Giving Thanks

For those of us here in the United States, it's Thanksgiving Day, and while my wife and I are thankful for a great many things, one of the things we're most thankful for right now is how well our financial life is going.  In an economy that's still in the tank, where countless people are without jobs and are having to make some terrible financial choices, we're not just surviving, but are actually managing to dig ourselves out of the debt hole we've been in ever since we got married.  In a good economy, this would be cause for thanks; in today's economy, we are grateful beyond words that we're able to do so much to help our future selves live a financially-free life.

Wherever you are today, whoever you're spending your Thanksgiving with, my wife and I wish you the biggest of blessings in your life, and extend to you our hopes that you'll be able to improve your financial life in the months and years to come.

Happy Thanksgiving.

Breaking the Barrier

October 14, 2010.  A date which will live in infamy.  Okay, so maybe it's not as grandiose as all that, but today was the day we officially broke below $100,000 in terms of debt owed.  We haven't owed this little money since we bought our house back in 2004.  We also have about another $1,500 poised to go toward the loans in the coming days, so that will drop us even further.

Something about this feels like a birthday -- on my birthday, I'm really only a day older than I was the day before, but psychologically, it feels like I'm really a full year older.  Same thing here -- in reality, we're only a few hundred dollars less in debt than we were yesterday, but breaking through that $100,000 barrier -- from six digits to the left of the decimal to five -- is a huge feeling, the sort that is likely to accelerate our efforts even more.

We're still on track to have the student loan paid off by Christmas (with a little temporary help from our Rainy Day fund in mid-December), and only a little behind on where we need to be to have the mortgage gone at the end of the forty months.  Things keep looking up for me in the music and composing department, so I'm hopeful that will mean extra income that we can throw straight at the mortgage to get ourselves back on track.

Speaking of music and composing, I'm trying to get my other blog, The Creative, off the ground.  I've finally gotten serious about it, I'm posting on a regular schedule, and now all I need are people reading it and sharing in the dialog.  If you're so inclined, head over, take a look at it, spend some time there, and drop me a comment or two if you wish.  Also feel free to subscribe to get the posts delivered to your RSS feed, blog reader, or email.  If nothing else, head back daily to check out the Daily Haiku.

Anyone else have any sort of debt-reduction or other financial success story they want to share?  The comment section is below, so share away!

Bi-weekly Mortgage Payments

I had an email from Jen last week about a deal her bank was offering where, for a small set-up fee, they would switch her mortgage payments from monthly payment to bi-weekly payments, or payments every two weeks, of half the current monthly amount. She suggested I expound on this phenomenon and whether or not it's a good idea.

I'll start with the answer -- yes and no.

First the no: Paying anybody extra, for any reason, to take your money is just foolishness.  They're already taking your money; why would you pay them more to take it?  It's for this reason I have my water bill deducted from my checking account and not paid with credit card -- the water company would charge me a monthly convenience fee to use the card, but not the checking account.  I also pay my auto insurance in semi-annual installments, because if I paid monthly, they'd charge me an extra couple bucks a month. 

I also adamantly refuse to pay my federal taxes by credit card because they charge some extortionate rate to do so.  I send them a check -- they still get the money they're owed, and not a penny more.

Now, the yes: Paying half your regular payment every two weeks is a great way to get yourself debt free faster, but it's simply a trick.  Like all good tricks, however, it works, and here's why:

Say my monthly payment is $1,000.  In a year, I'll pay $12,000.

Now, if I pay half that amount every two weeks, I'll pay $500, but I won't pay that 24 times, because there aren't 48 weeks in a year -- there are 52.  I'll pay that $500 a total of 26 times, so I'll pay $13,000 for the year.

Big whoop, you say.  So what.  Well, here's the "whoop" -- on a regular 30-year loan, the bi-weekly payments (that extra $1000 a year) will have it paid off about 4 years early, and will save you 15%-20% in interest over the life of the loan. 

Bi-weekly payments are also nice because most of us get paid bi-weekly, which means it's easy for us to just assume a set part of every paycheck is our mortgage payment.  This actually makes budgeting easier in the long run, though it can take a little bit to get used to it.

But the answer, my friends, isn't bi-weekly payments; as I said, that's just a trick.  The real answer is Extra Principal Payments (EPP).  The beauty of EPP is you can make them in any amount, at any time.  Check with your mortgage company to see how they need to be notified of extra principal payments (including making bi-weekly payments on your own without their help), but for most of them, simply putting "apply extra payment to principal" is enough to have them do so, instead of taking the money and holding it back as part of your next regular monthly payment.  Others may have different requirements, so check with your lender.

