Let’s say you need to borrow $ 600. A typical shady financial company would charge a whopping 21% annual interest. They would “let” you pay it off with monthly payments totaling $ 726. What if you made this deal with a loan shark? Terms would be much worse with the added feature that if you ever get a second late with a payment, you might find yourself looking for some knee replacements.
There is a way to make it easier for you. Lend yourself the $ 600 from your special savings account, charge yourself 18% interest on your loan ($ 108), and divide the $ 708 you owe yourself into 12 equal installments of $ 59. Your loan will be repaid in one year. So the greedy finance company is YOU.
If you keep your weekly $ 20 deposits while you pay off your loan, you’ll have something like $ 2,150 in the bank at the end of year two (the $ 400 balance in the account, the $ 708 you paid back , plus the $ 1,040 you deposited in the second year).
After you’ve paid off the first loan, you may want to borrow $ 1,000. The greedy finance company would charge around $ 255 to do so. If you bill yourself $ 180 and make monthly payments of $ 50 for two years (or $ 100 per month for one year), you’ll end up with well over $ 3,000 in your account.
As a borrower, treat yourself the same as the finance company would. Demand timely payments. Unless you are terribly hard on yourself, it won’t work. You will be by default. And imagine how it will work on your psyche.