How My Money Mindset Changed

 

Throughout 2020 I have watched friends and family greatly affected financially. Some have lost jobs, while others have kept working but saw their hours drastically cut. And throughout this time they have had to rely on support from friends and family just to get by. This started me thinking about hard times I had financially when I was younger that started my change in how I viewed money. My experience was a breaking point for me. I realized then, I needed to make a change in how I handled my finances so that when hard times hit again I would be better able to handle it.

Now, first of all when I right my articles, I am not trying to stand on a high horse and say do what I do, you will be better in your finances. I write these articles because I have had hard times just like anyone else and have learned from my hardships, how to make better decisions as well. I have also known people who have made financial mistakes and been fortunate to learn from both.

In this article I want to tell you my very un-American way I purchased my house and how that decision is also making it possible to pay my house off in 4 years (a complete surprise to me). How a job shake up that resulted in a large number of people being laid off and my job being changed from full-time to a part-time position helped reshape my financial decisions. How this experience made it where I now follow my mother’s advice to always have a deep freezer and buy meats and vegetables on sale for hard times and a pantry full of canned and dry goods.

Back around 2000 I was doing fine, I thought, and had a decent job to pay my bills. I was in my last year of college, which I was able to pay my own way with cash. I was not staying on campus so I was only paying for classes and books. I was cooking at home, driving a paid for car and living cheap. I lived in a low income neighborhood with a mortgage around $432, plus about $100 electricity, $60 phone, $10 water and local (free) television only.

Then around the beginning of 2001, before I graduated college, my job had a layoff. I was lucky and didn’t get laid off, but was dutifully informed my job was being switched from full-time to part-time. Doing the math, I realized I still had enough money to pay all my bills and keep gas in my car. But I was only left with $20 for food for two weeks. That was a shock for me. So I started thinking of things to do in the short term, while preparing for college graduation and started the search for a full-time job.

I had about $2000 in savings for emergencies, with a steady job that’s all I needed. Right? I didn’t want to touch that money just yet. Keep in mind, I could have called my mother, who always had several deep freezers full of food and cabinets full of can goods but I chose not to. My thought process was that there will come a time when my mother will no longer be there, and I may find myself in this situation again as jobs come and go. True, my situation isn’t as bad as it could have been, but it was still a shock and I wanted to work my way through it. If nothing more than to prove to myself that I can work through anything.

So, I had always been a free hearted person, as my Grandmother would call it. I had friends and family who would call or come by periodically asking for $20 here or $40 there, or even more and I would let them borrow it.  Thinking, I was helping them and that if I ever needed them, they’d be there to help me as well. Hey I had $2000 in the bank and a steady job, I could afford it right?

So, there were a few people who still owed me money and I started making calls for the $20 one person still owed me and the $40 from two other people. The answers I received was, I don’t have it to let you borrow it. Then when I reminded them, they still owed me money. I got the, I don’t have money to spare speech and even one person told me I didn’t have to let them have the money in the first place, that was my fault. So, I just learned lesson one in life, not everyone you think are friends are really true friends. And even family sometimes are only around you to get what they can from you.

So then I decided I will see if I qualify for food stamps. So, I ventured to the food stamp office, parked my paid off six year old base model sedan among a sea of expensive cars like Cadillac Escalades and Corvettes, confident I would get some help. Then I have my meeting and disclose my financial situation. Then I was asked if I have a car. I said yes, but it’s paid for and I only pay for gas to get to work and school. So I had to give the make, model and year. Then I was informed my car was worth $5,000 and if I want food stamps I need to sell my car. A paid for car, really? I can see if I had a note. So, I was dutifully denied.

All of this was my breaking point and decided then and there, I will make it out of this situation and will never be in this situation again. I then started trying to figure out ways to make my $20 stretch. This took a thought process. My mother was raised by, and learned how to cook from her Grandmother who was born in 1909. So, she learned and taught me the long way of cooking with lots of ingredients and seasonings. This doesn’t transfer into spending $20 for two weeks of food. I will say that I rarely ate twice a day, usually once a day because of my schedule. I was a working a full time job and a full time student. I would eat lunch between classes and sleep and do homework the other times.

One savior was a friend of mine who had six kids and taught me how to make a chicken casserole cheap. It was actually enough for 10 days. Then there was basic spaghetti without ground beef, which started me on my journey to find other five ingredients of less meals to stretch my money. So, I wasn’t eating everything I wanted but I wasn’t hungry either.

