Tag Archives: debt free

Paying Off Your Mortgage is Like Working at a Second Job

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Cash in Hand

House Working Part-Time?

Paying off your mortgage is like working at a second job!

By paying off my mortgage early, I get to keep an additional $15,000 a year!

Let’s say that you decide that your first job wasn’t enough money, or that you want to dig yourself out of debt.  If you were to get a part time job working 20 hours a week at a wage rate of $14.42 all year round, using straight simple math, that would be the pay rate that it would equal to have $15,000.

But that’s not entirely true, actually you would have to work 20 hour at a pay rate of $18.03 (assuming your in the 25% marginal tax rate).  The reasons for the higher pay rate is that the money that you would pay your mortgage with would be after tax money.  Even that number is low since I didn’t take out FICA, insurance, state tax, etc!

This year, I’ve really noticed that my checking account balance is growing quickly!  I’ve transferred money from my checking account into my online brokerage account every so many months.  It’s been great!

Some may say “but what about the itemized mortgage interest deduction and the fact that you cannot deduct the interest on mortgages” .  Well, I’m going to tell you a secret…  after you get your mortgage payments low enough after a few years, the standard deduction is so high that those itemized deductions really don’t matter!  For my family, it didn’t take long to hit the break even point between the standard deduction and itemizing things.  Since we were prepaying, we met this crossover threshold after about 5 years.

The extra money has come in handy for us, making it easier to afford sports and other activities for our kids.  We are also planning larger vacation, perhaps even overseas soon.

The beauty of that extra $1,250 each month is that I can invest most of that money so that it even grow more quickly!

Do you share my viewpoint that not paying $1,250 extra a month would be equivalent of getting a part-time job working 20 hours a week?  Of course, if for some reasons my primary job was lost, so would my pseudo part-time job too.

-MR

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Debt Free, Now What?

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Back on February 2010, I became totally debt free, but now what?

I thought that there would be a period where I would break even for a while, and then start to plow about $1,000 extra each month into investments!  So now that it’s seven months later and how much extra did I save or invest?  Not a single cent!

So what’s the problem?  Why haven’t I been able to catch up?

Well it’s been a matter of bad luck with equipment breaking down and needing replaced and spending too much for our past vacation to Hilton Head Island!

But it’s also been a subtle form of LifeStyle Inflation!  Thinking back now, I realize that when wants would arise, I would just go ahead and buy it.  Yeah, I thought about it a bit, but I knew that I had the cash.  Then when our car and lawn mower broke down, I had the cash too…

So now will I begin my saving and investment regiment?  I certain hope so!

The only think that I’m worried about is the fact that my house is over 10 years old now, and it seems like things are starting to look a little run down!  I expect things to start breaking soon or later!

I decided to lower my expectations to only save and invest $500 a month.  Hopefully, I’ll be able to build back up to $1,000 though!  I plan on paying myself first this time.  That way I won’t have to feel guilty about missing my goal!

We’ll see if i can get my lifestyle expenses under control so I can accomplish my new goal!

-Don

Update 11/05/2012

Debt Free Now

Okay, the tide has definitely turned since I initially wrote about being debt-free now!  The excess in the amount of money I was saving dramatically increased after 10 months after becoming debt-free!  So I increased my 401k contribution up to 17% of my income, and still had a lot of money coming in.  So I also joined my employer’s ESPP to fund my Roth IRA.  Using my employer’s ESPP has been one of the best money moves I’ve made to-date!  Especially since I’m using my ESPP to save the money for contributing to my Roth, and since I’m using my Roth IRA as a Tax Shield, there is a nest of benefits that makes this an awesome wealth accumulation strategy.  Being debt-free now has enabled me to speed up wealth accumulation by at least doubt the rate that I was saving before I became debt-free!

