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3 Easy Ways to Pay off Your Mortgage Early

My husband and I have been following Dave Ramsey’s Baby Steps for the last 3 years. We have worked diligently at paying off all of our consumer debt, building our emergency fund, saving money for both our children’s college education and our retirement, and now it is time for us to also look at ways that we can pay off our mortgage early.

Because we have sacrificed a lot of the “fun” stuff to make the progress that we have, we want to be sure that we leave some wiggle room in our budget. As a result, we wanted to look at three simple and painless strategies that we can use so that we can still reach the goal of paying off our home early while leaving some money for “fun” as well.

Throw Found Money at Your Mortgage:

Found money is that money that you may not have anticipated or put into your monthly budget. A tax return, overtime pay, extra income, or inheritance is often money that is outside of your regular budget and therefore is not needed for your monthly expenses. Since it’s money that you weren’t really counting on, why not consider throwing it at your mortgage?

Refinance with a Shorter Term:

Another simple way to make sure that you pay off your home early is to consider refinancing it at a shorter term. According to our latest mortgage statement, we currently have 16 years remaining if we follow our scheduled payment plan. When our mortgage term ends in the next year, we are going to be looking at refinancing on a 10-year amortization schedule.

With no debt payments, we have the extra cash flow to afford the slightly larger monthly payments. It will also ensure that we are shaving at least 5 years off our mortgage repayment plan. With this move, our mortgage is guaranteed to be paid off 5 years before we retire, meaning that we’ll have 5 years with a full income to continue to stockpile cash before we bid our careers goodbye.

Switch to a Bi-Weekly or Weekly Mortgage Payment:

Another way to ensure that you pay off your mortgage early, without much effort needed, is to consider switching to a bi-weekly or weekly mortgage payment, rather than making one monthly payment.

If your monthly mortgage payment is $1200, your bi-weekly payment would be $600. The magic is that instead of making 12 mortgage payments for a total of $14,400 per year, you would now be making 26 payments for a total of $15,600. Without even thinking about it, you end up making an extra mortgage payment every year.

We currently live in our forever home and are looking forward to the day when we can say that we own it outright. Living without a mortgage payment would not only give us tremendous peace of mind, since we would no longer owe anyone anything, but it would also mean that our incomes are completely freed up to build wealth and give generously.

Your Turn!

  • What would motivate you to pay off ALL of your debt?

How to Build Your Emergency Fund

Everyone needs an emergency fund. Life is going to happen, and those unexpected expenses can sometimes come with some serious sticker shock.The emergency fund provides that buffer between you and life, and prevents you from incurring debt when a true emergency arises.

emergency fund

When life throws you a financial curve ball, the emergency fund will turn what would otherwise be a crisis that has you running for your credit card, into an inconvenience that has you writing a check. Let’s look at the four steps you can take to help you start to build your fully funded emergency fund.

1. Open an account that’s accessible, but not too accessible:

When an emergency occurs you want to make sure that you can easily access the funds, but not have them so accessible that you accidentally spend the money on items that are not emergencies. Consider opening up a separate savings account that is not attached to your debit card. We have ours in a higher interest rate savings account where the money can be transferred into our checking account within 24 hours.

emergency fund

Remember though, your emergency fund is insurance rather than an investment. We’re not looking to make big returns on the money that is sitting in this account. If you make some interest (I think we earn $5 a month), that’s fine, but earning money is not the intention. The intention of this money is to protect the rest of your finances – including any investments.

2. Determine what 3 to 6 months of living expenses are:

Most financial experts agree that a fully funded emergency fund should contain 3 to 6 months of living expenses. In order to determine this amount, go back to your budget and look at the essential expenses that you would need to calculating living expensescover in order to get through each month. Add up your housing costs, transportation costs, monthly grocery budget, and any other monthly fixed expenses that you would still be obligated to make (insurance premiums, etc).

In order to determine whether you should be closer to the three or six month savings mark, you also have to factor your risks. If your job is stable and you are in good health or if you have disability coverage through work if you were to become ill, you could consider keeping your savings closer to the three month mark. If you are self-employed or have a variable income, you would want to set your savings goal closer to the 6 month mark.

3. Set aside a savings goal in your monthly budget:

When you add up the amount to save, it might seem overwhelming at first, but don’t let that stop you from working towards this goal. Start small with a starter emergency fund and once you get all of your debts paid off (minus your mortgage), then you can focus on building that emergency fund by taking what you were putting towards debt and now putting it into savings.

spare change

Each month when you make your budget, look at the money you have left over and commit a certain amount of it to your emergency fund until it is fully funded. The more you are able to set aside for your emergency fund, the faster you will hit your goal amount.

4. Only use the money for emergencies:

The best way to make sure that you are building your emergency fund is to only use the money in that account for actual emergencies. So what constitutes an emergency? Any major expense that you couldn’t have anticipated, such as:

  • An unexpected job loss
  • A medical emergency
  • A sudden, major car repair
  • A leaking roof during a storm

What doesn’t count as an emergency are those expenses that we should have anticipated and been planning for already. Christmas, annual insurance premiums, and regular car maintenance are not emergencies so be sure to plan for these somewhere else in your budget.

