My wife and I started shopping around different financial options when buying our first home. When doing so, I learned that there is always someone trying to sell you on something you don't need. This time it was the rule of the 1/12th.
In case you did not already know, if you add 1/12th to your mortgage payment over the course of a year you will have made one full extra payment. Over the course of a 150,000 mortgage you will have shaved off 7 years and saved about $51,000 in interest.
To help you understand I will break down two different ways you can make mortgage payments. But first let me tell you what the mortgage brokers pitch was.
The Pitch
He told us that there is a great offer right now, instead of making payments once a month we could set up a payment plan to make 1/2 payments every other week. That would cut our mortgage down to 23 years rather than 30 years and save us a little over $51,000 in interest. This payment plan would only cost us $500 to set up. Sounds like a great deal! Pay $500 to save over $51,000 can't beat that deal..........I told him that we most likely would set that up but I would let him know. We went through the loan process to get the home purchase going and we left.
The first thing I told my wife when getting in the car was that I do not really understand why we would have to pay to make payments. This was our first home purchase, it was all too new to us and I did not really know what to think. The whole idea of paying a fee to pay our mortgage just did not add up. I went home to put some numbers down on paper and after a few simple math problems I realized I had a question for him.
I went back to his office the next day and said to him that by making 1/2 payments every other week, over the course of one year I will have made one full extra payment. He agreed and said that is correct. My next question to him was why don't I just add 1/12th more to each monthly payment, (one more full payment divided up 12 months) that would equal out to be the same as paying 1/2 payments bi-weekly. This would also give me the same results when it came to the amount of interest saved and the number of years it would cut off my loan. He was now getting a little hesitant when he said that is correct because the broker knew where I was going with this. This then lead me to my final question, what is the benefit by giving him $500.00? His response wasn't very good, he said that people don't have the self control to do it themselves. I was respectful by saying that you should include that in your sales pitch so you don't come off as being a con. I then left being very thankful that I put some thought into that before acting on it. I really did think that it was a good deal at first.
In case you are little confused on this I did my best to break down two different ways to pay your monthly payment:
You can pay your minimum balance every month or you can make payments every other week. If you do not want to pay every other week but still have the same result you just add 1/12th of your monthly payment to your monthly payment.
The number of FULL payments in a year if you pay each month = 12
The number of FULL payments in a year if you pay half of your monthly payment every other week or add 1/12th to your monthly payment = 13
Example:
Say your monthly mortgage is $1,000
If you pay monthly = $12,000/year The math: (1000 * 12 = 12,000)
If you pay 1/2 every other week = $13,000/year The math (500 * 26 = 13,000) or
(1000 * 1/12th = 83.33 then 1000 + 83.33 = 1083.33 then 1083.33 * 12 = 13,000)
Basically it boils down to making one extra full payment a year if you pay 1/2 of your mortgage every other week or by adding 1/12th to your total monthly payment.
The 500 dollars he wanted was for nothing...and it made me open my eyes just a little bit more for when people want my money for something.
If you are in the process or are going to be in the process of buying a home, do not be sold on the 1/12th. Just know that if someone is trying to sell you on paying every other week and wants to charge you for it, now you know to say "No thanks I can manage it myself." To shorten your number of years and decrease your total interest paid just add another 1/12th or even 2/12th to your loan payment. Don't be a sucker.
Comment with questions if you want.
Happy Savings!
Dustin
Wednesday, February 9, 2011
Monday, January 31, 2011
Bar Night
Going out to the club or bar for a night can easily cost you $50 to $100. What I like to do when money is running tight and I still want to go out and have a few cocktails, I'll pull out the trusty 'ole flask. I'll fill it up with my favorite rum and order cokes all night. I'm lucky if I spend $10 and I still get to have a good time with my friends.
Yes, I understand that this is an extreme case of frugalness but that's what this is all about. When packing money into your savings is a must, than sometimes you do what you have to do.
Short and sweet today.
Happy Savings!
Yes, I understand that this is an extreme case of frugalness but that's what this is all about. When packing money into your savings is a must, than sometimes you do what you have to do.
Short and sweet today.
Happy Savings!
Monday, January 24, 2011
Your 401k Is a Must Or It's Bust
Now that the Packers are on their way to the Super Bowl to hoist the Lombardi Trophy, we can talk about an even more important future:) Your retirement.
Eventually you want to stop going to your job everyday right?
What do we do first?
If you are not already contributing to your 401k, get started ASAP. I can't stress this enough! Right now you are getting more bang for your buck with the stock market at a low point and is on the rise. The longer you wait to invest, the more you are going to pay for each stock.
