Making Extra Mortgage Payments

Housing

Ever since the first month I had a mortgage I have paid more than the required amount that is due. I know many people out there have never even considered this as a possibility. Why would you give the bank more than what they’re requiring you to pay? Well, because of the power of compound interest and amortization.

Let me try to explain. Let’s assume a notional scenario where you hold a $500,000 mortgage a 5% rate on a 30 year fixed loan, if you pay an additional $100 dollars on just the first month of the term, It’ll save $346 in interest payments over the life of the loan! Not a bad return in my opinion.

If you were to continue doing this – contributing an additional $100 each month, you would chop over two years off the life of the loan! Or, about $42,600 in interest payments.

Another way to think about it is to simply consider that the extra money you “invest” into your mortgage payment will return a known rate of return each and every time. So, if you have a 5% mortgage, you’ll make 5% on the extra money you put in. This isn’t the greatest rate of return in the world, but it is guaranteed and in some markets, it might not be that bad. At any rate, if you have enough saved in your emergency fund, applying a little extra cash to your mortgage each month really can make a huge difference and can be part of a great wealth building strategy.

Big Market Drop Today – Let’s Buy Some Stocks!!!

Bundesarchiv Bild 102-12481, Riesen-Alluminium...

OK – It wasn’t really that big of a drop today, but after the run we’ve been having, it sure seemed like it. Seeing all my holdings appear red today in Google/finance was not nice! But when you’re investing, you have to look at these things as sales! In any other facet of life you’d be excited to see a price drop at the store and you’d go out to buy up all kinds of new stuff.  The same should apply with the stock market. However, most people don’t think or react that way. Again, today’s approx. 0.5% loss in the S&P is pretty trivial, but I’ve been looking to invest some cash anyway, so why not now?1?!?

Next question, where to invest?

Well – I’m feeling a little crazy, so let’s get speculative! This is the small part of my portfolio that I devote to picking individual stocks.

After looking at some numbers, I’m thinking Alcoa (Ticker AA) is looking like a pretty good deal right now.  Here’s the rationale:

  • Closed just 4% above its 52 week low today
  • It’s down 20% from its 52 week high
  • It did OK last quarter, but has been getting hammered by low aluminium prices and a slow recovery
  • Car sales are on the rise. Cars require aluminium and other metals that AA produces.
  • 2 insiders purchased a total of 4,940 shares on July 11, 2013. In the last 5 years insiders have on average purchased 9,088 shares each year. That seems somewhat significant.
  • The company has been around for a long time and is a huge player in the industry. In the long term, I believe it will do well.

So, I’m not planning to invest too much here. Really just a little bit to see where it might go. I’m thinking 200 shares, which at today’s market close would be $1582.

As always, this makes me a little nervous, but that’s why only a small portion of my portfolio is speculative. At any rate, it should be fun to see where this one goes!

My Financial Goals for 2013 – Checking In on Things

Resolutions-Jan

Back in January I set a number of financial goals for myself for 2013. This is something I do at the beginning of each year. It’s all about the New Year’s resolutions baby! I set other goals too, not just financial ones, but for the purposes of this discussion, let’s stick with those. Over the years I’ve found that this act of setting goals is immensely powerful. Even when I don’t achieve something, I find that I come much much further a than I would have ever done had I not set the goal in the first place. I like to check my progress on these goals about once a quarter to remind myself of them and to see how things are going. I’m a little late on this update, but no big deal…

So let’s see where we are!

2013 Financial Goal – Progress Update

Goal

Monthly Progress

Develop a second income stream of $3k by pursuing paid writing opportunities.

FAIL - I haven’t done much with this one here. Recently I’ve started this blog and I’m doing OK at sticking to writing frequently for it, but monetization is a LONG ways away if ever.

Buy another rental property either alone or with a business partner.

FAIL - I haven’t done anything on this one and honestly I don’t know if I will. I need to reevaluate this and make a determination if this is the way I want to go.

I will save more than I saved last year and I will save at least 15% of my gross salary.

 So far so good!Tracking well to date on this. Some of the goals below are essentially subs to this anyway…

Increase Net Worth by 25% (?)

So far so good!This is SO dependent on the stock market for me. But, it’s been working out so far and it’s definitely a big aggressive goal.  

