In 2009, troubles compounded on troubles for many Canadians. Why not make 2010 the year when advantages compound on advantages?

This turn-around will partly depend on the local impact of continued global economic shifts, but your attitude toward what is happening in your life and community is a key factor.

"Wait and see" attitudes can be expensive in real estate because by the time a positive or negative shift is clearly evident to everyone, forward thinkers have acted to their advantage.

To cultivate this foresight, decide which possible changes could improve your situation and your real estate’s, and which could make things worse. Prioritize each of these lists: positive, according to the goals you have set, and negative, from worst-case scenario on down. Evaluate how prepared you are to make advances if and when any of those situations arise. This visioning and musing build the mental flexibility and creative resilience necessary to thrive, whatever 2010 throws your way.

For instance, during the first decade of this century, Canada moved from a saving nation to a society that, reportedly, sports consumer debt levels of 140 percent. Credit the power of 24-7 media and its "buy now to be in" messages for this dramatic shift in consumer thinking -- or the lack of it. Marketing campaigns, sales pitches and enticing "you can have it all" products and purchase plans got us where we are.

Back when saving mattered more than spending, compound interest was a sought-after earnings accelerator.

Compound interest is interest on interest. That is, interest on the original amount, the principal, and also interest charged on accumulating interest. For instance, with semi-annual compounding, the amount of interest charged over six months is added to the balance to create a new amount on which to calculate interest. Compounding is a savings boost for investors, but a debt accelerator in mortgages and other compound-interest debts.

This is why the amount you borrow when arranging a mortgage can be doubled or tripled over the life of the mortgage.

Early in a mortgage, payments largely constitute interest due, with little repayment of principal. The amount of interest charged in a period, for instance over six months or one year, is added to the balance to create a new amount on which to calculate interest. At higher rates, compounding has a substantial impact. For example, at 8% interest, compounded annually, the interest charged on $100,000 would be $8,000. In the second year, interest would be charged on the new balance of $108,000. Annual compounding is the normal savings mode while, not surprisingly, semi-annual compounding is common in residential mortgage lending.

Eventually, the original mortgage principal would double to $200,000 as the interest accumulated.

• Use an online mortgage calculator to experiment with various rates and other variables relevant to your situation.

• For a rough estimate, use the Compound Interest Rule of 72: To determine the doubling point, divide 72 by the percentage of interest. For instance, at 8% the $100,000 mortgage would double in (72/8=) 9 years, if the rate remained unchanged and no principal was repaid. If payments were missed or rates increase, doubling would occur sooner.

Since mortgage interest is usually not income tax deductible, minimizing the burden of compounding is an important way to reduce debt:

• Buy a lesser property and arrange a smaller mortgage.

• Keep the amortization period as short as possible and decrease the period on each renewal date.

• Increase the frequency and/or amount of mortgage payments.

• Pay down the mortgage with lump sum payments whenever possible.

Lack of Knowledge Compounds Misunderstanding

Current rumblings about a "mortgage meltdown" and rising interest rates have some real estate buyers holding back. Many voice concerns about whether they could afford payments if their three-year or five-year mortgage comes up for renewal when interest rates are significantly higher than now.

This "not buying" inertia can be expensive since concerns may not be well founded for every individual:

• After five years in your home, you may have paid down principal, increased your earnings, managed housing costs, and established a home-based business for increased tax advantages, thus making renewal manageable.

• By monitoring rate increases over the years, you can chose to renew early and for how long. If you have to, increasing the amortization period can reduce payments to give you some breathing room.

• If you monitor the cost of home ownership and the current market value of your home as the years advance, you’ll know before crisis hits whether this is financially the best house or condominium for your needs.

• Couples concerned about future affordability, can start out on solid ground by buying the least home on the best street they can afford, based on one or one-and-a-half incomes. This financial breathing space staves off "house rich and cash poor" stress and should take the pressure off if rates have risen significantly by renewal time.

Concentrate on compounding advantages and your risks can be minimized.

These suggestions for adding benefits on benefits parallel the concept at the heart of wise investing and saving. What’s going to slow or reverse financial pressures for you? Here are a few simple ideas for compounding your efforts, that is, adding benefits on benefits:

• Stop acting on "flash and fancy" fashionable impulses and concentrate on spending and investing to make a lasting difference. Ask, "A year from now, what will this purchase have gained me?"

• Pay cash and bargain for an advantage. Perhaps you can team up with others to present a bulk-buying opportunity for local merchants and gain benefits for all.

• Don’t just listen to the advice about debt reduction. Take action. Target suggestions that counteract your bad habits and financial laziness. Start at your most vulnerable spot by asking "What got me into this?," and apply new constructive financial behaviour each week. For instance, when you neglect ongoing home maintenance, like cleaning eavestroughs and changing furnace filters, you cost yourself more in the long run by shortening the efficiency and life span of your roof and furnace.

• Concentrate on earning more. Consider putting your home to work. Home-based businesses offer tax and income advantages. Search for something you like to do and investigate who’ll pay for the resulting product or service. What makes businesses successful in your area or chosen field? To be an overnight success, expect to conscientiously invest at least three years learning as you earn.

• Observe yourself carefully. How you treat money says a lot about what you think of your future. Without a clear view of tomorrow, today can be financially overwhelming. Feel confident about what lies ahead and you’ll enjoy targeted spending and enhanced earning to get you there.

Published: January 5, 2010

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Futurist and Strategist PJ Wade is "The Catalyst" - intent on "Challenging The Best to Become Even Better." PJ earned this title by translating the dynamic impact of Boomers and their multi-generation families into relevant insights that start people thinking and taking action—in business and in life. Author of 8 books and more than 1800 published articles, PJ encourages individuals to become their own futurist. PJ writes and speaks about the insight, knowledge and solid decision-making skills that professionals and their clients need to live and work in this vortex of change. For instance, since PJ knows that home is headquarters for the new decades-long "unretirement," she wrote the popular book "Reverse Mortgages: Best Friend, Worst Enemy...Your Choice!", which is filled with suggestions and cautions on protecting, building and managing home equity. Her new business book, "What's Your Point?: Cut The Crap, Hit The Mark & Stick!" will be published in 2012. As The Catalyst, PJ provides strategic communication, client appreciation and advanced education services to the financial, tourism, lifestyle and service sectors - and the clients they serve. A frequently-quoted financial and business commentator, PJ is a thought-provoking strategic speaker who offers practical, real-life suggestions on leaving "the box" behind and embracing Forward Thinking - a talent she regularly demonstrates in this column. For more on keynotes, blogs, books and information on a range of 21st-Century topics, visit TheCatalyst.com.