How much should we be contributing?
Each person has their own situation as to what can be afforded but be sure to put in at least what the employer is willing to match, you are instantly doubling your money. My personal recommendation to someone who has already been working and has the joys of bills to pay, start out with contributing 10%. This is the game changer to prove that you will be ready to retire when the time arrives. This will also be the time you will feel the change the most. Think of this as a newly acquired bill that you have no choice other than to pay. Contribute 10% for a year, this will allow time for you to adjust your spending habits to accommodate the change. DO NOT WAIT ANY LONGER TO START THIS!!! If you are not contributing you should be running out the door right now to your Financial Planner! I can't stress this enough, I could write a whole article on the reasons contributing is important.
After the first year then what?
After the first year of contributing 10%, you will need to increase your contribution another 1%-3% and will repeat this each year. At this point you will be making such small changes to your contributions that you will hardly notice the change in your take home pay. My recommendation is to continue to increase your contribution each year until you reach at least 18%.
Once these goals have been met you can kick back and watch your wealth grow knowing that you are on track to financial freedom.
If you don't know what to do to get started go to your Human Resources Department where you work and ask for information on the company's retirement plan. They will most likely direct you to their company's financial planner and he will take care of everything for you.
What if we do not have a 401k plan at work?
Some work places may not have 401k programs or maybe you are self-employed, you will need to go to a bank such as Wells Fargo, ask to speak to a Financial Planner and they will get you started on a retirement plan.
To answer the question, Do you want to eventually stop going to your job every day? I'm sure the answer for everyone is yes but without saving for the days of old age, you will be working until your body and mind won't let you any more.
Happy Savings!
Dustin
Eventually you want to stop going to your job everyday right?
What do we do first?
If you are not already contributing to your 401k, get started ASAP. I can't stress this enough! Right now you are getting more bang for your buck with the stock market at a low point and is on the rise. The longer you wait to invest, the more you are going to pay for each stock.
How much should we be contributing?
Each person has their own situation as to what can be afforded but be sure to put in at least what the employer is willing to match, you are instantly doubling your money. My personal recommendation to someone who has already been working and has the joys of bills to pay, start out with contributing 10%. This is the game changer to prove that you will be ready to retire when the time arrives. This will also be the time you will feel the change the most. Think of this as a newly acquired bill that you have no choice other than to pay. Contribute 10% for a year, this will allow time for you to adjust your spending habits to accommodate the change. DO NOT WAIT ANY LONGER TO START THIS!!! If you are not contributing you should be running out the door right now to your Financial Planner! I can't stress this enough, I could write a whole article on the reasons contributing is important.
After the first year then what?
After the first year of contributing 10%, you will need to increase your contribution another 1%-3% and will repeat this each year. At this point you will be making such small changes to your contributions that you will hardly notice the change in your take home pay. My recommendation is to continue to increase your contribution each year until you reach at least 18%.
Once these goals have been met you can kick back and watch your wealth grow knowing that you are on track to financial freedom.
If you don't know what to do to get started go to your Human Resources Department where you work and ask for information on the company's retirement plan. They will most likely direct you to their company's financial planner and he will take care of everything for you.
What if we do not have a 401k plan at work?
Some work places may not have 401k programs or maybe you are self-employed, you will need to go to a bank such as Wells Fargo, ask to speak to a Financial Planner and they will get you started on a retirement plan.
To answer the question, Do you want to eventually stop going to your job every day? I'm sure the answer for everyone is yes but without saving for the days of old age, you will be working until your body and mind won't let you any more.
Happy Savings!
Dustin
Thursday, January 20, 2011
Lost On Your Finances?
If there's one thing you shouldn't do when you're getting lost with your financial responsibilities is be afraid to ask for help. You can find professional help, but then you'll be paying for the services and we don't want that. Instead, find a friend or family member that has their finances in order and will offer free advice. Whether you are helping out your friend or you are the friend being helped, being organized with this process is key.
What should you do to get organized?
Keep it simple. Gather all the information on your monthly income and monthly bills. The best way to see this information is to print off bank statements from the previous 3-4 months. Most bank statements should total up what you put in and total up what you take out. Obviously you want to have more going in than going out.
What to do with this information?