Fast forward, I graduated from college and got an entry level job with the state making $15,000 a year. Then I picked up a part-time 20 hour a week job to go along with it. Since I was still living cheap, I was able to pay all my bills and eat with my full time job and the money from my part-time job went straight to savings to build up a hefty emergency fund. This account eventually grew to $10,000 that ended up coming in handy when I finally landed a job with the federal government that required me to move across country.  Being able to make this move with cash was a breath of fresh air. That is when I realized the benefits of an emergency funds and living on budget.

Now as a federal employee, I kept the same mindset of living on less. Yes, I was able to upgrade my housing to an apartment in a middle class neighborhood but I didn’t go out and buy a house immediately. Living in an apartment for $730 a month plus $60 a month electricity, $30 for internet but water and cable included. I also had a few other bills like car insurance, renters insurance, Roth IRA, and fuel for my car, I was still able to split the rest of my money up into four categories.

1.       Rebuild my emergency fund to 6 months.

2.       Have a small savings account of $2,000 separate from emergency fund for going out and small things that sometimes come up.

3.       Pay off all bills….car, credit cards etc. to be debt free.

4.       Contribute to my TSP (or 401k for non-federal employees), to secure my retirement.

This took some time, it wasn’t an overnight plan. Saving the $2,000 took less than a year. I saved about $50-$100 a pay check. I took me four years to save up a nine month emergency fund, four years before I was able to max out my TSP, which at the time was $17,500 a year, and five years to extinguish all debt. This all ran concurrent, so that after five years at my new job I was debt free with a healthy emergency fund and retirement account on the way.

After this I set my sighs on a buying a house. I started looking at neighborhoods, I would like to live in and what those houses cost. I continued saving into my emergency fund until I reached a years’ worth of expenses at the same time I was building the $2,000 separate savings account into a house fund. Remember, I was still living cheaply in an apartment with no debt and a nine month emergency fund already. It took me three more years to save enough money for 20% down on a $200k house plus an extra $10k for any improvements needed for whichever house I chose. So, after eight years at my new job, I was finally debt free with a fully funded emergency fund and closing on a house with a 15 year mortgage. Then just over two years later Covid-19 hit. Wow. I am now watching not only friend and family but people around the country facing job losses or cut hours and not knowing how they are going to make it. Although I am secure in my job it still brought back those old memories and my determination to secure my lifestyle and future.

With Covid-19 stopping most if not all travel and eating out, I cooked more and rotated through the food in my deep freezer and pantry. Brought back all of those five ingredient or less meals I learned to cook years ago while researching new ones. I also took the extra money I wasn’t spending on vacations, eating out and purchases from nonsense browsing and just started adding it to principle on my house. So much so that I realized that now about a year and a half into Covid that I only owe $40,000 on my house. Holy crap, I couldn’t believe it. I event started back tracking to figure out how I go there. Then I realized my old issues sparked a positive change and that if I could continue on this path by the end of the year, my Christmas present to myself will be liquidating part of my emergency fund to pay off my remaining mortgage. This is changing my fifteen year mortgage into a four year mortgage while still having a twelve month emergency fund for expenses even though the amount needed is much smaller.

I wrote this article to show that sometimes when situations come and you feel like you have the world on your shoulders. Those hardships can turn into invaluable learning experiences if you are willing to pay attention, just like it did for me.

Ms. Smart

Should you have Two years of expenses saved?

 

If you have read my previous articles, you know I believe in the importance of having an emergency fund. If this year has taught us anything, it is the importance of being prepared. One way to do that is to have an emergency fund.

There are many experts out there that say you should have three or six months of expenses saved in your emergency fund. But, I still remember the 2007-2008 housing bust that changed my way of thinking. After seeing many of my friends and family lose their jobs and spend months, sometimes years trying to get back on track, I decided Suze Orman’s eight month emergency fund was a good idea. That is when I set out to expand my emergency fund to eight months of expenses. But, after taking all that time and seeing what I accomplished, I was hooked and decided to expand my emergency fund to a full year.

Now in 2020 we find ourselves in another emergency. When the world heard about Covid-19 back in March, we all thought it would only last a few months and then everything would be back to normal.  Now it is November and many people are still out of work and some states are reporting increased Covid cases, which means we may continue to deal with the fallout into next year.  

This got me to thinking if a two year emergency fund, maybe worth having. Even if you are lucky enough to be working right now, what about your spouse? If your spouse loss their job, did it cut your household income in half? Are you now spending more on Wi-Fi because your kids are attending school from home?

