Canadian Personal Finance Blog

Lots of Special Numbers

In this world there are many magic numbers:

• Pi with which so much of math and trigonometry uses (3.1415926….)
• e Euler’s Constant another wild and woolly number important to more math (2.71828…)
• 25 which is the length of many mortgages in years
• 13 a very unlucky number in mythology and the number of disciples in the bible (Judas being the 13th)
• 42 allegedly the answer to everything, if you are a fan of the Hitchhiker’s Guide to the Galaxy

No I am not about to go off on some weird numerology tangent (if you wish go over and taunt Michael James about such things, he is a Pure Mathematician at heart).

In my world currently the number 833.3333.. is magical, or at least holds a magical value.

Can you guess why that number might be so interesting?

A hint would be: if you multiplied that number by 12, what would you get?

The answer is 10,000 (OK, not really, it gets you 9999.96 , if you put it in the correct context of it being a monetary value of $833.33, thus if you multiply it by 12 and add 4 cents you get $10,000.00 .

What the heck is so magical about that number? If you wanted to pay off $10,000 from your mortgage principle every year, your monthly principle payments (on your mortgage) would need to add up to $833.33 every month (in fact 4 months would need to be $833.34).

Can you figure out how much you are paying in Interest every month? It is relatively straight forward in Excel (but remember in Canada Mortgage Interest is calculated differently than in the U.S. (at least it used to when I took Actuarial Science courses)). Anyone wishing to comment with the correct equations for the U.S. and Canada, I leave that as an exercise for you folks.

So if you can figure out how much you pay in interest every month on your mortgage or debt, then simply add $833.34 to it (just to be safe) and that is the monthly payment you need to make to pay off $10,000 from your debt each year.

That makes that a pretty magical number, doesn’t it?