Essentially what you would like to do here is find out what you are spending your money on. By seeing how you spend your money you can begin to chop away at your expense side of the statement. This will give you direction. If you are seeing Taco Bell or McDonald's listed on your statement multiple times you should know exactly what to do. If not, read one of my previous articles The Urge To Splurge. This article breaks down just how much a value meal can cost you. For example, if you are eating out every day for lunch at 6 bucks a day, that's 30 bucks a week, 120 bucks a month and 1,560 a year. In this case you would want to start getting into the world of cooking and have fun making lunches to take to work. Is this for you? If it is then we just figured out one way to minimize your expenses.
Once you are done going through your statement you will need to come up with a plan as to how much you are going to allow yourself to spend each week on random purchases. Mine is 5 bucks, trust me it took a long time to get where I am with my spending. Saving has become an addiction for me, more like a game to see how much money I can save. I have fun watching my account grow and I think once people set goals for themselves they could enjoy doing this as well.
Lastly, the question I get when talking about this is "What kind of life can you live when all you do is save your money?" My response is when you're in the hole you need to put your nose to the grind and take care of business before you can start having fun. I was once in the hole $25,000 with a business that didn't work out, I took a job in a machine shop where I could work unlimited hours and 7 days a week. The job was so boring, but like a lot of people I worked with, I did what I had to do. After two years of acting like a zombie I got free of the $25,000 burden and I could focus on building a savings account for my wife and I.
In summary, think about what you need to accomplish to get yourself where you want to be. Get yourself organized, know what you are spending, set up your goals and don't ever feel like you can't ask for help.
Follow along so we can learn new ways to save and please comment with your favorite saver story.
Happy Savings!
Dustin
What should you do to get organized?
Keep it simple. Gather all the information on your monthly income and monthly bills. The best way to see this information is to print off bank statements from the previous 3-4 months. Most bank statements should total up what you put in and total up what you take out. Obviously you want to have more going in than going out.
What to do with this information?
Essentially what you would like to do here is find out what you are spending your money on. By seeing how you spend your money you can begin to chop away at your expense side of the statement. This will give you direction. If you are seeing Taco Bell or McDonald's listed on your statement multiple times you should know exactly what to do. If not, read one of my previous articles The Urge To Splurge. This article breaks down just how much a value meal can cost you. For example, if you are eating out every day for lunch at 6 bucks a day, that's 30 bucks a week, 120 bucks a month and 1,560 a year. In this case you would want to start getting into the world of cooking and have fun making lunches to take to work. Is this for you? If it is then we just figured out one way to minimize your expenses.
Once you are done going through your statement you will need to come up with a plan as to how much you are going to allow yourself to spend each week on random purchases. Mine is 5 bucks, trust me it took a long time to get where I am with my spending. Saving has become an addiction for me, more like a game to see how much money I can save. I have fun watching my account grow and I think once people set goals for themselves they could enjoy doing this as well.
Lastly, the question I get when talking about this is "What kind of life can you live when all you do is save your money?" My response is when you're in the hole you need to put your nose to the grind and take care of business before you can start having fun. I was once in the hole $25,000 with a business that didn't work out, I took a job in a machine shop where I could work unlimited hours and 7 days a week. The job was so boring, but like a lot of people I worked with, I did what I had to do. After two years of acting like a zombie I got free of the $25,000 burden and I could focus on building a savings account for my wife and I.
In summary, think about what you need to accomplish to get yourself where you want to be. Get yourself organized, know what you are spending, set up your goals and don't ever feel like you can't ask for help.
Follow along so we can learn new ways to save and please comment with your favorite saver story.
Happy Savings!
Dustin
Wednesday, January 19, 2011
Internet Installation Scam
When the Internet provider comes in to hook up your Internet connection tell them you do not need the software they provide. You might as well take that 30 or 40 dollars and go about 65mph down the highway, open your window, crumple it up in a ball and throw a fast ball right out the window.
Think about it, when you get a new computer or go to a friends house with your lap top, are you using that provided software? No you're not, so what is the reason for getting it with the hook up? Well, it's a way for the provider to get more money out of those who don't know any better.
My wife and I moved around a lot, approximately 13-14 times and I slowly figured this out, it's a major scam and don't allow it to happen to you.
The last time I actually had to explain this to the tech that was installing it, he was telling me that I had to install the software in order for my computer to work. I said no you don't, he said yes you do and then I asked him why is it when I have someone come over and use their computer it works or why is it when I get a new computer it's not needed.. He thought about it and said, "you know what...you're right". He actually was lead to believe that he was selling something we needed.
The last thing you also need to be aware of is they will probably still charge you on your bill so you will have to call them up to make sure it gets removed so watch out for that as well.