So I was thinking maybe a two year emergency fund maybe in order, especially if your income contributes to most of the household bills. If this year has taught us anything, it is that many jobs we thought were secure aren’t as secure as we thought. As we are seeing many jobs lost in the food, airline and travel industries. This two year emergency fund maybe just the thing needed to give us the ultimate flexibility, in case of a job loss or injury that causes us to reevaluate our job of choices. Not to mention if you are lucky enough to be able to continue working during a crisis, you may have parents that are affected that you may want to lend financial support to and having two years of expenses saved allows you to help them and still have money left over to still secure your household.

If you decide to increase your emergency fund to two years or this pandemic has finally made you think about starting an emergency fund, remember to include all of your monthly expenses. Expenses like Mortgage/Rent, Fuel for vehicles, Electricity, Water, House Gas, Trash Pickup, Insurances, Cable, Internet and Food. Remembering to include food, insurance, fuel for vehicles and even trash pickup is essential because those are expenses many people forget about. But, you still have to eat, get around and keep your various insurances on rotation.

Ms. Smart

Am I on Track to Retire?

 

Not sure how much you need to retire. Before you overwhelm yourself with numbers and general what “They” say, about ten times tour income, try looking at it from a different perspective. When would you like to retire? What is your second age choice? Will your bills be paid off by then? Mortgage, car, credit cards, etc. If so, what will your expenses be without those bills?

I will try to take you through the process of how you can decipher your own situation, and help you decide if you are on the right track to retire. Spoiler Alert: This article may be longer than others in the past but stick with me, we have a lot to uncover. I will try to break this down by sections to keep from losing anyone.

Age

First let’s pick the age you want to retire. If you are some of the lucky few federal employees that will be eligible to retire at age 50, with 20 years of service, before you jump for joy, decide is 50 the age you want to leave your job. Or, you may decide age 62 is your perfect number to retire. Next in the list is…

Bills

Whatever your perfect age is, will your bills be paid off and what bills will you have left to pay in retirement? Now when thinking of bills to pay off prior to retirement, think of the ones that have a bigger impact on your day to day life. By this, I mean things like the mortgage if you own a home or plan to own one prior to retirement. Car note is another large expense that can have an impact on your expenses in retirement along with any credit card debt. These three expenses alone can eat up more than 50% of you take home pay while you are working and make it seem nearly impossible that you will ever be able to retire comfortably. So let’s break these down into sub categories here..

                Mortgage

How long do you have until your mortgage is paid off? Does the date coincide with the date you would like to retire or is it due to be paid off several years after your ideal retirement age? If your mortgage is due to be paid off by the time you wish to retire, things are already look up for you. The only thing I may recommend is to try to add a little extra money toward the principle so that you may have a few mortgage free months or years before you say goodbye to your job. Plus that money can be saved and used to help you transition into receiving paychecks once a month.

 If you are in the second category and your mortgage will not be paid off until after you retire, you may want to look at refinancing or extra principle payments to make your goal. For example: If you have 10 years until you retire but 20 years left on your mortgage, take some time to play around with some mortgage calculators, I like to use bankrate or EZ Calculator app. Also look on your bank statement to see what your mortgage balance is and do a quick internet search to find out the current interest rates on 10 year loans since this is how long you have until you retire. As of today, 10 and 15 year rates are around 2.34%. So this is what I will go with for this example.

Using my trusty EZ Calculator app, loan calculator feature. We will say you purchased your home 10 years ago on a 30 year mortgage for $200,000 at 4% interest rate yielding a monthly payment of $955 a month, with taxes and insurance added your actual payment maybe more like $1,200.

Using the amortization feature in the app, I can see that after 120 on time payments (10 years), you now owe $157,568.

So now we will take the $157,568 and amortize it over 10 years at the 2.34% interest rate and we come up with a payment of $1474 and with taxes and insurance added your payment may look more like $1724. I know, your eyes are as big as mine when you are looking at an extra payment of $500 more per month to try and pay off your house 10 years earlier. So to relieve the pain in our chest, caused by looking at this number, we take the same numbers using a 15 year mortgage as our template instead and see what we come up with.

Taking the $157,568 with a 15 year mortgage, at 2.34% interest rate the payment is now $1,039 or approximately $1,289 with taxes and insurance. Wow, I don’t know about you, but I am liking this number much better and it is less than $100 difference, plus the mortgage is paid off 5 years earlier. But ooh it is still 5 years after you plan to retire. Don’t fret just yet we will come back to this later in the article, and cover those 5 years. But on the positive side you are 5 years closer to retiring at the age you would like to in this example…woo hoo.