Max out my 401k ($17,500)

On the Way! I’m contributing automatically to this every month and will max it out before the end of the year. No problem. Easy peasy.

Max out wife’s 401k

On the Way! The mrs. is contributing regularly as well and should be in good shape. We might need to increase contributions soon to get there, but it shouldn’t be a problem.

Increase Monthly House Savings from $400 to $500

Success! – This was just a matter of changing the automatic deduction from our checking into our “House Savings” account. This is for when we someday want to buy a new house.

Increase House Mortgage Additional Principal Payment from $350 to $400

FAIL – This is a great reminder! 3-4 months ago I tried to do this online but couldn’t I needed to call them, but it was a Sunday and I guess I forgot once the work week started. Maybe I can get this one resolved tomorrow! 

Increase Rental Mortgage Additional Principal Payment from $0 to $100

Success! - Did this online at the beginning of the year.

Increase monthly car savings from $350 to $400

Success! - Like the house savings, this was just a matter of tweaking the auto deduction. This is for when I need to buy another car.

Increase monthly “rainy day” savings from $800 to $1000

Success! - Like the house and car savings above. Self explanatory…

Meet with a financial adviser (after completing taxes)

On Hold - Until wife gets home from military duty

Refinance house again to get away from FHA Mortgage Insurance Premium (???)

FAIL - This was on hold pending the wife’s return from military duty. Unfortunately (as predicted) interest rates have since gone way up. It’s unlikely we’ll get a better rate than what we have now. I might still look into it though in a couple months just to see…

So all in all, not a bad picture. I’ve got a couple of actions coming out of this little review too.

  • Call the mortgage people about increasing my payment.
  • Get serious about whether or not I want to get another rental property.
  • Meet with a financial adviser in the fall.
  • Get serious about writing for money (or bag that goal for a while…)

What do you think?

My Net Worth: $630,861.35 (Up $20K!!!!)

It the beginning of another month, and so, as I always do, I sat down this weekend to do an update of all my accounts and determine my net worth. Before pulling all the numbers I figured things would be up, but I have to admit I was pleasantly shocked by the jump in Net Worth this month. After very nominal gains in the past two months, this month was a rockstar! This was of course in huge part due to the continued success of the stock market. All of my retirement accounts were up significantly and my non-retirement investment accounts too. Unfortunately, I did not do nearly as well as I could have as I continue to sit on about $30k in cash in IRA and Roth IRA accounts. I sold a number of winners back in May, believing that the market was overvalued. If I had stayed in, I’d probably have made an additional $2k-$3k. Damn!  I still the the markets are due for a downturn after this long bull market run, but I’ll still be slowly reinvesting some of the money as the cash just isn’t doing anything. Still, this will likely be a slow and cautious move. As it is, I did put $5k in just last week, so there’s that….

We also did a good job saving this month and as always, we continue to pay down debt. All in all a great month. Still, as our retirement and investment accounts grow more an more, it becomes so readily apparent just how much the fluctuations of the market can have on our net worth….if the market goes well, we do great. If it doesn’t, we don’t. Still, we’re in it for the long term, so we just need to keep that in mind.

Here’s how we stand as on Aug 3, 2013.

BDM - Aug 2013 Net Worth

>>>The Breakdown:

Cash ($3568): I got a raise at the beginning of the month, which I mentioned in an earlier post. The entire raise is being directed to savings, and equates to about $400 a month. In addition, we continue to save as always and were able to keep expenses pretty low this month. With the wife away doing military duty, I haven’t been eating out much or really doing a whole lot other than working out, running, biking, and enjoying the pool. All great things to do over the summer, and all essentially free. As my cash continues to grow I continue to reconsider what I’m doing with this money. It’s a pretty healthy emergency fund at this point, and arguably a little to a lot more than we need. The money could be put to better use somewhere else, but for now I’m holding it. The fact that I see few current values in the stock market contributes to this thought process…

Taxed Stock Accounts (up $748): This includes non tax sheltered (retirement) accounts. Money here is not necessarily dedicated to retirement, rather simply trying to make our money work for us. A good portion of this is dedicated towards the purchase of a future car. Seeing this rise is good, but only a 2.2% increase is pretty small considering the S&P 500 did over 5% last month….

