We’re well into the month of May now, and after my April in the clouds financially, let’s see if I’m on track again…

I ended up going back to my tried and true weekly payment system. I’d never done it with the auto loan before so I tested it out with a couple of e-payments initiated through my checking account last month. Success.

To meet my original goals for 2008, it basically came down the fact that I had to set aside $2000 per month in order to meet them all by the end of December.

I’m sticking to that plan, and though it seems as if I’m far ahead of schedule, having wiped out the credit card debt, I’m actually not far ahead at all. In truth, I’m actually behind.

There are almost 8 months left in the year and the total cost of my goals is still a little over $16k. It’s going to be tight.

The current strategy is to split the $2000/month right down the middle with $1000 going towards the auto loan and $1000 towards savings in the ING Direct account. Any extra I’m comfortable parting with will go towards the mortgage.

So, I’ve completely automated the auto loan side of things. Each Wednesday, I have $150 being transferred from the checking account to Toyota. In addition, I increased the regular $289 that Toyota pulls from my checking account on the 15th of each month to $400. Together, my monthly payment is now $1000.

At this rate, the auto loan will be eliminated sometime in the Fall. Not exactly as soon as I’d hoped, but it’s a sure thing at this point and I like that aspect.

For the other $1000, I’ve got $75 being transferred over to ING each week on Tuesdays.

True, this only adds up to $300 worth of automatic transfers each month but I’m transferring in the remaining $700 on a manual schedule based on when payments from my side business come in.

Of late though, the side business hasn’t brought in nearly $700 so the remainder is coming from my regular paycheck after the mortgage and all of the bills have been paid.

So far this month, if I include the $75 transfers already scheduled, I’ve accounted for $800 — partly in thanks to the economic stimulus check. Making up the remaining $200 from the paycheck I’ll receive on the 22nd shouldn’t be an issue.

That will put me right on track — and I should also have some left over to attack the mortgage principle as well (to eliminate PMI).

Hopefully, a month from now, I *really* will be ahead…

So this morning I wrote and mailed the check for June’s mortgage payment.

Sure, it’s a little early but had it not been for the Tax Stimulus check coming in last week, I wouldn’t have been able to write that check just yet.

I’m not sure I feel stimulated by the experience.

Actually, I’m not feeling any stimulation. And I think that will be the case for most who receive these paybacks.

Though one could argue that by sending my entire stimulus check to Countrywide (a company on the brink of bankruptcy), I am doing my part to “save” the economy from a recession…

I guess?

Anyway, I still have my original plans for the payout on my mind, it’s just that, now, I’m gonna use the next coming paycheck to fund the frivolous spending…

That is, if the plumber doesn’t ‘up’ the bill significantly…

Not that I’m in the market to buy a house right now, but if the foreclosures come like their forecasted too (I’m not holding my breath), I may take a closer look.

Having already purchased a home once, in hindsight, I kinda wish I’d gone the 80/20 route (taking out two loans) so as to avoid paying PMI. Not sure how much of a benefit it would have resulted in, or even if I would have been able to make the payments that first year, but at the time, I didn’t even know it was an option.

But let’s say, for instance, the house next door to me went into foreclosure. I’ve always kinda wanted to “own the block”, you know, take over the neighborhood and eventually name the whole street after myself, so this scenario would be a good start.

What would I do differently now that I understand how loans and, specifically, amortization schedules work?

Well, I’ll tell you…

Let’s say the house next door goes on the market at $200k and my GFI says the bank will loan me up to $240k. I decide to close on the house. For simplicity sake, let’s just say there is no down payment — 100% financed. Interest rates are about 6% these days, no? Well, let’s go with that figure.

I could go with the tried and true method I did with my first home purchase and just borrow the $200k at 6%.

Or… I could go and borrow the full $240k the bank is willing to spot me…

This time, the older and wiser Brainy would borrow the full $240k and then, with my first monthly payment, I’d send the mortgage company the extra $40k right back, knocking the balance back down to $200k.

Wait… what? Why not just borrow the $200k? You’re still sitting on a $200k balance… What’s the difference?

