Mortgage Payoff

Early in 2014, I looked over our financial plan for the year. Typically, my wife would be included but she’s not real interested in numbers so I tell her what I’m planning to do (increase savings so we can reach X$ in Y account by the end of the year) and she’s asks a few questions, then I apply the goal-o-matic and at the end of the year we are where we need to be. It’s a nice system, and one that has helped me become a much better saver.

See, when I first started trying to save money (in vain) I kept my savings account at the same bank where my checking account was. After I got paid at the beginning of every month when I was in undergrad, I “paid myself first” and transferred some money to my savings account – usually $100 or $150 depending on the month. As you can guess, this didnt work at all. Typically sometime during the month, I’d run low on cash in checking and end up taking the money back out of my savings and putting it into checking. All this robbing of future me took was a few clicks on the computer (and can now be accomplished with a cell phone). Needless to say, this strategy never worked well. I was able to tell myself  was saving, but then still be shocked when the balance was never that high. It was grand! I could rest easy telling myself I was saving, then still have nothing.

After about 4-5 years of this, I finally wised up. I realized that I needed to put some hurdle (any hurdle, really) between me and my savings, so I opened up an account at an online bank. Doing that was just enough to stop me from spending my savings. It took too long to get back to my account, and I’d run the risk of overdrafting if I did it. It put up a simple question between me and whatever I was considering buying when my account was low “Are you interested in paying the $30+ dollars for this because the transfer wont finish on time?” Naturally, the answer was always no, and I started to see balances build in my savings.

After looking at our numbers and projections for 2014, we are going to hit a few important milestones. First of all, we are going to finally slay the last student loan. I upped the payment back to where it was before we got new windows, and if we do nothing the entire year, the balance will be gone (or really close to it) by 12/31/2013. Obviously, if we pay off more each month than what I’ve set up the auto payment as, that loan will be gone even sooner. The goal is to get rid of that as quickly as possible, then move our debt repayment energy elsewhere.

One of the first things that I thought about moving the cash that we will have in 2015 into is the emergency fund. Again though, I upped the amount going to this account every month and now we will likely hit our target number (10k) by the end of the year as well. H and I decided that once we hit 10k, we’d stop the majority of the contributions to the account (but still contribute a small amount monthly) until we hit 12k, then cease contributions all together. Back of the envelope numbers are suggesting that we will hit the 10k mark either late 2014 or early 2015, depending on how quickly the student loan payment goes away and gets redirected as well.

So for now, H and I are going to think about where to go after this year. Do we want to pay off our house as quickly as possible? It’s got a 3.375% interest rate and we’ve got ~50% Loan to Value ratio at this point, after all of our upgrades and payments made over the past 18 months. The rate is low and we would most likely do better long term elsewhere, but it would be a huge cash flow bonus to be totally debt free (it’s almost 33% of our non savings/non investment budget per month). Should we work on acquiring more assets, either rental properties or equities? Should we focus on continuing to expand our passive cash flow?

Thankfully, we dont have to decide right away, as all this magic will take 12 months. I bet they will fly by, but they will still be crazy and we will need to keep this in the back of our heads all year long.

Readers: What is your financial situation going to be at the end of 2014? What are you looking forward to accomplishing and what are you hoping to achieve? More importantly, how do you plan to get there?

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4 thoughts on “Mortgage Payoff

  1. This year, my goal is to be free of credit card debt, build up a nice savings, contribute more towards investments, and start thinking about purchasing property (probably a rental house in a cheaper state). Then I’ll tackle my student loans!

  2. Don’t be in a hurry to pay-off (or even down) that sub-4% loan. Sometime during the life of that 30 year loan I predict you’ll be able to get CDs at higher percentage rare than that. During the late 70s/early 80s you could get 11% CDs!!

    Max out 401ks/IRAs, make wise improvements to your home (e.g., upgrade the rest of the windows) and make after tax investments.

    • Mary –
      That’s something that I am always wondering about (and obviously, we arent quite ready to deal with it, thankfully). Debt freedom sounds pretty good on paper, and paying off the mortgage would reduce our yearly expenses by about 13k – making FI easier, but you’re right – we could be forgoing more gains if we invested it wisely instead.

      One thing to note – we have a 15 year loan (with ~13 years left) on the house, not a 30 🙂

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