Hope this was a good read and continue to follow along.
Happy Savings!
Dustin
Think about it, when you get a new computer or go to a friends house with your lap top, are you using that provided software? No you're not, so what is the reason for getting it with the hook up? Well, it's a way for the provider to get more money out of those who don't know any better.
My wife and I moved around a lot, approximately 13-14 times and I slowly figured this out, it's a major scam and don't allow it to happen to you.
The last time I actually had to explain this to the tech that was installing it, he was telling me that I had to install the software in order for my computer to work. I said no you don't, he said yes you do and then I asked him why is it when I have someone come over and use their computer it works or why is it when I get a new computer it's not needed.. He thought about it and said, "you know what...you're right". He actually was lead to believe that he was selling something we needed.
The last thing you also need to be aware of is they will probably still charge you on your bill so you will have to call them up to make sure it gets removed so watch out for that as well.
Hope this was a good read and continue to follow along.
Happy Savings!
Dustin
Monday, January 17, 2011
No Thanks Cable Guy
Don't even get me started on cable. Cable company's should be thrown in jail for as much as they charge and for so little in return. For years my wife and I were paying premium pricing for all the latest and greatest, hundreds of channels, DVR, and HD TV. This monthly bill was about $160. Then one day I was reading an article about online TV and the cost savings it has, an article somewhat like this blog and realized just how much money we were throwing away. We would watch all the major sitcoms in the winter months but especially in the summer we were never watching TV.
Why pay all that money for cable when we don't have to?
One day I talked to my wife and said we are going to do an experiment. She gave me that "now what" look and I told her what I read about and that we're going to hook the computer up to the TV to watch all of our shows. The great wife that she is she played along. The rule was we we're not allowed to turn on cable at any point through our 3 month experiment. So as time went by we watched all of our shows on Hulu.com (free), we found a site that played current and old movies, shows, and some live TV (Veetle.com and also free). Before you know it we were cancelling all of our cable with a savings of $100 a month or $1,200 a year. If it's not free or on the Internet, we don't need to watch it.
Challenge yourself to try this and think about what you are going to do with all that extra cash. (save it I hope) and say No Thanks Cable Guy the next time they call to suck you back in.
Sites I recommend are:
Hulu.com
Veetle.com
I will also have to say that it's recommended to have high speed cable Internet.
If anyone has any other recommendations please share the wealth and post it for us.
Happy Savings!
Dustin
Why pay all that money for cable when we don't have to?
One day I talked to my wife and said we are going to do an experiment. She gave me that "now what" look and I told her what I read about and that we're going to hook the computer up to the TV to watch all of our shows. The great wife that she is she played along. The rule was we we're not allowed to turn on cable at any point through our 3 month experiment. So as time went by we watched all of our shows on Hulu.com (free), we found a site that played current and old movies, shows, and some live TV (Veetle.com and also free). Before you know it we were cancelling all of our cable with a savings of $100 a month or $1,200 a year. If it's not free or on the Internet, we don't need to watch it.
Challenge yourself to try this and think about what you are going to do with all that extra cash. (save it I hope) and say No Thanks Cable Guy the next time they call to suck you back in.
Sites I recommend are:
Hulu.com
Veetle.com
I will also have to say that it's recommended to have high speed cable Internet.
If anyone has any other recommendations please share the wealth and post it for us.
Happy Savings!
Dustin
Thursday, January 13, 2011
The Urge To Splurge
You know as well as I do that we all have an urge to spend our money. Unfortunately we like to get into daily spending habits that leave us wondering why we don't ever have any money left to save...buying a $4 Starbucks on the way to work or buying a $6 lunch and so on.
Just think about how much we really are spending:
Our fancy $4 coffee drink:
$4 x 5 days (work week) = $20 (...oh, it's only 20 bucks)
$20 x 4 weeks (month) = $80 (getting expensive)
$20 x 52 weeks (year)= $1,040 (so that's why Starbucks has so much money)
Average person works about 35 years = $36,400 (That's with today's prices)
I love doing the math on these examples...that $4 cup of coffee sure is expensive. Buy a coffee maker and make your own flippn' coffee.
Let's try our lunch:
$6 x 5 days (work week) = $30
$30 x 4 weeks (month) = $120
$30 x 52 weeks (year) = $1560
Average person works about 35 years = $54,600
This number is the reason why I have been bringing a lunch to work. My wife is a great cook and she can make a mean chili, she'll then Tupperware it up so lunch is easy to grab on the way out the door.
But what are we to do with that "Urge To Splurge"? That need to buy something has to be taken care of!