There’s a *HUGE* difference…

With the larger $240k loan, the fixed monthly payment would be $1438.92 which is roughly $240 more per month than a smaller $200k loan would be. That is the only disadvantage. And given the assumption that you can afford a second home, another $240 per month shouldn’t be that great of an issue.

Working greatly in your favor are the interest payments…

With the smaller loan, it would take 30 years and over $430k going towards interest alone.

With the larger loan, and an immediate “extra” payment of the difference ($40k), you’d only pay a little over $143k in interest. As an added bonus, you’d also knock off over 10 years on the term of mortgage.

The end result? A savings of $287k and 10 years of not having to pay a mortgage.

Hardly identical $200k loans, huh?

Sure, some will disagree, “Why not just take the smaller $200k loan and pay the “extra” $240 difference each month…”

Yeah, the number from that method works out about the same, but for me, I’d prefer to have more equity from the start and to be guaranteed to have the mortgage paid off early rather than leaving it up to my own personal financial discretions…

It would also be a great way of eliminating PMI on a 100% financed loan… ;0)

I have 3 financial goals remaining for 2008, and right now I’m the furthest along in my quest to eliminate Private Mortgage Insurance (PMI) from the mortgage.

With momentum on my side, I’m eager to finish this one off, but is it the wisest move?

Let’s see…

The other two remaining goals are paying off the auto loan and piling up $10k in savings. Comparing the interest rates of all three, the goal of coming up with $10k in savings comes dead last:

Goal	   Rate
------------------
PMI	   6.735%
Auto	   5.350%
Savings    2.960%

Add in that I only currently have $500 in savings, earning me less than $2 per month, well, that must make it the third priority. It’s not doing anything for me at this point.

To eliminate PMI, as of this morning, I need to take another $3147 off of the total balance of my mortgage.

By accomplishing this, my monthly mortgage bill will not change in the short term, but instead of $85.15 being taken from escrow each month, it will remain, well, in escrow.

When my mortgage company reviews my payment again, usually towards the end of the year, I might see my monthly payment fall around $60. (Not the full $85 due to tax increases and higher insurance premiums which are also paid from the escrow account.)

The auto loan currently has a balance of $6668 — double the amount I need on the mortgage.

Though I’ve been overpaying it since the start, it’s minimum payment each month is $289. By eliminating this debt, the result will be $289 that I can send elsewhere each month — but it will take me twice as long to get there (because the auto loan balance is twice as large as the number I need to hit on the mortgage).

Hmm…

In the long run, it’s obvious to me that paying down the mortgage makes the most financial sense. It will undoubtedly save me tens of thousands in the end — especially if I keep up with the additional payments.

But if the real goal is to have more money in my pocket at the end of the day (and by the end of this year), then the auto loan goal should take precedence as it will allow me to have more money in pocket to fund the savings (and even the mortgage) goal.

I’ve got a couple decisions to make as I’ve already gotten going with the mortgage being priority number one…

And that was probably the wrong move in the short run…

So Wednesday night, I ventured onto eBay again, except this time I wasn’t looking for a good deal…

Finding myself with a bit extra in my checking account and without any credit card bills in sight (woo-hoo!), I took a big step backwards and went hunting for game worn hockey jerseys. My vice.

I had one in my sights. Thankfully it wasn’t a really high priced one, but still one that would fit nicely into my collection. I set-up a last second sniper bid and went to bed confidently thinking it would be mine in the morning.

I lost.

It doesn’t happen very often, I have to admit, but I was outbid.

The strange thing is that there wasn’t that feeling of disappointment when I saw the email letting me know that I had been outbid — an obvious sign that I didn’t really want the item in the first place.

But throughout the day yesterday, it had me thinking, I was totally prepared to PayPal out a few hundred dollars the night before.

Since I lost, I still had that money in my checking account…

You know what I did?

I sent it to the mortgage company instead.

That should teach me not to lose any more auctions. ;0)

Or perhaps I’m just turning over a new leaf.

Nah…

By my calculations and over the trend of the past few months where my income has dropped, but stabilized, and after all of the monthly bills are paid, I should now find myself with roughly an additional $1500, on average, in my checking account each month for “daily life” expenses.