The reason this works is your interest -- the part of the money you pay for the privilege of using the bank's money -- is calculated directly on your principal.  The less principal you have, the less interest you pay.  Since your regular monthly payment pays off all the interest you owe before it ever gets rid of a cent of your principal, the only way to get rid of the loan faster is by making EPP.

 "But Jason," I hear you saying, "don't I need to put Large Gargantuan Amounts toward the principal to make a difference?"

And you hear me saying, "No."  Let's assume a $150,000, 30-year mortgage at 4.5% interest (not hard to get these days).  Just $10 extra in principal a month pays the loan off 9 months early  -- give up the Adult Beverage of your choice one dinner out a month and you're almost there. 

$50 extra a month pays it off 3 years and 7 months early.  $100 extra, and it's 6 years and 3 months.  For the example above, that means you're paying $860 a month instead of $760.  Not a small thing, but not the end of the world, either.

If you want the bi-weekly payment effect without the hassle, take your monthly payment amount (don't include the escrow amount in this unless you want to -- escrow's a whole different ball of wax ... gross) and divide it by 12.  Make that your monthly EPP, and you'll get close to the same effect as making bi-weekly payments.

Whether you switch to bi-weekly payments (being darned sure not to pay anyone for the privilege of taking your money) or just make extra principal payments in any amount, you're cutting the life of your loan, and saving yourself hundreds or thousands in interest you won't pay. 

If you want to run your own calculations, check out the Mortgage Calculator and the Biweekly Mortgage Calculator from Bankrate.com. 

Goodbye, Old Friend

Yesterday, we finally did it.  Our beloved Chevy Cavalier that I've had since March of 2000 is finally gone from our lives. 

Okay, well, that's not entirely true -- we gave it to my wife's uncle, so I'm sure we'll hear about it from time to time, see it every so often, and know of its whereabouts for another few years, but at least for us directly, it's gone from our lives and our garage.  In fact, I've already taken my bike off the hooks and set it right-side-up on the far side of the garage, inflated the tires -- all I need now is motivation to get going on it.

Even though we got no money for it, we're going to save in many other ways:

Insurance -- I'm going to call this morning as soon as the insurance office opens and cancel our policy on the car.  No need to insure a car that we don't have any more, is there?  That right there ought to save us about $300 a year.

Registration -- We spent probably around $40 or $50 a year to register the car, and that's now money we won't have to spend.  (My wife's uncle says we can take the plates and registration back in to the license branch and get a refund on part of what we spent, but I'm going to just wait and see on that.  Not that I don't believe him, but I don't trust the government to give back a single cent of money they're already got.)

Maintenance -- Even though we drove that car about 30 miles in the last year we had it (most of those were to the service station), we still got the oil changed every six months or so.  If we'd kept the car, we likely would have kept getting oil changes, and as things wore out from old age and disuse, we would have paid to replace them. 

Clutter and Peace of Mind -- I once read somewhere that you spend a certain amount of time (which, when you come right down to it, is almost equivalent to money) every year on every possession that you own.  The less you own, the less time (or money) you spend.  We spent quite a lot of time worrying over the car, fretting over the car, thinking we ought to do something about the car, and occasionally actually doing something with or to it.  On top of that, add up all the random seconds here and there the car caused us -- it took up a lot of space in the garage, so getting to tools on the far side was a slow, painful balancing act of trying to get the tool and not get killed.  If the car hadn't been there, those seconds -- probably adding up to at least a good three or four minutes over the year -- wouldn't have been spent.  Small beans, I know, but beans is beans.


In the end, the parting wasn't nearly as bittersweet as I thought it was going to be.  Yes, we had good times in that car.  It was the car we drove away from the church in after we were married, and the one we drove on our honeymoon.  It took us to Florida, and to Boston, and back and forth to school hundreds of times.  It was a good little car for a couple just starting out their life together, and for that, we'll be forever thankful. 

But time has moved on, as it always does, and it was time for the car to go on its way.  I hope it will be as good to my wife's uncle as it was to us, and just knowing that someone is somewhere getting some good from it makes it all worth it.


In non-car-related news, as you can see from the numbers on the right, our student loan is now south of $15,000!  If my calculations are correct, we've paid off just shy of $3000 on that loan in the past month.  We're still a little behind where we want to be in terms of the total debt payoff, but we're making some serious headway.  Our current goal is to have the student loan kissed goodbye by Christmas. 

Anyone else making strides on their debt payoff, or getting rid of possessions that are cluttering up their lives and costing them money?  Feel free to post in the comments section and share for all to see.

Money Down the Drain

While cleaning out the old car yesterday in a prelude to giving it away, I came across a compartment full of disgusting, fused-together coins.  I had no clue what had fused them together, and even less desire to find out.  What I did know (or hope) was that water, The Universal Solvent, would separate them and render them once more individual coins.

