Tags Posts tagged with "Savings"

Savings

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Q*Bert was a terrible game.  For some reason though, my mother thought it was the funniest game out there…For the past few months, I’ve been all over the place when it comes to paying down debts — priorities have been jumping from the top right down to the bottom like Q*Bert in matter of weeks.

The original plan was to eliminate PMI. Then it was to eliminate my car loan. Then I worked in some savings ideas too… Basically, I was just spinning my wheels.

Yeah, balances were looking better with each passing week, but nothing groundbreaking… There was no excitement. A checkered flag wasn’t even in sight.

So last week, I decided to change things up again. The mortgage would be the top priority.

I just need to send around $1900 towards it by September to eliminate PMI which, in turn, will save me just over $1000 per year. You can’t really argue with that.

In May, my “auto-payment” plan for the car loan was $400 on the 15th of the month and $150 every Tuesday to make each month’s total payment right around $1000. As of today, the $150 every Tuesday has been cut down to $25 every Wednesday.

On the mortgage in May, in addition to my regular monthly payment, I had a weekly auto-payment of $50 going out each Monday. I’ve increased that to $150 per week.

For savings, I was transferring $75 over to ING each Friday — that has been eliminated.

So, just taking the weekly auto-payments into consideration, in May, my weekly expenses were $275.

($150 Auto + $50 Mortgage + $75 Savings) = $275

Now, on the new revised plan, my weekly expenses for these three things will be $175.

($25 Auto + $150 Mortgage + $0 Savings) = $175

Wait, how is that an improvement? You’ve cut back $100 that was originally going towards your goals!?

Good point — it doesn’t make much sense.

But for now, it works.

Take into consideration that we’ll be going on vacation later this month, so I’d like to pad my checking account as much as possible and this is a way of doing it.

And while I’m certain that the $2k in savings I have right now will be more than enough to cover whatever vacation expenses remain, I’d prefer to not have to tap into it *too* much — but I also don’t feel the need to increase it either.

Best of all, July 2008 will be a three paycheck month for me.

Property taxes will eat up a decent chunk of that extra check, but I think that it’ll be possible to reach the 80/20 threshold on the mortgage to eliminate the PMI by August.

Once that’s done, the auto loan will be the last remaining debt goal and you can bet it will be gone in a matter of weeks…

One at a time is the only way to go — not sure what I’ve been thinking since I paid off the credit cards

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My house is protected by PMI!The more I think about it, the more I want to focus on paying down the mortgage.

When I paid off the last of my credit card debt, the house just happened to become the top priority. Not for any real reason other than the fact that I already had an automatic payment plan in place. With the extra money around, I just increased the size of my payments.

After around a month, though, I realized that it wasn’t exactly the wisest path to take. I switched things up and started paying down my auto loan instead. I also increased my savings rate.

But now, I’m starting to lean back towards the mortgage again…

Yes, all of this flip-flopping in just 2 months time. I should run for office.

I haven’t put anything into place just yet, but while going through my records, I noticed that my mortgage holder (CountryWide) does their escrow analysis on my account each year somewhere between October and November. For the past 4 years, anyway, it’s been one of those two months.

Now, my whole point of paying down the mortgage quickly is to eliminate the monthly PMI that I’m paying out of that escrow account.

Private Mortgage Insurance (PMI) – PMI is extra insurance that lenders require from most homebuyers who obtain loans that are more than 80 percent of their new home’s value. In other words, buyers with less than a 20 percent down payment are normally required to pay PMI.

PMI plays an important role in the mortgage industry by protecting a lender against loss if a borrower defaults on a loan and by enabling borrowers with less cash to have greater access to homeownership. With this type of insurance, it is possible for you to buy a home with as little as a 3 percent to 5 percent down payment. This means that you can buy a home sooner without waiting years to accumulate a large down payment.

Under HPA, you have the right to request cancellation of PMI when you pay down your mortgage to the point that it equals 80 percent of the original purchase price or appraised value of your home at the time the loan was obtained, whichever is less. You also need a good payment history, meaning that you have not been 30 days late with your mortgage payment within a year of your request, or 60 days late within two years. Your lender may require evidence that the value of the property has not declined below its original value and that the property does not have a second mortgage, such as a home equity loan.

Eliminating the PMI from my mortgage bill would essentially ensure that an additional $85.15 would go towards principle each month. (Technically, my minimum mortgage payment would go down after the analysis, but I’d continue to send in the same amount on my own — resulting in the $85.15 per month increase.)

That sounds like a good thing, right?

Well, considering that my regular payment applies less than $300 towards principle each month, an additional $85.15 is like increasing my payment by over 25% — and that’s without sending them an additional dime. That makes it very attractive.

As of today, I have $1901 more to knock off the principle before I can safely request that they remove the PMI from the calculation.

To be safe, I think I should press to reach that goal by September, at the latest, to ensure that I get there before they kick off their analysis procedure.

(I’m aware that I can request that PMI be removed any time after I reach the 20% level, but the escrow analysis locks in my monthly payment for an entire year. If I don’t make it by the upcoming analysis, what was going towards the PMI will just sit in the escrow account and result in an escrow overage. In that case, they’ll send me a check of the difference in November of 2009 after the next analysis — not exactly ideal which is why I’m trying to avoid the scenario all together.)