Retirement Accounts (up $14,426): This includes my 401k the wife’s 403b, my IRA, my Roth IRA, the wife’s Roth IRA, and a couple work retirement accounts that are similar to a 401k. All together, awesome month here! Still, this is a tricky area because if the market drops, we’ll have to be ready to stomach big losses in this category too….

Rental Property Value ($0): For the purposes of calculating our net worth I don’t update this number frequently as prices tend to move to radically and at the end of the day, it doesn’t matter until we decide to sell it.. I will probably do so at the beginning of the next calendar year. Based on what I’ve seen in the market recently, this is probably fair. Maybe $5k too high.

Home Value ($0): Same story here as the rental, I don’t update this number much but will probably do so at the beginning of the calendar year. This one seems low to me based on comparable properties in the area.

Other ($0): This category is a bit of a grab bag. It includes estimated values for my car and the wife’s car. It also includes some gold and silver coins that I invested in a while back. As with the two categories above, I only update this once in awhile.

Home Mortgage ($-1,052): We refinanced this thing down to 4% and are currently paying an extra $350 a month to whack away at it. I’m considering upping this amount sometime in the near future. If nothing else, it’s a guaranteed 4% return on investment.

Rental Mortgage ($-426): This mortgage is at 4.5% , but the tenets basically pay it! We’re also paying an extra $100 per month on this one and I’m also considering upping the payments on this for the guaranteed return and to work this down quicker.

Other Loans ($-554): This includes we wife’s student loans (at a piddly 1.875% and my car loan at 0%)

Paycheck Analysis

Money

Yay! Yesterday was pay day!

I just got a raise at the beginning of this month, so I’ve been inclined to look a little more closely at my pay detail (aka pay stubs) than I normally would. With that in mind, I offer the following analysis of my last paycheck.

The first thing to do is take out all of my pre-tax deductions. This includes the following.

  • 401k (15%)
  • Dental (0.098%)
  • Vision (0.016%)
  • Health Savings Account (0.033%)
  • High Deductible Health Insurance (0.47%)

As you can see, the deductions for my health, dental, and vision are all very low. Part of this is due to a good employer who provides nice plans and contributes a lot to the cost themselves. The other part of it lies in the fact that I have a high deductible health insurance plan. If I need to go get care, I’m going to be paying the first $3500 out of pocket! But, I’m young and healthy, so if I don’t need care, I’ll make out well. If I had a low deductible plan, I’d pay much more every month…

The biggest pre-tax deduction by far is my 401k contribution. At 15% of my check this is pretty significant. However, I’m a big believer in saving for retirement and putting the time value of money to good use. Someday, I’ll be glad I socked all this cash away. Plus, most of the time I don’t even think about it because it deducts automatically. It’s only when I’m doing a hard analysis of my pay check that I notice it!

So now on to the taxes! Ghhh. From my remaining paycheck, the situation looks like this:

  • Social Security (6.2%)
  • Medicare (1.45%) 
  • Federal Taxes (15.8%)
  • State Taxes (4.6%)

This all adds up to a total of 28% of my money taken by the government. Interestingly, I thought it would be higher…

Another interesting thing is that as I ran the numbers, I saw that the tax withholding were not based on the “Taxable Gross” but rather the whole gross amount. Is this right? The point of 401k contributions is they don’t get taxed! I guess it’s probably just the government making sure they get their money up front, and then I’ll see it back at tax time (hopefully), but it seems to run against what I had always been told and thought I understood about the process.  I doubt my company is making a mistake in this area, but I might need to into look into things a little more closely to see just what the heck is going on here….

So there you have it. After the 401k savings and taxes are taken away, I’m left with only about 56% of my entire paycheck to do what I want with!

Cheers!

Who influences how Americans are doing?

U.S. Capitol Building

I read an article yesterday about a recent poll conducted by Harris Interactive that surveyed over 2,000 U.S. adults about the state of the economy and their beliefs about it. One of the questions asked:

“How much of an influence do you believe each of the following groups or individuals have over how you are doing financially?”

The results looked like this:

A great deal of influence
Congress 38%
State government 28%
The Federal Reserve 35%
Wall Street 34%
Large corporations 31%
The President 34%
Local government 20%
Small businesses 10%

(Complete survey findings available here)

Now, as an astute reader can see from the question, the survey participant is forced to select from among these groups. But I have to ask, do people really and truly believe what this chart appears to be telling us?

