benefit to
utilizing the line of credit is to run
it as close to the amount of income
you’re gonna put in each month as
That’s how we minimize our interest
charges when the interest rate on the
line of credit is higher than the
interest rate on the loans that we’re
working to pay off.
Now, let’s look at what happens. With the truck loan, we end up with a pay off month 10. Total
interest on the truck loan $620.87.
We end up with a pay off in
month 17 of the trailer. Total interest
paid on that loan $1128.95.
And we end up with the mortgage paid off month 89.
That’s 7.4 years folks. 7.4 year’s! Total
Now, our total interest on
all three loans ends up at $49,528.79
This doesn’t include our interest charges for
the line of credit. In this case, our line
of credit, at most, we’ll end up with
$3968.79. Because the way that I do
all of this math, I don’t actually know
what the daily, average daily balance
will be based on when the expenses come
out of it.
So, $3968.79 is not taking advantage of the
paycheck offsets. If we actually get the
paycheck offsets in there and maximize
them like I showed on the other screen,
our interest charge is going to be close
to eighteen hundred dollars. And if we
only get a marginal benefit from it,
we’re probably going to end up with
around a twenty five hundred dollar
interest charge, for the eighty nine
months that we use this line of credit
to pay off all these bills.
So, look at this. Here’s our original payoff, if
we make minimum payments, our original payoff
on the truck loan, seventy seven months,
five thousand six hundred dollars in
interest. Our payoff on the trailer, month
one nineteen, this is making minimum
payments folks. Interest charges,
And our payoff on the house
three hundred and sixty months, that’s
thirty years, $192,745 worth of interest.
So, our total interest saved by doing dynamic banking
and running that paycheck through the
line of credit, a whopping hundred and
fifty four thousand dollars and we pay
it off in seven point four years.
That’s the math folks. This is amazing!
I hope you’re able to understand that.
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