Prior to this month, 100% of that (and then some) went towards debt repayment.

I still have debts to repay, mortgage and auto loan, but the credit card debt is gone.

I’ve found some time to run some numbers and weigh a few different options to see what the best route to take with the “extra” $1500 would be and I think I’ve settled on one.

For all of my examples, I’m going to assume that each month has 4 weeks — it’s just easier to figure out that way.

At the start of April, I already chipped into the original $1500 dollars when I set up a weekly $75 auto-transfer into my ING account. I’m not planning on altering that right now.

$1500 - ($75 x 4 weeks) = $1200

This is where the decisions need to be made. The interest rate on my auto loan is 5.35% and I get hit for around $30 in finance charges each month. The interest rate on my mortgage is 6.735% and I get hit for around $650 each month.

Dave Ramsey would say I should attack the auto loan because it’s the smallest balance and not the mortgage. Clark Howard would probably say the same thing, though he may make note of the fact that the auto loan has the smaller interest rate.

But I’m considering going the more logical route. Yeah, the rate on the mortgage is higher, but that’s not the main reason. The Private Mortgage Insurance (PMI) I’m continuing to pay is the reason.

PMI is extra insurance that the mortgage companies require from homebuyers who obtain loans that are more than 80 percent of their new home’s value. Basically, if your down payment was less than 20 percent, you’re going to have to pay PMI until you reach that 20 percent mark.

PMI is costing me $85.15 each month. That’s over $1000 each year. I’ve paid my mortgage 66 times so far. That means I’ve paid PMI 66 times and that adds up to $5619.90.

That could have, and should have, gone towards principle. With it, I’d have hit the 20% mark long ago. In the first few years of a 30-year loan, an additional $5k thrown towards the principle would have made a HUGE difference!

Basically, PMI hurts a lot more than the monthly $85.15 let’s on.

Eliminating PMI (on top of paying down the higher rate first) would be the most beneficial route, financially, for me so that’s the route I’m going to focus on.

For the remainder of April, I’m just going to let the dust settle, just pay the mortgage and auto loan like I have been for months, and build up a bit of a cash cushion in my checking account.

This new strategy will commence in May.

I’m going to double the weekly principle payment on the mortgage, from $125/week up to $250/week.

$1200 - ($125 x 4 weeks) = $700

This will allow me to eliminate PMI (and, in turn, subtract an additional $85.15 from the principle each month) by September 2008.

It will also put me on pace to pay off the mortgage in February of 2014, though that isn’t the real goal. I’m thinking more short term just to eliminate the PMI at which point I’ll weigh my options again.

For now, this will leave me with $700 worth of “spending” money each month. I’m thinking I can throw half of that towards the auto loan with each monthly payment.

$700 - $350 = $350

This would put me on pace to have the auto loan paid off in January of 2009. Based on my goals for 2008, that’s not good enough, so any additional money that comes my way will be tossed this direction as well.

In the end, this plan will continue to pay down my debts at a hectic pace, but still allow me to have $350 worth of spending money each month — and that’s $350 more than I have in my pocket right now.

Crazy what eliminating a little credit card debt can get ya…

Time to see how things have progressed on my goals for 2008…

Eliminate all credit card debt by the end of June 2008. Current credit card debt is $10318. I’m aiming to achieve this goal slightly ahead of schedule, by about a month, according to the snowball plan I started in November.

At the end of February, the balance was down to $2750. This morning, I’ve already knocked another $750 from that. So, with $2000 remaining on the total balance, I’m hoping to use the next paycheck and a little from savings to wipe it out for good and mark it up as a completed goal before the next progress report.

Eliminate PMI from the Mortgage by the end of December 2008. Right now, it’s costing me over $1000 per year. For what? Nothing. To meet this goal, I’ll have to contribute an additional $160 per month towards my mortgage.

With the added biweekly $25 my wife is now tossing in towards the mortgage, this goal is also rapidly approaching completion. We’re a little over one third of the way to eliminating PMI already.

Pay off my auto loan by the end of December 2008. Current balance is $7418. This is also included in my snowball plan and it’s scheduled to be paid off in October if all goes as planned. I’m not looking to speed this up; just finish it off.