 

Car Payments

The next largest expense many of us have is car payments. So in this example let’s say you just bought a new car for $30,000 for 5 years with an interest rate of 5%. I know some people end up with higher interest rates, others with lower, I just figured 5% was a nice middle ground and you will end up with a payment of $567 a month.

Ding, ding, ding, are you seeing what I am seeing? Isn’t that the $500 a month that could have went to our mortgage to pay it off in 10 years instead of the now 15 years, huh. So now combining our examples, we now have 15 years left on our mortgage after refinancing to lower our term and interest rate. We have a 5 year car loan that we are going to just pay as agreed, no extra principle payments. The only thing I will add to this is to keep the car for 10 years. Yes you heard me right keep this car for 10 years means no car payment for 5 years after you paid it off. That’s $567 that can now go toward your mortgage.

Back to Mortgage….

Now we are 5 years later, your car is paid off. You are 5 years away from your ideal retirement age but have 10 years left on a 15 year mortgage. Well after 5 years your $157,568 mortgage, has a balance of $111,051. If we take $500 from what we used to pay on our car note, (leaving the $67 to pad our pockets a bit), and add it to our regular mortgage payment our mortgage will be paid off 42 months early. Wow we just shaved off 3 years and 6 months off of this mortgage. If we just threw up our hands and stopped right there we are only 1 year and 6 months away from our original goal. We could just work and extra 18 months, and achieve our goal without really changing our current lifestyle. Impressive huh.

But if I have made you see the light, and you are sitting with a piece of paper to run your own calculations, but now want to figure out how to not work the extra 18 months, there is an easy solution. Using our example, at the end of 10 years of payments which include the extra $500 a month during the last 5 years from the car payment you no longer have to pay. You will owe around $27,000 on your mortgage. If you are one of the ones who get a tax refund every year, and if that refund amount is around $1,000, build the habit of adding that to the mortgage principle every year. If you start that habit in the beginning when you first refinanced the loan that’s an extra $10,000 in principle and $2,500 in interest saved. Doing that alone without the extra $500 a month, takes you from a 15 year loan to a 13 year 10 months loan. Plus remember the extra $500 a month shaved 3 years and 6 months off the loan. So the house will be paid off by retirement and current lifestyle isn’t changed, meaning all raises, overtime pay, etc. is yours to keep. (Yearly extra payment calculator curtesy of calculator.net)

Wow, that was a lot of information, hope I didn’t lose you. But next is do you have credit card debt?

Credit Cards

As we have already proven in the last three sections, with 20 years left on a $200,000 mortgage and 10 years until you want to retire and a brand new $30,000 car, you will still be able to retire, without changing your lifestyle. Now if you have credit card debt. The best thing is to stop using them and just continue paying them down. Now this portion is where depending on the amount you owe, you can continue paying as agreed and/or also start adding any extra money you can find to the principle. Whether you switch to the night shift for the differential pay, work some extra overtime or holidays to get the money, the goal is to have no credit card debt by the time you retire. As federal employees we have the option of carrying over 240 hours of Annual Leave into the next year and if you accumulate your leave for your final year, which will be 204 hours, the government will write you a check for 448 hours of Annual Leave. In some cases that can equal $13,000 or more after taxes. That can be the money used to wipe out the rest of or any credit card debt still pending at the time or you can finally trade in that 10 year old car put that thirteen grand with it and walk off the lot with a paid for newer used car…just saying.

Now that we have gotten past the hard part, the last is fairly simple and a rough estimate will do. No need to be exact here, remember we are looking 10 years down the road but even if you are closer to retirement this will still help. Estimate how much you expect your federal pension to be. Many of us are in the 34% of your high three range. If you make $100,000 a year you expect to make $34,000 (remember we keep our health insurance but other withdrawals from your check will be going away like TSP contributions). If you will be receiving a social security supplement until you reach age 62, estimate what that will be a month. Usually that is estimated at half of your projected social security payment at age 62. Open an account at ssa.gov to see how much your estimated social security will be per month at age 62. So if the Social Security Administration estimate your income at $2,000 a month at 62 or $24,000 a year you have to decide if $58,000 a year ($34,000 + $24,000) will be enough to cover your living expenses plus fun money for those retiring at age 62. Or if you are retiring before age 62 and getting the supplement of $12,000 a year (1/2 of $24,000) as per this example, will $48,000 ($34,000 + $12,000) be enough? This isn’t even including the money you have saved in your TSP during your career.

