How to Hack Your Mortgage

Yep, if you have a mortgage, you should hack it.

Pick a hack, any hack.  In fact, pick a couple.  Each of them allow you to pay off your mortgage sooner and can save you a ton of money in interest.

First, let’s talk about how mortgages work.  When you get a mortgage, your monthly payment includes both interest and principal.  The principal reduces the amount you owe, the interest pays your lender for letting you use their money.

The best rate I can find today (on bankrate.com) is 3.75% for a 30 year fixed mortgage.  For a $250,000 mortgage, the monthly payment is $1,158.  $781 of that first payment goes to pay the interest.

$250,000 x 3.75% / 12 months = $781 all to interest
The remaining $377 goes to reducing the amount you owe-the principal
For your second payment, a little less ($1.18) goes to interest and a little more goes to principal

Over the 30 year term of the mortgage, you’ll pay almost $417,000 in payments and $167,000 of that is interest.  Yep, even at today’s historically low interest rates, that’s a ton of money going to interest.  So it definitely pays to hack your mortgage.

Hack #1 – round up.  Round up that 30 year loan payment of $1,158 to a payment of $1,200 and save almost $12,000 in interest and shorten a 30 year loan by about 2 years.  Just $42 a month can do what???!!!  Round up to $1,250 and save another $13,000 in interest and shorten your loan another 2 years. Continue reading “How to Hack Your Mortgage”

10 Painless Things We Do To Save Money

If you need to reduce your spending in order to meet your goals, you have to focus on the BIG 3:  lodging, transportation and food.  These three categories typically make up the bulk of your expenses.

We didn’t always make the “smartest” decisions on these three–we own a stupidly big and expensive home, we bought new cars, and we eat in restaurants and buy expensive groceries on occasion.

But I think we were smart about a bunch of little things and those little things helped us grow our wealth and reach financial independence in our 40’s (me!) and 50’s (Mr. Ms. Liz!).

Save your money and the earth:

Don’t light up areas where you aren’t.  We have so few lights on, our neighbors probably wonder if we’re home.  This goes for exterior lights too–we turn them on when guests arrive and leave but they are otherwise off.

When we do need a bit of ambient light in an area–like when we’re running back and forth to the laundry room–we choose the switch that runs two lights rather than the switch that lights up the entire room.  Mr. Ms. Liz narrows it down even further by not using puck lights that are expensive to replace and burn a lot of electricity in favor of using our pendant lights.

Turn off your fireplace pilot in the summer.  This saves natural gas and that little sucker generates a surprising amount of heat. Continue reading “10 Painless Things We Do To Save Money”

But Budgeting Doesn’t Work For Me!

You’re busy, I get it–family, work, physical health, keeping the house clean, trying to get a healthy meal on the table . . .

Budgeting seems like a huge pain–no fun at all.  You know you need one but you’ve not made the time to make one and you know it will be futile; you’ll never track your money or follow a budget anyway.

You may not even need a budget.  What?  You gasp?  And I won’t even call you a slacker for not having one!

Just pay yourself first.

Each paycheck, direct your payroll department to contribute to your company retirement plan up to the company match.

Add the percentage your company matches to the percentage you contribute.

Subtract that from the following guidelines:

Starting in your mid 20’s?  10%
Starting in your mid 30’s?  15%
Starting in your mid 40’s?  30% Continue reading “But Budgeting Doesn’t Work For Me!”

Could You Live On Social Security Alone?

The experts say Social Security provides about 40% of the typical retiree’s pre-retirement earnings.

But that percentage varies a lot.  Lower earners receive a higher percentage of their earnings and higher earners receive a lower percentage of their earnings.

I write a lot about the importance of saving money for retirement because of this 40% statistic.  But COULD I live on my social security alone?  If I could, what would that life look like? Continue reading “Could You Live On Social Security Alone?”

Let’s Make A Deal

I went to a (early!) retirement party for a friend and former colleague of mine this week.  Yay Phil!  It was so fun to catch up with my old work buddies who were there.

