Our first challenge was to figure out how our bank works. We knew it would be much easier for us if we could just pull out one mortgage payment every paycheck, instead of trying to pull out a double payment once a month. So at first we just started sending in a payment every paycheck, figuring the extra would just go to principle. (That's how it has worked with my previous car and student loans anyway.) Alas, I was wrong. They just started crediting the extra payments to future months. So right now our next loan payment is technically due, I think, in May or June. 3 or 4 months ahead. I called to see if we could just put our extra payments to principle or set up a bi-weekly payment plan, but they said to do that we'd have to go through a 3rd party, which we didn't really want to do. So instead we just started putting one mortgage payment into savings, then the next paycheck we'd pull it out and make one double payment. Then our loan got sold. So I went through the whole thing again with our new bank. (Well, except I called first instead of just sending in the extra payments to see what would happen.) Same story. Except with them I could set up a bi-weekly plan. But they wanted to automatically pull it from my account. I'm funny this way, but I don't like other companies to pull money out of my account. I like to pay my bills. I have bill pay set up with my bank to make payments for me. But if I want to change a date or amount, I have the power to do so without having to call up someone else. So we're still doing the savings account method.
The next step was to cut unnecessary expenses. We went through all of our bills to see what was necessary and what we could live without. We've done this in many stages. Every few months we reevaluate. Especially when BJ was in school and we thought he was doing grad school, it was amazing how much more we could cut each time. We'd think we were living on bare bones, but then I'd do our budget and realize how much money we didn't have, and we'd find somewhere else we could save. Sometimes you just have to be creative.
For example, we're currently feeding 3 of us on $100 per paycheck (every 2 weeks). We don't eat out often; we use cloth diapers; we make our own baby food; I breastfeed; we drive an old car; we only have one car (that is paid for); we get the cheap/free phones when we "upgrade" our phones. (We would gladly cut our cable, but it's part of our HOA fees. [sigh]) Basically, we have cut every corner we possibly can to save.
We realize, though, that if we make paying off our mortgage our life, we're going to get really discouraged really fast. So that's not the only place we put our savings. For one, we also have various ING savings accounts (a 6-month emergency expense fund, a new car fund***, etc.) that we contribute to monthly. But we go a step further. We still enjoy life while living frugally.
We keep up morale while making these sacrifices in three ways:
- We have a goal. We're trying to pay off our mortgage ASAP so that we can save ourselves the interest we would have paid. Also, we will have our monthly mortgage payment to ourselves instead of sending it off to someone else 23 years sooner, simply by doubling our mortgage payment every month. So whenever I'm eying that new (fill in the blank) I remind myself that I can have that and more in just 6 more years (and a few months).
- We have a wish list that we add to whenever we think of things that we really want to buy, but can't justify right now. Not only does it make a great list for birthdays and Christmas, but we also allow ourselves to splurge here and there by buying something off that list. We don't do it often, but knowing that we don't have to do without everything for 7 years makes it a whole lot easier to say no to the little things along the way.
- BJ and I each have a separate ING checking account (as well as a joint checking account). Each paycheck we pay ourselves a little something and we can do anything we want with that money. If I want to splurge on a box of chocolates or buy an album on iTunes, I can. If he wants to buy new software for his computer or go rock climbing, he can. We are not held accountable to each other for what we buy with that money. It's a lot easier to save "our" money when I know I have a little bit of my own to do anything I want with.
*Of course, this is largely dependent upon if we're still living in our condo in 7 years, if we've sold it, are renting it, and if we have moved, how much our new mortgage is. But since we don't know that, we are just going to try to pay off as much as we can now so that we have more equity for a new home, or have enough paid off so that we can afford a second home while renting out this one.
**I'm not saying that everyone can do this. Even if you have the money to pay double, the amount of time it will take off your original loan depends greatly upon how much money your loan is, how much you have left on it, how much your payment is, and most importantly, your interest rate.
***I read a blog recently that suggested that you buy a car you can afford with cash. Even if you have to downgrade. (Luckily, we already own our car, so this step was easy.) Then for a year, continue to make car payments into a savings account. At the end of the year, sell your car, take that amount plus what you have in savings and upgrade. Repeat until you have a good, reliable car that will last you for many years to come. Then continue to make car payments to yourself, but put them into CDs or mutual funds. Instead of having an eternal car loan where you always have a nice car, but you're paying a lot into interest and never own your cars, you live with less-than-perfect cars for a few years before you get a nice car, but you're never, ever paying interest. In fact, you're earning it.