Our emergency fund has saved us in a couple of occasions over the last three years and turned those “emergencies” into much less stressful inconveniences. When it was not only raining outside during a particularly heavy storm, but also raining inside, we had the money to be able to put on a new roof. More recently when our minivan, and main form of transportation, decided to pack it in, we were able to use some of the funds from our emergency fund to purchase a new to us car with cash.

If you’re lucky, you’ll be able to leave your emergency fund sitting untouched, but if the time arises, you’ll be glad that it is there.

Your Turn!

  • What has life thrown your way that either made you glad you had, or wished you had, the extra funds available?

How to Save Money

Confession time – I’m a natural spender. I always knew that I should save money, but I never knew how to save money. My idea of saving money was getting something on sale. Sure I spent $25 that I probably didn’t need to, but I “saved” $75!!

 

In order to get our finances in order and get our debt paid off, I had to go from being a spender to learning how to save money. This transition is not always easy, but here are 5 simple things that you can do to start saving money.

1. Save Your Raise:

Any extra money that you receive that you’re not used to living on, save it before you spend it. This can include any bonus or overtime pay, raises, and tax refunds. Before it disappears and you have no idea what happened to it, put those extra dollars into a high-interest savings account.

 

2. Save Your Spare Change:

Every day or at the end of the week, empty your pockets or coin pouch into a jar and watch the savings grow. Since we use cash for most of our daily purchases, our change adds up quickly. In 2016 we accumulated $160 in loose change which was used to purchase the gifts for our two daughter’s Christmas stockings. Not a bad way to use those coins that would normally weigh down your wallet.

 

3. 52-Week Challenge:

If you’ve spent even a minute on Pinterest, than you’ve probably seen this savings trick. The idea is that every week you save a predetermined amount of money. You start by setting aside $1 on week one, $2 on week two, so that by the time you get to the last week, you’re saving $52. Follow this and when the year is up, you will have saved $1,378.00. There are many savings challenges out there depending on what your goal amount is, and the reason why they work is because the savings goal for each week is a manageable amount therefore making it easier to stick with.

 

4. Pay Yourself First:

Another way to save money automatically is to pay yourself first. If you have your paycheck directly deposited, talk to your Human Resources department and see if they are able to split the deposit so that you have money deposited into your savings account with each pay. You can determine how much you would like sent into your savings. It could be $25, $50, or even 10% of your earnings. Since it’s being put into your savings account right away, you’ll be sure to save it before you can spend it.

 

5. Have a Spending Plan (aka The Budget):

This is the biggest money saver of them all. Set up a monthly budget where you list your monthly income that is expected and deduct the various expenses that will need to come out. From the remaining amount you can determine how much you would like to set aside into savings.

No matter what method or methods you use to save money, the trick is to make sure that you are consistent and stick with it. Happy Saving!!

 

Your Turn!

  • What do you do to make sure that you are saving money each month?

10 Ways to Cut Your Spending

No matter where you are financially, everyone loves looking for small ways to cut their spending and save some money. Those smallest of savings can really add up. If you can cut just $6 from your daily spending, that adds up to $2190 a year!! I don’t know about you, but I can put that amount of money to some good use.

Let’s look at 10 simple ways that you can cut your spending so you can free up that extra cash for the things that are really important to you.

1. Switch to Store Brands

Did you know that making the switch to store brand labels can save you on average 25%? There are big savings to be had by making this simple change to the way that you shop. Worried about sacrificing quality? Over the counter medications and many staple food items are regulated by the Food and Drug Administration, so the store brand pain reliever will offer you the same benefits as the national brand. The only thing you’re not paying for are the marketing and the pretty packaging.

2. Shop with a List

Shopping with a list, and sticking to it, is an easy way to cut spending because it helps you to avoid those impulse purchases. This doesn’t just go for groceries. Next time you’re headed to the store to get the children or yourself some new clothes, be sure to inventory what you have and write a list of what you need. This will help you stay focused while shopping and save you money.

3. Meal Plan

Meal planning has been the biggest single thing I’ve done that has saved my family money. It has allowed me to cut, on average $200 a month from my grocery budget! Once a week, sit down with the store ads, see what’s on sale, and plan a week’s worth of dinners. Not only will this help to simplify your week, but it will also help you to avoid those trips through the drive-thru.

4. Carry Snacks

Speaking of trips through the drive-thru, one of my favorite ways to avoid spending money on food while we’re out and about is to carry snacks with me if we’re going to be away from home for more than a couple of hours. My stash of “car snacks” has saved many trips to the convenience store or fast food restaurant because all of a sudden one (or both) of my children are hungry.

5. Use it Up

Before you head out to buy another bottle of shampoo or another bottle of salad dressing, use up what you already have first. If you want to make sure that you are truly using it all up, be sure to cut open the end of that tube of toothpaste because even if you think it’s all gone, you will find that you have another week worth of product left in the package.

