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Wednesday, February 24, 2010

Saving and frugal living

BJ and I have a lofty goal.  We want to pay off our 30-year mortgage in 7 years*.  Sounds ridiculous, right?  How do we plan on doing that?  By simply doubling our mortgage payment every month**.  Well, the idea is simple in theory.  Much more difficult in practice.

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:
  1. 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).
  2. 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. 
  3. 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.
It's still really hard, I won't lie. I do grow tired of having to pay such close attention to the cost of everything at the grocery store. And waiting for months for things I really want can be discouraging and hard. But it makes me feel good to watch my mortgage drop so much faster (and even more so to see my interest payment get a little bit smaller every month), and to simply know that I will have saved so much more money over the years. I like to dream of what I could do with just our mortgage payment when I get to keep it.  We could go on a cruise every month!  I could have a greenhouse!  Oh the library we would have.  (Now, what we would actually do with that money is a different story.  There would be a lot more charity-giving and saving for retirement going on.  But dreaming is really fun, especially when a wee bit absurd.)  Being self-reliant, I think, is one of the biggest confidence boosters you can get.  There's just nothing like seeing the money you saved and knowing that you did that.

*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.


The Dipo's said...

Do feel lucky that you can make a double mortgage payment. I understand the feeling of restrain and frustration that comes with wanting and alas... waiting. Keep your chin up!

kamille said...

that is so wise. i love reading how other people try to live frugally.

we are not in the situation of paying a mortgage, rather we are in a situation of having no income while travis is in PT school so we are doing the same types of things. and it is very rewarding, although definitely hard to see all the things you want and never really be able to get them. but, i feel like it has fostered creativity and challenged me to do things that i wouldn't have otherwise done.

as for the coconut oil, it is pricey, but we have decided that the health benefits are great and since we can replace many things with the use of it, we will actually be cutting down costs in other areas. i think you can get it in bulk (not sure how many gallons, but a lot of it) for around $50. if you buy it, i'd definitely buy it in bulk, we have to buy it at the grocery store because of our financial situation. do some research on is amazing stuff! it's the only thing besides breastmilk that has luteic acid!

Carly Jane said...

Amen. Well, we don't have a morgage, so I guess I can only suppose an "Amen" as I think we'll be the same when we get ourselves one. I wish we had the "my money, your money" as part of our budget... but with us currently living on one part-time salary and pell grants, we just can't afford it. It's the one thing I really really hope comes at the end of law school (in 4 years). Thank goodness my family are great gift givers, or I might go crazy thinking I could never get anything I wanted for the next 5-10 years.

I tell you, living frugally can be a little discouraging sometimes, but oh so worth it. It is wonderful knowing there's money in the bank for emergencies.

Alison Berrett said...

It's great reading your blog and all these comments and knowing that I'm not alone! Sometimes I feel like everyone else is getting what they want so why can't I? It's just nice to know that they are other people who are in the same boat. Most the time I don't feel like I'm missing out on things, because that's just it, they are just things. One day he'll be done with school and the loans will be paid and when that day comes I know we will still be living frugally because that's just who we are. We are just thankful to have a roof over our heads and our family is together.

Thora said...

That's great with the mortgage! We don't have a mortgage, but we did barely consider moving into a house that some people in our ward need to rent in a month. We ended up not doing it because our lease has six months left, and in the contract we'd have to pay the rest of the lease due if we moved out early - six months double rent would stink. Anyway, so I figured out how much we're saving NOT moving into their house, and waiting to rent a house until we have to move out of our apartment (when our third kid is eighteen months old - it's a policy). We'll be saving five and half thousand dollars! (Between increased rent and extra utilities). This made me feel downright frugal just living where we already do, and sticking it out in the smaller space as long as possible.

With only one part time income (Stipend), I'm amazed at how much there really is to cut out of most budgets. Of course, you do hit rock bottom eventually. I find now any financial blogs that talk about ways to cut your budget don't apply to me - we've already cut anything anyone can ever recommend. Of course, when you don't have the money (and aren't willing to go into debt to sustain a nicer lifestyle), then it's really easy.

What's really admirable is you and BJ, who are living frugally when you don't have to. Someday I'd like to pay off a mortgage early (although I'm going to shoot for the more traditional 15 year fast, not your super fast). Dave Ramsey has a saying, "Live like no one else, so later you can live like no one else." Sounds like you're doing just that!

I think frugal living is my hobby. Today was visiting teaching day for me, and the lesson was on Using Resources Wisely and Staying out of Debt. Now that was an interesting lesson for me to talk about - I love the subject!

Ben said...

From a distance, I might question the wisdom of putting extra money into your mortgage. While it is of course situationally dependent, I think you may be shortchanging the analysis.
Your mortgage carries an interest rate X and a risk rate X'. The chief risk relating to economic conditions making it impossible to hold onto the house and losing suddenly all the equity you have. (There's a little bit of hand-waving there, but the basic concept is that your equity in your house is just another way to save your money and that you get X% return on that investment but that this is not riskless.)

Now, if you buy a CD it gets Y% at Y' where both are much lower then their corresponding X's. Or you could buy a bond in video rental giant Blockbuster at a much much higher Z% and Z' [please don't as they will almost surely default].

I'm all in favor of saving the money to pay off your house, but I question the distribution of risk that would lead you to put all the money you save into the mortgage equity investment. Yes it has the advantage of paying X% however, some fraction of X% is available as a tax credit anyway. The exact fraction depends on your particular status and that should play in, but you should probably run a 1040 with it both ways to see how much difference it makes.

I'd much rather see a diversified strategy to acquire the money to pay for your mortgage and then retire it all at once.
A quick run of numbers might illustrate this (check these all yourself before revise any strategies but please do think about them)

For a 200k mortgage at 5% a payment of about 1073.50 is needed to make a 30 year loan. Paying twice that will enable the loan to be retired in 118 months. If you instead take the same money and invest it in a way that yields a net 3% (that is after you pay taxes on this money and subtracting out the negative taxation on the housing interest) then it will take you a mere 8 more months to pay off your house.

But if any significant risk causes things to move substantially then you may be awfully glad that you did. For example, if hyperinflation sets in you will have a significant amount of leverage against it.

ALL FINANCIAL ADVICE, especially that given on a blog, AND EVEN MORE ESPECIALLY THAT GIVEN BY A FRIEND WHO REFUSES TO BE HELD RESPONSIBLE FOR ITS MISUSE should be carefully considered and adapted to your situation.

Cbelle said...

how do you eat on 100 a month? HELP! we are having budget issues, I don't know how to do that.

Holly said...

Wow! I am really impressed with what you have done. Not many people have that kind of discipline. Way to go!

I would love to interview you for my site, Frugal Living Now. Let me know if you are interested!


Tianna said...

Cheryl - It's $100 per paycheck, not per month. So it's approx. $200 per month. If you're still interested, check out my other blog ( where I'm starting a series on tips I use to stretch my grocery money.