So, I put them in a cup of water and let them sit by the bathroom sink.  After a while, I went in (leaving the light off because the light from the hallway was sufficient, and why waste the electricity if you don't have to, right?), upended the cup over my hand, and let the water drain out.  What followed was a long series of drips ... and two clangs as two coins hit the sink.

Not wanting to lose what I had given so much effort to separate, I turned on the light and fished out the nickel that sat half-way in the drain.  Of the other coin, I saw no sign.  I had heard of figuratively losing money down the drain, but this, my friends, was the first time I had ever literally lost money down a drain.

Now, knowing the value of my time, I was heck-bent if I was going to go fishing in the drain for what was, in all likelihood, a penny, but the whole experience did get me thinking about how we figuratively throw our money down an equally figurative drain.  What are some of the money-drains in our lives?

Interest on Debts  This is a biggie, especially for my wife and I (heck, just look at the name of the blog!).  Every dollar you pay in interest on a debt -- especially things like credit card debt and payday loans -- is money that is just being frittered away.  Sure, there are tax advantages to some sorts of interest, and the money you borrowed in the first place served some use, but now that the only thing remaining is the debt, it's just nickels and dimes and dollars down the tube.

Stupid and Pointless Fees  At one point, my parents asked me to look at their finances to try to help them work some of the monetary magic my wife and I seem able to work in our own lives.  I noticed one credit card my dad had that socked him some huge fee every year, just for the joy and privilege of carrying the card.  With the hundreds of different credit cards out there (even after the economy's problems and several rounds of credit card reform), paying an annual fee to have a credit card is setting fire to the bills in your wallet and watching them burn.

Not Comparing Prices or Not Waiting For Sales  Every week, there's a fun mystery in our house.  I call it, "Where will we buy our groceries this week?"  My wife and I don't eat a lot in the way of food, and our tastes in groceries aren't all that exotic, so we can really buy our food about anywhere.  There are some items we'll only buy certain places (milk and green pepper nearly always come from Aldi), but beyond that, one store's generic is as good as another's.

So, we get the circulars on Thursday, and while I teach piano lessons on Friday, my wife decides which store has the best deals, the most things we can stock up on, and that's where we go.  We may only save four or five bucks each week by doing this, but over a year, that adds up.

The same is even more true of big-ticket items.  Patience -- in the form of waiting for sales -- is not just a virtue, it's fiscally smart.  Waiting for not just an okay price but an outstanding price can be hard, but it can also be rewarding when you get that TV or computer you wanted for half of what it normally costs.  Also with big ticket items, if you don't ask for at least some money off, something extra thrown in, or a free service plan, you're feeding dollar bills to your dog just to see what comes out the other end ... okay, that analogy was gross and not completely apt, but you get the idea.  The number of times I've asked for a freebie or a few bucks off isn't that many (not many big-ticket purchases), but it's resulted in about a hundred bucks off our kitchen appliances, two years of free oil changes on our Honda, and $65 back when we got rid of our home phone line and went straight DSL. 


This list is far from exhaustive, but it's a start.  What other times and in what other ways do you throw money down the drain?  Let us know in the comments section.

Focused Intensity

Goals are a great thing.  Having a place you want to get to or something you want to accomplish is a tremendous thing to have.  The problem is so often, we feel like we're meandering toward our goals.  It can feel not like we're a horse streaking to the barn after a long journey, but rather like we're a dog crossing a field, stopping to sniff every tree and rock while marking our territory along the way.

Then there is the joy of Focused Intensity.

Right now, my wife and I are in the throes of Focused Intensity.  We have our Big Goal -- being debt free -- and we have our smaller goals.  In this case, our current smaller goal is being rid of our student loan, which as of this writing sits at about $17,840.  We are doing everything in our power to eradicate this loan, focusing every ounce of our will and every dollar of our making toward it's non-existence. 

We've wanted this loan gone for a while, but now, we really want it gone.  We want it gone so badly, we're willing to put off pretty much every other expense in our lives (not our bills and mortgage, of course, but every expense outside of that) to make it happen.  We want every available dollar to be going toward that loan, and we do mean every dollar:

Extra Income: We can pay our bills and mortgage on the money my wife makes teaching.  That means that any of my income -- school income, church music director income, piano lesson income, composing income -- goes toward the debt.  $60 for a day's worth of piano lessons?  Put it toward the loan.  $500 royalty check for composing?  Put it toward the loan.  $400 from two weeks' work at school?  Put it toward the loan.

