Unexpected windfall

Sometimes I feel great about my financial skills. Other times, I am embarrassed. A while back I posted about how I stopped my whole life insurance policy. I don't really need all that insurance and it freed up an extra $90 a month in my budget. What is embarrassing to me is that I had that policy and never really understood that much about it. I was young and foolish when I signed up for it over a decade ago but that shouldn't still be an excuse. If I had understood it I would have expected what came in the mail.

What did I get in the mail? A check for the cash value of the policy when I ended it. It's just over $5000. In the post before this I was whining about going over budget and this money will not help me there. I do not put unexpected windfalls towards bills I racked up by shopping too much. Nope, this money is going straight to the bank to sit there until I decide what to do with it. Principal on my mortgage? Home improvement? Expanding my EF fund to five months of income instead of four? I don't know, yet.

Budget off the rails

This month I have a credit card balance that I cannot pay with my paycheck. My car needs its 30,000 mile servicing and I am going to have to charge it, adding to the balance. The charges on my card were a convergence of my decision to spend a couple hundred on new clothes (so that no one would mistake me for a bum) and some rare expenses, such as new toner for my laser printer (hasn't needed any for 2 1/2 years) and signing up for a class I take three times a year, among other things. I will be able to pay my current balance with my next paycheck provided I stop spending.

This whole situation points out to me how close to the margin I really live. I give myself a discretionary spending allowance which generally meets my needs so I don't usually feel like money is tight, but it is. Every dollar I make is already earmarked for bills or savings and only a teeny bit left over for extra expenses. Of course, in a real emergency spending situation I have plenty of resources - my emergency fund, the money I keep in stocks, the money I pay towards my loan principal each month. But that money is for emergencies, not new clothes or a lawn chair. I miss the days before I owned a home when I could go off the rails with my budget and it was no problem because I was bringing in way more than I needed to live on.

This is not the end of the world; I'll rein in my spending, go back to my usual thrifty ways, pick up an extra call shift, and everything will be fine. Then I'll be back in my pretend world where I have plenty of money for everything I need because I don't need much. I just have to remember that all this tightness now will pay big dividends when my second mortgage is paid off, then first mortgage is paid off, then retire early or only work part time by my late 50s. And I do have a wonderful (already saved up the money so no worries) vacation coming up in a few weeks.

Customer service vs the cheapest price

Wal Mart, Home Depot and big box stores of that ilk tend to have the lowest prices for some of the things I buy, but what about quality of life? By the time I have spent 30 minutes roaming the aisles of Home Depot looking for someone who can help me find a particular gizmo I want to scream. Then I go to the register and find that I have to pay at one of those damned self-pay stations where the computer talks to me like I ride the short bus and is always complaining about items placed in the baggage area. Good thing I don't carry around a machine gun in my purse, because by the time I leave Big Box Hell I am always wishing for one and that would only lead to trouble.

I'd much rather pay a bit more at Orchard Supply Hardware, a smaller chain local to my area. The stores are smaller and the prices are higher but friendly and helpful salespeople roam the aisles asking people if they need help finding anything. I never have to spend forever looking unless I want to. It is nice to interact with actual human beings and every time someone asks if I need help I feel better about the human race in general. I spend the extra money gladly because my quality of life is so much better when I shop there.

Just a reminder that the lowest price is not the be-all, end-all of everything even in a frugal life.

Not going to make it at this rate

Yesterday I wrote about the joy of reducing the power of compounding interest by making extra payments. While what I am doing is great, it is unfortunately not enough to meet my goals.

My goal is to have my second mortgage paid off before I have to start paying principal on my first mortgage. That starts in 2017, a long way off but all too short a time to get $125,000 paid off for my second mortgage. I'd also love to have a year or two of breathing room without any second mortgage payments before starting principal payments on my first.

I like to play around at Bankrate.com and use their mortgage calculators to figure out how long it will take me to pay off the mortgage if I pay more in monthly principal payments or if I make a one time payment. It is fun to see how much time I am taking off my loan repayment schedule by paying extra, but also scary because it makes me realize I am not paying fast enough.

In order to meet my intermediate goal of paying off my second mortgage in six or seven years I really need to do more than pay off the $10,000 in principal I set as my goal for this year. I still have $11,000 of my tax refund left, and I am thinking about what to do with it. In order to meet my goal I not only have to put the tax refund towards the mortgage, I also have to increase my principal payments to about $800 a month. Yikes. I just increased from $300 to $500 a month last fall, and increased my monthly car savings from $100 to $200 a month. Where will I find another $300 a month?!

Paying down principal pays off

Today I made the monthly extra principal payment on my second mortgage and while I was online I looked at my account.

I paid $10,400 in interest last year. I paid $3310 so far in interest this year. Yes, that is a lot of money in interest. But consider that even if I did not pay another dollar in principal this year I will still pay about $500 less in interest this year because I paid down some of the principal. Since my monthly payment is about $1000 that means my loan will be paid an extra half month early even if I do nothing else.

I am taking away the power of compounding interest! Hooray for extra payments!

Progress on my 2009 Mortgage Paydown Challenge

As you can see in the box on the right I am making steady progress towards my goal of paying down $10,000 in principal on my second mortgage. The $164.75 listed for April is the amount of my regular payment that went to principal. This is pretty exciting because almost two years ago when I first bought the house my payments only paid off $80-90 in principal. It's almost doubled!

Original loan, May 2007: $138,000.

Amount paid off as of today: $12,780.69. Of the $12K, $7344 was in the last 12 months.

Current balance: $125,219.31.