Other Projects and Experiments:

Being Debt Free is like the Driving Part of Being on Vacation

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As a kid, do you remember that rush of excitement you would get, when you knew you were crossing into another state?  You’d see that big billboard sign welcoming you to a supposedly wonderfully great state.  Of course, your family was just passing thru and had no intention of checking out any touristy stuff they might happen to have in the their otherwise “Great” state…

Do you remember the feeling about 15 seconds later after you asked how much further before the next new state, and learn that this new state had an even long drive time to get through than the last state?

Well, that’s how if feels for me right now, since I’m now in the asset building phase.  And I have to juggle 2 kids and their various activities and needs on top of that.  Though I have to admit, I’d rather deal with the upcoming kid issues now than in the past.

But, the feeling I’m having now is wrong (at least if I do it right)!

Over the next 2 months, I’ll have (for me) three decent sized infusions of cash (taxes, saved money from no house payment, and the bonus from work), that I’ll be able to invest in a low risk dividend stock.  This will kick off the creation of my life long dream of the start of a Dividend Portfolio to cover my expenses.  If you’ve been following my site, for the past 6 months or so, I’ve been doing a lunch experiment where I eat cheap at lunch and save the money to invest in stocks that yield dividends.  The idea was to invest enough to have the Lunch dividend fund eventually pay for some or all of my weekly lunches.  That would free up that money for other purposes (like investingJ).  Through sacrificing (it wasn’t that bad really) by packing lunch (oh, the agony), I would save $40 a month week to invest in stocks.  Of course, I didn’t invest it every month week because the transaction fees would have eaten me alive (I waited until I got a big lump sum, then purchased stocks)…  I’m up to 1 fully funded lunch a week already!!!

Hopefully, the next time I write about this, I’ll have some snapshots of where I’m going with these funds and some conservative projections!

MR…

I Am Debt Free, My Mortgage Countdown #1 – Equilibrium

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I’m Debt Free!  I don’t have credit card, car, mortgage or any other type of debt!

At Equilibrium

 

On the Wells Fargo website I selected the send “Payoff form” option for my last mortgage payment.

I filled it out and printed it so that I can have Wells Fargo to pay our real estate taxes from our escrow.  Now that they did that, I still have to pay our house insurance at the beginning of March, but… I sent in my last official mortgage payment!

Actually the check is sitting on my kitchen counter downstairs, waiting for me to put it in the mail. Tomorrow, I will drop it off at the post office, and then I will be finished with it!!!  (Booyah)

I ended up paying off my house in 10 years.

So how did I do it?

Well, first I created an excellent excel spreadsheet to do some analysis on an amortization schedule.

Primarily, I used primarily 2 sheets in my spreadsheet:

  • The actual payment was recorded to a sheet.  This sheet was the real deal!  As soon as I made a payment on the house, it was recorded in this sheet.  Not much to this one, pretty cut and dry.  At the top, I calculated the reduction in interest paid by pre-paying, the shorting of the life of the years of the mortgage by prepaying, and the total cost of the initial mortgage plus the interest.
  • The “What If” analysis sheet. I used this to create a strategy to pay my house mortgage off early. I was able to calculate how different extra payments would affect the duration of the mortgage and also calculate the reduction in interest paid for the entire loan. I used this sheet so many times to calculation my payment schedule! It might not be obvious, but this was a great tool for wealth accumulation for me.

Next for the first year of the mortgage, I made double payments on the mortgage amount, with the excess going toward paying down the principal.  Then later after my son was born, I lessened the payment amount to only 1.5 times the original payment amount.

I’m still in disbelief!  I’m at a point of balance and having an “equilibrium moment”, so to speak!

As of this point forward, I will be solidly marching on a wealth-building path (or at least I hope, life sometimes throws some wild pitches at you…).

As the last phase of this final numbness wears off, I’ll tell you what it feels like being debt-free in a future post!

-MR

Update:  An equilibrium moment is when something is in perfect balance!  I don’t owe any debt anymore and nothing is owed to me either!  With the “debt phase“, I’m in perfect equilibrium.  This phase is over!  I don’t plan on ever going into debt that I can’t pay in a month’s time again!

Here are some links to former post in the Countdown series