Snowflaking: This is a twist on Dave Ramsey's "Snowball" method of paying off a loan (I think I heard about this on The Simple Dollar, but I'm not sure).  You take every small, tiny amount of money you can, and you apply it toward the loan.  With the student loan, I can make one payment every day.  That means that every day I get any income, I put that income toward the loan.  In the past two weeks, I've made five payments.  Financially, this pays off the interest I've accrued since the last payment (sometimes as little as $1.72) and drops the principal, meaning the next time I pay, there will be a smaller principal balance accruing interest.  Psychologically, it means every time I look at that principal number, it will likely be smaller.

Snowflakes are anything, from the $5.72 refund from Verizon after I canceled my cell plan and got on board my father's, to the fact our Visa bill for the month was $100 less than budgeted.  No amount is too big or too small to snowflake it.

Frugal-ing: Anything we can do to reduce our expenses is extra money I can throw at the loan.  Even though the temperature today is going to get to 85, the breeze is nice and strong, so we've got the windows thrown wide.  Total cost to climate-control the house for the day?  $0.  Sure it's just a couple of cents, but it adds up.  Driving the car to school with the windows down has made a difference, too, as I've noticed an increase in our gas mileage, meaning I have to spend that much less at each fill-up.  As I write this, I've got a crock pot of chili cooking, which for about $7.00 in materials and electricity will provide about 4 meals for each of us, saving us a ton of money over what we could spend to eat out or on prepackaged "convenience foods."  The journey of a thousand miles begins with a single step, and the eradication of a student loan begins with a single cent.

Selling the umbrella:  I sat down with my Spreadsheet today and looked at our finances over the next few months.  In my spreadsheet, I've got not only our anticipated income and expenses, but also an interactive amortization table of both our mortgage and student loan.  I can see how putting various amounts of money toward a loan will change its life just by moving some numbers around.

I made the realization this morning that if we continue to put all our available money toward the student loan, the balance on it will be under $4000 by Christmas.  If we dip into our Rainy Day fund (i.e. Sell part of our financial "umbrella") we can give ourselves a nice Christmas gift of paying off the loan.  We make 1.1% on the Rainy day account and pay 3.25% on the student loan, so the math works in our favor; and since my wife is guaranteed a job until at least August, and my income streams are trustworthy, we can then take a month or two to repay the rainy day fund to its previous level once the loan is gone.  I know this goes against "conventional" advice for a rainy day fund, but for us, it works.


What other ways could we be focusing our intensity to make this student loan no more than a foggy memory?  Let us know in the comments section.

Own Your Home Faster and Cheaper

I was just over on the ING Direct site looking at a table of interest rates while lamenting the pathetically-low return we're getting on our savings and checking accounts over there, when I scrolled down the screen and did a double take.

Currently (as of August 28, 2010), on their Easy Orange 5 year loan, ING Direct is offering a rate of 3.125%, and on their new Easy Orange 10 year loan, the rate is 4%.

Let me say up front that neither my wife nor I own any stock in ING or have any affiliation with them beyond having our accounts there -- we get nothing from new customers or new loans.

We signed up for our Easy Orange 5 year loan back in April and haven't looked back.  The closing costs were comparable to other closing costs on the refinance, perhaps even a bit lower that what I would have expected.  You make a payment every two weeks, and you have to do it electronically through their web site -- if you send a paper check, they sock you with a fee ($15, I believe).  Your payment amount is based on a 30-year repayment schedule (they figure out what you would pay per month over 30 years, and then divide it by two, giving you your every-two-week payment), though the loan is only for 5 or 10 years.

Your rate is locked in for the term of the loan, and at that time, you either owe the remainder of your balance, or else -- for a fee equal to two of your monthly payments -- you can lock your rate in for another term at whatever the going rate at the time is. 

The best part (and part of why I love ING Direct so much), is that they encourage prepayment of your loan and paying your mortgage off sooner rather than later.  Their only prepayment penalty occurs if you pay the loan off within the first year you have it -- after that you're home free. 

Having used the Easy Orange for several months now, I can honestly say this is the nicest loan I've ever tried to exterminate from the face of the Earth.  If I make a payment from another ING Direct account (usually my checking), the payment applies immediately, as in two seconds (literally) after I make it.  I can make extra principal payments at any time (I once made three in one day, just to test the theory).  If you're not a crazy debt-reduction-ninja like my wife and I, you can also set up recurring payments to happen every two weeks so you can just forget about it and let it go on its merry way.

So, as someone who has used the Easy Orange, I think it's a great way to try to obliterate your mortgage.  Go to the ING Direct site, click on "Learn More," then click on Easy Orange, and you'll find some calculators to help you estimate your closing costs and monthly payment.  Compare it to your current loan and rate and see if it's worth it, then start kissing that mortgage goodbye!

If you have any questions or comments, just post them below.