Remember when you look at your expenses in retirement without a mortgage, car and credit cards. Don’t forget to include, homeowner taxes, insurance, food, car insurance, car/home repairs or upkeep, life insurance, car fuel, clothes. We often forget those items when we think of electricity, water and gas bills in the home. Plus add possible college tuition you think you may have that as well.

Thank you for sticking with me to the end of this article. I know I through a lot of things at you, but this is one subject that couldn’t be short and sweet. Until next time.

Ms. Smart

Pay IRS Penalty or Not for Roth overpayment

 

Well that time came again to file taxes. Since my taxes are fairly simple, I tend to file using one of the online tax fling services.  Well everything was fine until I reached the part where I was to enter my Roth IRA contributions for the year. Of course, I contributed the max for 2019 of $6,000 thinking that my Adjusted Growth Income will be under the $122,000 limit for a single filer. Well to my surprise my income was above that.

So next I received a message stating that I had excess contributions   of $1,340 and I had a choice of either removing the excess contributions or pay a penalty. Naturally the software didn’t immediately tell me the penalty amount. But I was curious as to what it could be. So I continued with the filing of my federal taxes just the same, knowing that as long as I didn’t submit my taxes at the end, I could make changes and withdraw the excess.

Well, when I finally got to the end of my federal tax filing, I finally found out what the penalty would be if I decided not to withdraw the excess contributions. To my surprise the penalty was only $80. That’s right just $80. So naturally I decided not to withdraw the excess and just pay the penalty. This is another one of those cases where we always here that “if you contribute too much in your IRA, you must withdraw the excess or face a penalty”. That statement automatically puts everyone in a panic. I was even in a slight panic when I saw the message. But, being me, I wanted to know more information before I went along with what the “norm” and it paid off.

If you have been reading my posts you know I love to calculate things and my mind immediately went to, how much with my $1,340 grow to at a 6% rate or 8% rate over the next 20 year. Here is what I found out. At 6% interest the $1,340 will grow to $4,435.67 at 6% and $6,601.92 at 8%. So essentially if I would have withdrew the excess, I would have cost myself between $3,095.67 to $5,261.92 in interest over the next 20 years just to avoid paying an $80 penalty to the IRS.

So my point being for writing this article is, to do your own homework when making decisions. Don’t go with what the masses say and figure out the answer for yourself.

 

Ms. Smart

Lessons Learned From the Coronavirus

Back in March when the world heard about the Coronavirus or Covid-19 if you prefer and it was making its way through every country imaginable, there were several thoughts that passed through my mind. The main one that stuck out was what financial lesson can we learn from this for our future.

Like many people when I heard about the stay-at-home orders, people out of work and even the possibility of businesses closing permanently, I started evaluating my life and necessities. I am not a minimalist by any stretch and I also wouldn’t characterize myself as a hoarder. But, I like to keep my deep freezer full of meats and frozen vegetables. In my pantry I always have a few can goods, dry beans and rice. I even try to keep a couple of packages of toilet paper and feminine supplies on hand. This habit of keeping supplies on hand come from growing up in the south east where tornados and freezing rain happens.  If the roads freeze overnight you may not be able to get off of your street or out of your drive way because the land out east is rolling and not flat.

Well these simple lessons that were passed down from my mother are what saved my sanity during this pandemic. While people were running to the stores to buy cleaning supplies, toilet paper and food, I was secure in the fact that I was okay. Sure, I did get tired of eating the chicken, hamburger and pork chops in my freezer, not to mention cooking, even though most of the time I used my slow cooker. But, I was not going hungry and I even learned how to make bread.

Given the fact that I had food to eat the next thing to think about was money. Thankfully, I work in an industry that was considered essential, but I still looked at my emergency fund. I calculated my monthly bills to see how many months my savings will last. And although I set up my savings to cover eight months of expenses, I found out that it would probably last a year. I didn’t have to buy groceries and I wasn’t going out to restaurants and stores, so my discretionary spending was way down. That was the final faze during these unprecedented times we are facing right now, that told me I was okay and able to weather any storm that comes my way.