6. Talk to Your Service Providers

Call up your service providers to see if they have any promotions or special pricing that you can take advantage of. If you mention that you’re looking at shopping around, they’ll be more than happy to give you their best offer so that they can keep your business.

7. Pack your Lunch and Bring Your Coffee To Go

If you are the type of person who grabs lunch and coffee on the go, this simple change could save you $50 a week or more. It might take a few extra minutes in the evening to put together your lunch, but the savings are more than worth it. If you took that $50 a week and invested it in a fund with an average return of 6.5%, in 15 years you would have just over $61,000!!

8. Cancel Email Deals and Sales Alerts

I started doing this after Christmas and I’ve come to appreciate my less cluttered in-box. The biggest thing I don’t miss? That feeling of temptation when seeing “75% OFF!!” and “Brand New Markdowns!!”.  After all, you’re not really saving any money if you didn’t need the item in the first place.

9. Buy Things Used

Thanks to online buy and sell sites, good old thrift stores, and garage sales, it is easier than ever to buy quality items used. I’ll buy used clothing for myself and my children, books, and some furniture pieces for my home. No longer will I spend $80 for a pair of jeans when I can get the exact same pair for $15 at my local thrift shop.

10. Practice the Art of Contentment

I love this quote because it really puts into perspective just how fortunate most of us are. Rather than craving the next new item or upgrade, focus on being thankful for and appreciate what you do have.  When you spend your time appreciating what you have, you’ll find you will spend less time focused on the things that you want.  

Your Turn:

  • What are some spending cuts that you have made to reach your financial goals?

 

How To Get Out Of Debt

What would your life be like if you didn’t have any debt payments? How would your financial picture change if you weren’t tied to those payments month in, month out? Let’s break the cycle and finally get out of debt.

Three years ago, my family had close to $60,000 worth of consumer and student loan debt. I had been in debt since I got my first credit card at 19 years of age and after spending close to 20 years in the debt trap, never thought we could climb out of it.

After feeling fed up and tired of juggling nine different debt payments on top of the rest of our monthly bills, I knew we had to make a change. Using these 5 steps, along with focus and determination, we were able to pay off our consumer debt in 25 months. Here’s how we got out of debt, and you can too.

5 Steps to Debt Freedom

 

1. Stop Using Debt:

Seems obvious right? If you want to pay off your debt, you have to stop using debt. It’s time to cut up the credit cards or at the very least put them on ice (literally). In order to get out of debt you have to commit to using cash for your purchases from here on out. This means being patient, saving up, and planning your future purchases. If you’ve been relying on debt, this will be the hardest step, but this is the first step in finally freeing yourself from the mountain of bills.

2. Establish your Emergency Fund:

Inemergency fund order to have a bit of a financial cushion between you and life, and cut ties with the credit card or line of credit, you’ll want to make sure you have a starter emergency fund. For most of us $1000 set aside in a separate savings account will cover most emergencies that arise while getting out of debt. You must commit though to keeping this money in case of emergency only (and no, that pair of boots that you’ve had your eye on and have just gone on sale for 75% off are NOT an emergency).

3. Get on a Budget and Stick With It:

If you want to get out of debt, changes in how you behave with and manage your money are key. The biggest change you can make that will see the debt gone once and for all is to get on a written monthly budget and stick with it. If you’re new to the budgeting process, this article will help you get started.

4. Organize Your Debts:

Time to take out those debt statements and organize them in the order that you’re going to pay them off. There are two ways to organize your debt. Both work because they force you to focus your attention on one debt at a time, and the power of focus is key. 

Snowball: Organize your debts from the smallest to largest, regardless of interest rate. Pay the minimum payments on all of the debts, except the smallest, and throw every extra penny you can at that debt. Once the smallest one is paid off, you take what you had been putting towards it, plus the minimum payment, and start attacking the second smallest debt. By the end, you’re putting a significant amount of money towards your largest debt, making that disappear faster than you could have thought possible.

Avalanche: A second way you could organize your debts is by using the debt avalanche. In this method you are lining up your debts from the largest interest rate to the smallest interest rate. Like the snowball, you’ll keep making minimum payments on the other debts while you pay off the debt with the largest interest rate first and then keep working your way down the line.

5. Throw Every Extra Dollar at Debt:

In order to get that debt paid off as quickly as possible, you want to make sure that you are throwing every extra penny you can at the debt. This means revisiting the budget and seeing what can be trimmed in the short term so you can free up money to add to your debt payment. It may also mean making some extra income.

Getting out of debt requires making some short-term sacrifices, but they payoff is well worth it. Your paychecks become yours again so that you can save for retirement, help pay for your children’s education, and save up for that vacation you’ve always wanted to go on.

Once you start living a debt-free life, I promise you’ll never go back to using credit again.

You Turn:

  • What are you willing to cut from your budget to pay off debt?
  • What would you do with your income if you didn’t have debt payments?
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