Knowing that Mr. Ms. Liz and I are fairly knowledgeable about things financial, one former colleague confessed that he spends about $4,000 a year going out to lunch.

If you read last week’s post, you know that if you LOVE going out to lunch and it completely enhances your world,  you should go out to lunch and enjoy every minute and every morsel.  (So long as you don’t have consumer debt like credit cards and you are saving at least 15% of your income for your retirement).

But he was making this confession because going out to lunch doesn’t completely enhance his world, it just makes life a bit more convenient.

He thinks $4,000 a year is too much money.  Yep, it would be too much money for me too. Continue reading “Let’s Make A Deal”

Save To Retire Early Even If You Won’t

I listened to a good bit of the James Comey hearing last week.  I don’t follow politics closely but Mr. Ms. Liz does so it was on the TV while I was working.

I kept wondering–does he have F U money?

We haven’t talked about F U money before because I find it to be a bit vulgar and I know some of my readers are sensitive to such things.  But I haven’t found a better way to express this concept.

Jim Collins, one of my personal finance heroes, coined the term.  If you haven’t read his stock series yet, do it right after you finish this insightful post :).

Does James Comey have enough money to move on to something else without worrying about how he will keep his family afloat during the interim?  He’s 56, could he retire? Continue reading “Save To Retire Early Even If You Won’t”

The Easy Way To Fund Your Dreams

What do you dream of?

Traveling? Buying a home? Staying home with your kids? Taking time off? Sending your kid to college? Retiring someday or even early? Buying a camper and heading for the open road?

Don’t know what your dream is?  Read this and figure it out!

Unfortunately, few dreams are free.  If you want to pursue your dream, you’ll probably need to save some money.

It may seem really hard to eek out savings from each paycheck.

But I promise it will only get easier!

As long as you’re not spending more than you make, you don’t even have to reduce your spending.  IF you’re spending more than you make, sorry, but you have to get yourself on track.  Cut, cut, cut and earn, earn, earn until you’re not living beyond your means.

You just need to commit to keep your spending where it is. Continue reading “The Easy Way To Fund Your Dreams”

Little Decisions Help You Reach Your Dreams

It is hard to set money aside for your future.  Damn hard.

Especially when you are surrounded by people who spend money like it never runs out.

I hated being the one saying I couldn’t do something because I didn’t have the money.  Really I had the money but I didn’t have the budget.  So then I started saying those things weren’t in my budget.

But it got easier–people got used to us being more frugal and adjusted to it or they sort of slipped out of our lives. Continue reading “Little Decisions Help You Reach Your Dreams”

What Could You Do With A Million Dollars?

On the Stacking Benjamins Podcast I was listening to today, Joe was talking about the responses he received when he asked his Twitter followers what they would do with a million dollars.

He got some interesting responses.  Some were altruistic–donating the money or helping family members.  Some were realistic–like paying off debt.  And some were funny–like calculating the time it would take to count the money at the bank–in twenties.

It got me thinking.  What could each of us do with a million dollars?

I’m overly rational so I got out the calculator.  $1,000,000 invested should provide $40,000 of retirement income forever.  With Social Security providing 40% of our needs (as it does for the average recipient), we should have a stream of income of about $67,000 in retirement.  I could live a pretty nice life on $67,000.

That $1,000,000 invested in rental real estate should provide even more income.  According to Paula at affordanything.com, we shouldn’t invest in a property unless it will rent for 12% of the purchase costs per year, 6% of that goes to costs and that leaves 6% return for us.  Our retiree now has an annual stream of income of $100,000 including Social Security.

Now we’re talkin’!  With that income, we could do some really cool altruistic stuff too! Continue reading “What Could You Do With A Million Dollars?”

Fees Matter . . . A Lot

Do you know how much you are paying in mutual fund fees?  You should, because fees matter . . . a lot.

When you hear people talking about mutual fund fees, they are usually talking about the expense ratio.  This is the percentage charged against the earnings of your fund each year.  These fees pay the operating costs of running the fund and, usually, return a bit of profit to the company running the fund.

My focus in this article is going to be on this expense ratio. Continue reading “Fees Matter . . . A Lot”