Do nearly 2 in 5 Americans believe that Congress has the biggest influence over how they are doing financially?

Honestly, I personally think all of the available responses are ludicrous. If I was taking the survey, I would select none of the above.

The available responses fall into the categories of Government, Business, and proxies or figureheads for Government and Business. I just don’t believe that any of these have a significant influence over how I am doing financially.

So what do I believe? I believe that: I HAVE THE GREATEST INFLUENCE OVER HOW I’M DOING FINANCIALLY. That’s right. Me. Myself. I.

Come on people! Let’s stop blaming all our problems on everyone and everything other than ourselves. Will the actions of Congress, the President, corporate America and the like affect me and my financial fortunes? Yes, sure, to some degree. But let’s be real. There is just one thing that will greatly impact my prosperity, and that is me and the actions I take or don’t take.

If I save more money will I do better? If I pursue more education will I get a better job? If I work an extra job will I make more money? If I work harder and smarter than my co-workers, will I get a raise and a promotion?

I think you get my point.

If there are other views out there, I’d love to hear them!

Cheers!

The Pay Check Challenge

Let’s begin with some context: I’ve always been very interested in goal setting, self improvement, achievement, and the like. I’m the guy who has not one, but  20 new year resolutions on Jan 1. In fact, I usually spend multiple hours working on them, refining them, committing them to paper and developing plans to achieving them. Over the years I’ve been moderately successful, but like so many others out there, I have also failed a lot too. The reality of the situation is that it is really difficult to change your behaviors, especially when the things you’re trying to do are hard: (e.g. save more money, lose weight, work out more, or develop a blog and consistently write on it!). I think like many others, my intentions begin noble and for a while I do pretty well, but then something happens and I miss a day or two, and then I slip back into my old ways. There is also a tendency to sometimes forget those things you were trying to accomplish.

An orange check mark.

With all of the above in mind, my story now turns to a member of my team who recently asked me if I would be supportive of a “30 Day Challenge” she wanted to make.  I wasn’t sure what to make of this at first, so I asked her to explain.  She went on to tell me that she was very into Yoga and wanted to set a goal for herself to attend Yoga every day for the entire month – a 30 Day Challenge. This would require going to morning classes that might make her get to work a bit later than normal. However, she would make up the time in the afternoon. This seemed like a good endeavor to me, and seeing no determent to the needs of the job, I agreed to support it from a management perspective. Her goal also inspired me to make a similar one, and so, I committed to running every day for 30 days.

Over the course of the month a number of things happened. First, “Yoga Girl” failed. Second, I failed too. But, both of us agreed that setting the goal and letting people on the team know the goal definitely motivated us to do much more than we would have ever done otherwise.  For my part, I ran 19 times that month. In a “normal month” before that point, I would have been lucky to get in 2 a week (8). It also forced me to track my progress (or lack thereof) on a daily basis. This kept the goal at the top of mind and was a constant reminder of my success for the day or failure.

This experience led me to create another goal for the following month, and so on. Over time, I’ve slowly evolved this system into something that is still new, but seems to be working well for me. Instead of a month long challenge, I’m now doing “Pay Check Challenges”. I get paid twice per month (15th and last), so these challenges are a little shorter and therefore force me to remember what my goals are on a short term basis. I can always recycle a goal if I want to keep it going, but I’ve found that after 15 days, you’ve created some good habits and momentum in a positive direction. I’ve also expanded the goal setting from one goal to three. The first goal is the one I want to be most focused and determined on. The other two are “gravy goals”. If I do well with them, great, but if not, no big deal. My goals are also pretty specific and could even be called small. In fact, for my last paycheck challenge my third goal was simply to finish a book I’d been reading for the last 4 months. Not a big thing, but 7 days into the challenge I had finished it. If I hadn’t set that goal, I bet that book would still be laying around the house and I’d be saying to myself, “shoot – I need to finish reading that thing!”

I’m still refining and tweaking this system of mine, but I wanted to share it because I think  it might be useful for others. I’ll look forward to hearing other ideas for improvements to the system or other goal setting suggestions! Till then, I’ll be working on setting the goals for my next Pay Check Challenge!

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