So, with most of my income for June likely being sucked up by our upcoming vacation, I’m thinking that, to be safe, I’ll have to send around $2000 extra towards the principle spread accross July, August, and the first few weeks of September.

That’s a definite possibility if I scale back the current plan of $1000 towards the car and $1000 towards savings each month.

Actually, if I were feeling really daring, I’d just take the $2000 I have in savings right now and send it right to Countrywide and call it a day (or year?)… Nah, not feeling it…

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Picking up the pace!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…

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Gonzo the Great!I can’t really say that I’m good at making money. I also can’t say that I’m very good at saving money either. Neither is one of my strong points.

I am, however, confident in saying that I’m very good at paying down debts.

Yeah, I know, making money, saving money, and paying down debt should all go hand in hand, right? For me, I’m not sure why, they just don’t. Yet.

Through my quest of paying down debt, I think I’ve mastered the secret of delayed gratification — I’ve put off a lot of things that I certainly wouldn’t have in the past. And now that I’ve got my debt under full control, I still find that I’m able to walk away from the things I want. That’s progress.

Where am I going with this?

Well, April was a pretty mundane month for me. I knocked just $1722 from my debts.

I know, I know, that’s a boatload of money but when you compare it to the previous 5 months (when I was still paying down my credit card debt), it’s not really very impressive:


NOV '07       -$3285 
DEV '07       -$4798 
JAN '08       -$4859 
FEB '08       -$2521 
MAR '08       -$3924 
APR '08       -$1722

See what I mean? I’m hoping April was just a speed bump and that I can eliminate the last of the auto loan at a comparable rate.

And then, hopefully, I’ll figure out the “saving money” idea and see my savings increase by thousands of dollars each month…

On a related note, does anyone else look at their numbers and wonder where on earth the money comes from?

The idea that I actually have nearly $4000 of disposable income each month to send towards debt is unfathomable. My take home pay doesn’t even approach that?!

Granted, I’ve had at least one 3 paycheck month in the last 6 months, and I was still earning a decent income for my job with the hockey team back in November and December…. Add in the big refund from my tax return… I guess if I spread all of that around, it adds up…

Sure, the numbers don’t lie, but they certainly can be deceiving…

I’m definitely not in any position to set up a budget with $4k of monthly expenses though the number may indicate that I could…

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The VaultIn a recent comment, Grant from the Corner Office Blog wisely pointed out that while its great that I’m eliminating debt so aggressively, I should probably be accumulating more of an emergency savings cushion, you know, just in case…

I agree and I disagree at the same time.

A lot of people in personal finance circles hem and haw about establishing an “emergency fund” (EF) containing 6 months worth of expenses. That’s probably good advice.

Obviously, I don’t have that (current savings is $575) nor do I really strive for it. Six months, while nice, is overkill in my book.

My pseudo-EF has always been just keeping at least $1000 in my checking account at all times.

Combined with the modest amount I have invested as I-Bonds, this would be enough to pay the next mortgage bill — which it seems to me is the most common worry when an emergency comes up.

I’m also routinely ahead by a month on all of my non-utility bills. Next bill due date is always a minimum of 3 paychecks down the road — so in my own “imaginary” sort of way, I actually do have an EF.

I may not have the money on hand right now, but I also don’t have to send it out right now either. I’ve got around two months leeway.

Some will say, “What if you lose your income?”

Well, based on what I’ve already said, I’d have a few months to coast before the big bills came due.

I’d also like to think that that would enough time for me to be able to find a decent new income or more time to allow me to add new paying clients to my side business to cover my expenses.

If not, I’d likely end up using my credit cards to cover my expenses. You see, credit is my other EF. I have a zero balance right now, but in excess of $100k in available credit. Many will disagree, but as a last resort, and in a real emergency, that’s a pretty powerful thing to have in your back pocket.

On a side note, and something I should probably reveal anyway, in a pinch, my wife’s income is enough to pay all of our bills in the short term. It would require a bit of a lifestyle change, but it would definitely be possible for us to get by — and that’s just another (and the best) financial safety net going for me.

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Mortgage first?
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…

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For illustrative purposes only — I’ve never had a Discover Card.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…

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Not my actual Money Tree, but a decent representation…Next to my desk at work, on the window ledge, I have a money tree.

More often than not, my co-workers excitingly mistake it for a marijuana plant and move in for a closer inspection. Not sure what that tells you about my co-workers.

When I tell them it’s a money tree, they kind of roll their eyes like they always do whenever the topic of money rolls into my office, and then walk away.

Again, not sure what that says about my co-workers… ;0)

April will be the first month in my quest that I switch gears, making savings my top priority rather than debt repayment.

With Spring officially getting started (our daffodils in the yard have popped up) — it seems like the right time to start planting things.

No, not in my window this time, but in my ING account.

Yeah, rates are currently terrible, but I don’t have enough on hand right now to drop into a fund with Fidelity or Vanguard (my top two choices).

One penny at a time and it should build up pretty quickly, I’m sure, just like the debts fell. The ball is already rolling with my $75/week savings plan that kicks off tomorrow.

Hey, that’s 75000 pennies per week! Something is bound to grow, right?

By mid-Summer, I think some of my pennies will most certainly have become trees.

Things are really starting to fall together nicely.

Can You Dig It?

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