There is a simple cure for that, find something really cheap that you can enjoy...
I have learned to completely eliminate that feeling by purchasing a $.50 can of soda for my 9:30am treat and again in the afternoon. Other than the normal weekly bills I have knocked down my weekly spending to just 5 bucks and I'm satisfied. I understand that a can of soda might not be the cure for you but there's something that will work.
Kill the Urge To Splurge and please share what works for you.
Happy Savings
Check out my other articles like "Ground Zero" of Personal Finance.
Just think about how much we really are spending:
Our fancy $4 coffee drink:
$4 x 5 days (work week) = $20 (...oh, it's only 20 bucks)
$20 x 4 weeks (month) = $80 (getting expensive)
$20 x 52 weeks (year)= $1,040 (so that's why Starbucks has so much money)
Average person works about 35 years = $36,400 (That's with today's prices)
I love doing the math on these examples...that $4 cup of coffee sure is expensive. Buy a coffee maker and make your own flippn' coffee.
Let's try our lunch:
$6 x 5 days (work week) = $30
$30 x 4 weeks (month) = $120
$30 x 52 weeks (year) = $1560
Average person works about 35 years = $54,600
This number is the reason why I have been bringing a lunch to work. My wife is a great cook and she can make a mean chili, she'll then Tupperware it up so lunch is easy to grab on the way out the door.
But what are we to do with that "Urge To Splurge"? That need to buy something has to be taken care of!
There is a simple cure for that, find something really cheap that you can enjoy...
I have learned to completely eliminate that feeling by purchasing a $.50 can of soda for my 9:30am treat and again in the afternoon. Other than the normal weekly bills I have knocked down my weekly spending to just 5 bucks and I'm satisfied. I understand that a can of soda might not be the cure for you but there's something that will work.
Kill the Urge To Splurge and please share what works for you.
Happy Savings
Check out my other articles like "Ground Zero" of Personal Finance.
Wednesday, January 12, 2011
Ground Zero
I guess the first thing you want to ask yourself is: Why do I want to have money?
Seems like a silly question right? I believe this simple question is the root of all motivation to saving, by defining your needs or wants you will have a better understanding of the value of every dollar you have saved.
When I was first introduced into the "realities" of life I had no idea what it was like to have any type of wealth or money in the bank. I refer to that as "Ground Zero" of personal finance, that is where most of us start. I was clueless, the dollar didn't mean much to me because I had nothing. Then the need for an apartment came along and then the need for furniture and the list of needs started to snowball.
How do you handle the needs with no money?
Well I had nothing and I needed everything, I financed my furniture with a 0% interest for the first six months and made sure that it was paid off within that six months. I actually ended up paying it off within three months because I could not stand the idea of having debt, almost all of my take home pay was put towards the loan until I had it paid off. The point is stay away from any debt or interest on debt as best as you can. And DO NOT start new debt while having current debt! You will lose.
One last comment is that I never really felt as though I owned my furniture until I paid it off. That first Sunday football game with MY couch felt really nice.
This is one of my many experiences I think we all can take a little something from. Follow my upcoming posts for more experiences and other little tid-bits that can work well to keep our game faces on for saving money. I will also be sharing experiences others have had that helped them be more money conscious.
Share your story.
Happy Savings!
Seems like a silly question right? I believe this simple question is the root of all motivation to saving, by defining your needs or wants you will have a better understanding of the value of every dollar you have saved.
When I was first introduced into the "realities" of life I had no idea what it was like to have any type of wealth or money in the bank. I refer to that as "Ground Zero" of personal finance, that is where most of us start. I was clueless, the dollar didn't mean much to me because I had nothing. Then the need for an apartment came along and then the need for furniture and the list of needs started to snowball.
How do you handle the needs with no money?
Well I had nothing and I needed everything, I financed my furniture with a 0% interest for the first six months and made sure that it was paid off within that six months. I actually ended up paying it off within three months because I could not stand the idea of having debt, almost all of my take home pay was put towards the loan until I had it paid off. The point is stay away from any debt or interest on debt as best as you can. And DO NOT start new debt while having current debt! You will lose.
One last comment is that I never really felt as though I owned my furniture until I paid it off. That first Sunday football game with MY couch felt really nice.
This is one of my many experiences I think we all can take a little something from. Follow my upcoming posts for more experiences and other little tid-bits that can work well to keep our game faces on for saving money. I will also be sharing experiences others have had that helped them be more money conscious.
Share your story.
Happy Savings!
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