I’m just making the payments on this one… Balance is now $6920.

Increase my 401k contributions to 15%. This way I’ll receive the maximum match allowed from my employer. Right now, I’m contributing just under 10%. I’ll plan to make this move once the credit card debt is eliminated. Achieved 12-27-2007

I achieved this goal before the year even started. Woo-hoo for me! Too bad I’m down 3.5% on the year even with the added contributions…

Increase my passive income. Now that I’ve dumped my largest client, the hockey team, I’ll soon find myself bringing in a lot less income. But, I also find myself with a lot more free time. Free time that I should use to optimize my other ventures to make up the difference; except now I’ll focus on more passive income streams because, in all honesty, I’m tired of working so much. Right now my 100% passive income hovers around $50/month. With the least effort possible, I’m looking to triple that in 2008 and pick-up a few low maintenance clients as well.

Getting there… January brought in $79.48 and February brought in $74.09 of totally passive income. I’m not quite there yet on this goal, but I spent a lot of time this past weekend tweaking things to ensure that March is even higher.

$10k in savings. This is my lofty goal. I’m not sure it’s even possible. Right now my ING account is holding a mere $1k. No matter how far rates fall, with a 5-figure balance working in my favor I’ll have to be making atleast $1/day in interest and for whatever reason, I like that. I’d also like to pay for some still needed interior renovations in 2008 with cash and this is where I’ll draw from.

Still tanking. Not sure I even want to talk about this one… No, but really, I think that once the debts are eliminated, progress on this one will take off and I still think it’s possible to reach $10k by the end of the year.

Run a marathon. This is a goal that I just added into the mix last week. To be happy, I’ll need to keep a pace between 7 and 9 minutes per mile.

I laced up my sneakers for the first time yesterday and went out for probably for a little over a mile. My back hurt almost immediately and afterwards my legs were really tight, but that’s to be expected on day one. Hopefully it goes a little better tonight. By the end of this week, I hope to be putting in atleast 3+ miles per day as I build up my stamina.

Last night my wife set-up online billpay with her bank and is now contributing $25 every two weeks towards the mortgage. This is in addition to the $125 per week I’ve been contributing since the start of the year.

Now, while $25/week may not sound like a lot (and really, it’s not), it DOES make a sizable difference in the speed with which our mortgage is paid off.

Our mortgage was originally set to be paid off in November of 2032. Yes, that’s 24 years and 8 months away.

Through the extra payments I’ve been sending all along, I’ve already knocked 2 years off of that — so sometime in 2030.

The aggressive new $125/week plan started back in December knocked another dozen years off. Payoff date now lines up to be June of 2017.

But now, with my wife’s additional contribution to the effort, we’re up to January of 2017 — just 9 years away.

Putting that in perspective, personally, I’ll still be in my 30’s.

And with the credit card balances finally nearing zero, there will likely be even more additional money available to throw towards the mortgage. The thought that just an additional $50/month can knock off 6 months of payments is motivating.

I know that, financially speaking, a lot of people think it’s a dumb idea in the long run to pay off a mortgage early, but I’m not sure I can put a price tag on the stress that will be lifted off of my shoulders when it’s finally paid off.

It’s the classic choice: less money now versus more money later.

The answer is a no-brainer for me.

Can you can imagine life without a mortgage? In your 30’s?! The freedom that would allow is insane!

The “FU Factor” (because I wouldn’t really need my job) would be my “new” weakness, replacing debt, and really, is that such a bad thing, in a selfish sort of way?

As always, there has been a lot of debate about whether or not it is wise to pay off your mortgage early.

JD’s post on Get Rich Slowly yesterday, and the comments on it inspired this post.

Last summer I started sending an additional $25/week towards the principle on my mortgage. Then, at the tail end of December, I picked up the pace, increasing me weekly principle payments to $125/week. So far, so good.

I haven’t “missed” any of that money (yet), and it’s put my mortgage on schedule to be payed off in June of 2017. That’s exciting.