Its natural when you first start saving money to create an emergency fund to fill like you will never make your goal. Or, when you finally get to that magic number, to second guess yourself and decide that it can’t possibly be enough money and you may need to save a little more. But, when some unforeseen emergency hits and you realize that having money in the bank just alleviated that added stress and you can make it through.  That is the time when you really understand how important having a plain old boring emergency fund sitting in a bank savings account earning nada is worth it. And you are glad you didn’t transfer that money to an investment account so you can “earn more” in the stock market as stocks start to fall.

Keeping an emergency fund and having it in a basic savings account so that I had access to it as needed really helped. Plus, I was able to have meat and fruit delivered to many friends and family that were elderly, so that they could stay safe at home and not risk possible exposure and I didn’t have to worry about busting my budget since I had a long while before I would need groceries.

Ms, Smart

TSP Limits Raised for 2020

I am so excited that the federal government has decided to raise the limits on what you are allowed to contribute to your retirement accounts. You know from my previous article that I like to talk mostly about the Thrift Savings Plan, but the contribution limits are the same for a 401(k), 403(b) and 457.

So how much can you contribute now?

With the Thrift Savings Plan as of January first you will now be able to contribute $19,500 a year, up from $19,000 for 2019. That means if you choose to contribute a dollar amount instead of a percentage from your check you will now contribute $750 a pay period up from $731. That is only a $19 difference and you can start your extra contribution on Pay Period 26 for 2018 since we get paid for pay period 26 that starts December 22 through January 4. If you are 50 and over, you contribute an extra $6,500 a year up from $6,000 last year giving you a total of $26,000 you can contribute.

Are IRA limits being raised?

Unfortunately Roth IRA and Traditional IRA are holding steady at $6,000 a year for those under the age of 50 and $7,000 a year if you are 50 and older. Now I know I will be making these changes and I wonder how many of you will join me.

Ms. Smart

Bi-weekly Mortgage Payments or Pay extra each month

Bi-weekly mortgage payments seem to be all the rage, promising the hope of paying off your mortgage early. While it will do that, I was wondering wouldn’t it be better to divide your payment by twelve and just pay that little extra in principle every time you make your monthly payment? Well in this article we will explore each method so you can decide for yourself which would be better.

First what is a Bi-Weekly Mortgage Payment?

A bi-weekly mortgage payment is when you pay half of your mortgage payment every other week. Since there is 52 weeks in a year you will make 26 half mortgage payments a year. This means you will make 13 whole payments a year, essentially making one extra mortgage payment a year.

For my example going forward I will use a $200,000 mortgage for this experiment. Looking at the charts below, if you have a $200,000 mortgage at a 4% interest rate over 30 years, your payment will be $954.83 a month. Over 30 years you will have paid an extra $143,739.01 in interest, making your total payment $343,739.01. Keep in mind the $954.83 payment does not include taxes, insurance or private mortgage insurance. But if you are on the bi-weekly mortgage plan, your payments will be $477.42 every two weeks. This makes your total interest payment $120,360.32 over 25 years, 11 months and a total payment of $320,360.32.

$200,000 mortgage @ 4% interest based on 30 years

	Payment	Total Interest	Total Payment	Years
Monthly	$954.83	$143,738.80	$343,738.80	30 years
Bi-Weekly	$477.42	$120,360.32	$320,360.32	25 yrs 11 months

Now I wanted to know if there would be a difference in interest paid and years if you just divided the monthly payment over 12 months and just added that amount to the monthly payment. The chart below shows my results. If you take the monthly payment of $954.83 and divided by 12 months, you get $79.57. Now if you add the $79.57 in principle to your $954.83 payment every month means you are now paying $1034.40 a month.

	Payment	Total + $79.57	Total Interest	Total Payment	Years
Monthly	$954.83	$1034.40	$121,473.38	$321,473.38	25 yrs 11 months

Although doing biweekly payments would save you $1,113.06 in interest, in comparison to paying the extra $79.57 in principle per month, it still pays off in 25 years and 11 months.  For me I like making a payment monthly. Since I keep an excel spread sheet to track my spending and keep a budget, I feel like I have more flexibility in my spending by making my mortgage payment with one paycheck and the other household bills with my second paycheck of the month. Plus if I have an unexpected expense like my Air condition unit going out or car repair, I now have a month to reevaluate my budget and make sure my mortgage is paid. When you do biweekly payments you only have two weeks to make changes before the second half of your mortgage payment is due.

Now that I have done all the work for you, it is up to you to decide which method you prefer.

Ms. Smart

Mortgage calculators courtesy of Bankrate
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