OUR LIFE IN 3D

Tips For Tight Wad$: Time, Time, Time is on your side

If I could find a way to insert a WAV file in these darn WordPress posts I would right now as the Rolling Stones have the ideal background music for this next post. ~Darn you WordPress, no WAV files at WordPress!

My wife wants to buy a larger house, again. We need a bigger one for the kids and I am personally tired of this ‘fixer-upper’ but I will get back to this.

Just let me start with the idea “time Is on your side” when it comes to personal finance. Some people may debate this over  the last decade or so. I say maybe they weren’t so smart with their money and lived beyond their means (a future Tight Wad post). But time can certainly work positively or negatively in your personal finance.

Let me give you an example. Interest! In our house, interest is a 4 letter word. We don’t mention it. We don’t buy it. What do you get for buying interest? Less disposable income? Interest can work against you in your credit cards, home purchases, credit score and so forth. You have heard the sad stories so I won’t take up your time here with that. Simply, don’t buy interest. Lots of companies want to sell you things interest free.

For example, look for the terms, 6 or 12 months ‘interest free’ or ‘same as cash’ when buying a large ticket item. Figure out what you can afford in your monthly budget, extend that across the months in the terms and then stick to it. Bam! You just bought a new roof or siding or that coveted patio set without paying a single dime in interest. Don’t pay interest! Over time it can eat you up! And you have better things to do with your money, right?

Let me give you another example. I am not getting political here I just want use this for an example. I heard last year President Obama made roughly $800,000 a year.  Senator Romney made over $20 million last year. Obama paid taxes around 20% (yet another Tight Wad post) while Romney paid only in the 15% tax level. How? Most of Senator Romney’s money comes from stock and bond income or dividends…accumulated over time. Dividends are taxed at a lower rate than personal income.

Here’s where I plug Dividend Reinvestment accounts again, or DRIPs.  DRIPs clearly are a way to let time work for you in building wealth. This investing is not sexy or glamorous at first.  Its not a get rich quick scheme. But put on auto pilot it can build Romney-like wealth over time. Well, not quite that much. MY dividends received for the first 10 years or so were nothing to brag about but now, they are starting to look a little sexier now, by reinvesting the dividends paid.

Coke for instance, is netting a positive 68% growth over the last 10 years for me, with dividends reinvested. 68%! By the time my girls are in school I will look REAL sexy thanks to Coke and a few other DRIPs. LOL not literally mind you but enough to swagger into Perkins for the early bird special. I can here the popular girls saying, “Ohh, yuck, totally gross!”

Which brings me back to my wife wanting to buy a house. We have been in this house for about 10 years and, financially, we’re ready to move. How? Write this down…Bi-monthly mortgage payments. if you never heard of these before they make time work for you!

Several years ago the end of the month looked very bleak for us. The last 10 days of the month I had to cover the mortgage, my car loan, the cable bill, cell phone bill and an unfriendly adoption loan payment. Ouch! I stumbled upon bi-monthly mortgage payments.

If you have never heard of these, simply, bi-monthly mortgage payments are just splitting you mortgage bill in half and paying half on the 15th of the month and half on the 29th of the month. You are not paying any more money per month than normal; just splitting it up. That’s it. Put it on automatic drafts from the bank and it is mindless. Even faster payments to principle are bi-weekly mortgage payments, making half a mortgage payment every other week.

What does this do? You are paying more ‘principle’ off early this way. This amounts to an extra mortgage payment being made each year. Less principle means paying less interest. That’s not enough for you? Look what mortgage calculator web site has to say:

“With the bi-weekly mortgage plan each year, one additional mortgage payment is made. That extra payment goes toward the principal of the loan. Since the homeowner is reducing the amount of the loan balance quicker, they are also reducing the amount of interest charged over the life of the loan.

Here’s an example:

A 30 year mortgage for $100,000 at a rate of 6.5% means the homeowner will pay $127,544 in interest throughout the life of the loan. This also includes a $100,000 principal for a grand total of $227,544. Paying one-half of the regular monthly mortgage bi-weekly makes the interest $97,215, which is a savings of $30,329. The homeowner would have to earn over $42,000 before taxes in order to net that much money.

Benefits of Bi-Weekly Mortgage Payments

Here are some things that a bi-weekly mortgage schedule can do:

• The mortgage will be paid off faster. A 30-year mortgage can be paid off in about 22 years. (!)
  
• Equity will build in the home more quickly.
• The homeowner can arrange to have payments taken directly from the homeowner’s bank account automatically.
• The homeowner will save thousands of dollars over the term of the mortgage. For example: By paying biweekly on a 3o-year fixed rate mortgage of $100,000 at 6.5% interest, the homeowner could save over $30,000.

Did you catch that? You can pay off your mortgage as much as 8 years early! What could you do with the extra money of a mortgage payment laying around each month? Not to mention the “saving money on the I-word” part” .

And that is where we are at right now with our mortgage. We have paid off plenty of principle in 10 years to allow us to take some profits and move to a bigger pad for the kids. It is quick and easy. Just make a phone call to your mortgage lender and its done in 5 minutes. Five minutes saves you thousands and thousands of dollars; or rubles, pesos, or francs. JDI!

So my point here is (time, time, time, is on your side. yes it is!) Time is a friend of yours.  ~ My wife says ‘cheese’ is a friend of hers. My friend has been Jose C! But time wants to be your friend too. If you have a mortgage right now and you are paying a single payment a month take a look at this and what it can do. If you are going to be buying a home in the future please keep this in mind, “bi-monthly mortgage payments” . You will own that home A LOT faster or be able to trade up earlier too. There’s no catches here. Its just being smart with your money. There’s nothing wrong with being a Tight Wad!

For more information on bi-monthly mortgage savings Google the term(s) or click right here. And please don’t forget to invite us over to your mansion so we can awe. ~ I’m really good at that’ the ‘aweing’! And I can bring some snacks…

Live Well! Be Thrifty!