But then you read about how stupid some think it is to pre-pay a mortgage… Invest the difference instead… One comment, from Kaleb, on the original post struck a chord:

I just got out of credit card debt this month ($11,000 or so paid off in 6 months). Now, like J.D. I have tons of extra money each month. If I prepaid my mortgage $2,000/mo, I’d have it paid off in less than 5 years. But if I saved $2,000/mo and got 6%, I’d have enough CASH to pay my mortgage off in 5 years, and that’s not counting the tax deduction! It’s the same thing, but with more security! It’s the smart thing to do!

I think I’m disciplined enough to take this route instead of what I’ve been doing. But… not this year.

You see, I’m still paying PMI on my mortgage — and that has got to stop. The sooner, the better.

So, for the remainder of the year, I’m going to keep on sending in that $125/week until I hit the mark where I can drop the PMI (currently costing me around $85/month). Right now, that should happen in October or November.

Once I’m there, Kaleb’s plan will go into effect in an ING account or something. Not earning the 6% he mentions, but something that I’d have access to if things got tight.

Okay, so January isn’t quite over yet, but you get the idea.

I didn’t really have any New Year’s resolutions, but I did lay down a few goals for 2008 and I guess now is as good a time as any to see if things are still on track…

Eliminate all credit card debt by the end of June 2008. Current credit card debt is $10318. I’m aiming to achieve this goal slightly ahead of schedule, by about a month, according to the snowball plan I started in November.

Progress is far ahead of schedule on this goal. This morning, my total credit card debt is under $5000 and with Thursday being another pay day, it’s likely to fall even more by the end of the month. I’m hoping to have all of this wrapped up by the end of March now.

Eliminate PMI from the Mortgage by the end of December 2008. Right now, it’s costing me over $1000 per year. For what? Nothing. To meet this goal, I’ll have to contribute an additional $160 per month towards my mortgage.

I’m on pace for this, though it doesn’t really feel like it. At the start of the year, I began throwing $125 towards the principle each Monday. So, with the extra payments this month, I’ve climbed $500 closer to my target of $6100. In total, I have $5124 left to go.

Pay off my auto loan by the end of December 2008. Current balance is $7418. This is also included in my snowball plan and it’s scheduled to be paid off in October if all goes as planned. I’m not looking to speed this up; just finish it off.

Nothing worth mentioning on this one. I’m just making the payments…nothing extra. This goal comes in a distant second to the credit card goal. Current balance is $7177.

Increase my 401k contributions to 15%. This way I’ll receive the maximum match allowed from my employer. Right now, I’m contributing just under 10%. I’ll plan to make this move once the credit card debt is eliminated. Achieved 12-27-2007

I achieved this goal before the year even started, but with the way the markets have been going, my increased contributions habe only resulted in larger losses. That’s okay though — in the long run, it will be a very good thing that I got this back up to the full match percentage when I did.

Increase my passive income. Now that I’ve dumped my largest client, the hockey team, I’ll soon find myself bringing in a lot less income. But, I also find myself with a lot more free time. Free time that I should use to optimize my other ventures to make up the difference; except now I’ll focus on more passive income streams because, in all honesty, I’m tired of working so much. Right now my 100% passive income hovers around $50/month. With the least effort possible, I’m looking to triple that in 2008 and pick-up a few low maintenance clients as well.

I’ve made a few moves in the past couple of weeks to get this goal on track, but nothing really impressive. I missed out on a generous advertising opportunity last week because I took too long to respond to the email offer — but that won’t happen again. I’ve got everything forwarding to one address now so nothing sits and waits for a week. Eitherway, things are headed in the positive direction. Passive income for January is looking to top out around $80.

$10k in savings. This is my lofty goal. I’m not sure it’s even possible. Right now my ING account is holding a mere $1k. No matter how far rates fall, with a 5-figure balance working in my favor I’ll have to be making atleast $1/day in interest and for whatever reason, I like that. I’d also like to pay for some still needed interior renovations in 2008 with cash and this is where I’ll draw from.

I’m tanking on this goal. On January 1st, I had around $1000 in savings. Today, I’m well below that, and the interest rate is falling so I’m not real *excited* about trying to right the ship on this one. I haven’t thrown in the towel just yet, there are 337 days remaining in the year, but I’d be shocked if I come close to realizing this goal.