Big Hairy Audacious Goal (BHAG)

I’ve actually written down a new goal that I’ve thought about for a while, and finally decided to tackle.  The only thing we still owe is our mortgage, which is now at below half of our home value.  While that’s great news, we are ready to attack the BHAG.  It seems overwhelming, and we “could” sell our investments, pay taxes (of course) on the gains, and pay off the mortgage today.  That would create less risk in our lives, but I don’t feel that’s the best way for us to do it.

It’s important to prioritize financial decisions.  Start investing early, with the goal of investing 15% of your income.  Somewhere along the way, we bought a home.  The payments should be less than 25% of your take home pay.   California has it a bit tougher, and we Californians have been known to stretch our payment to 1/3 of our take home pay, but that’s riskier to keep up with the bills and investments.  Once you start making more income, keep up with the 15% retirement investment, and start adding extra funds to pay down the mortgage principal. 

With the proposed tax reform, mortgage interest is not going to be as attractive as a write-off, since the standard deduction will most likely be the best bet for most Americans.  Interest rates are likely to go up this year, so refinancing will not be as appealing, either. 

If we add $700 a month to our payment, we could have the house paid off in seven years.  That would save us thousands of dollars.  My plan is to take any extra income and any savings earned to pay towards the principal.  So far in May, I’ve already saved $143 by catching a medical billing error on my co-payment, negotiating with my Internet Service Provider to not charge us equipment rental, and coupons I used.  It’s early in the month, and now that I’ve written down the goal, my actions will bring in more results.

Is anyone brave enough to make the same challenge?  What ways do you think you can engage to bring in more funds to pay down the principal?  How would it feel to not have a house payment anymore?  

What Have You Been Missing?

Am I paranoid, or are they really trying to overcharge me?  In the past six months, we changed our ISP, entertainment, and phone service, saving us $150 each month.  I have had to call five months in a row because my bill was wrong – sometimes up to $200 in errors. 

I shopped our insurance rates, and it’s reassuring that we already have a company with the best rates and reliable service. Our homeowners’ insurance company had the wrong start date on the policy, and we were able to get it corrected and have two additional months of coverage.

We reduced one bill that provided redundant services and will save $240 a year, and I did find an error on our medical insurance bill dating back to August, and we are getting a refund for $200. 

All this is from reading the monthly statements for our bank, credit cards, cell phone carrier, and reviewing the insurance bills at renewal time.  Except for the phone service and insurance, I accomplished most of these savings in January.  Is there anything you have been missing on your statements?  How would you know?

I’ll admit that reading statements and bills is not very entertaining.  I’d rather be perusing travel brochures and planning our next escape.  That is my motivation for being vigilant about our money – I want to travel and experience new adventures as often as possible.  Our next trip keeps me inspired to save now and enjoy soon enough.

I’ve talked about this before, First Step to Control – Review Your Bills.  You don’t have to look at every detail on your 401K account, but make sure that your contributions are showing up right, and that the money is being invested the way you had it planned.  At least once a year, have a face to face appointment with your financial advisor to ensure your investments are doing what you need them to do.  Your goals may have changed, and you want to ensure your securities are still the best choice for you.

Starting today, read all the statements that you receive in the mail or e-mail for the next thirty days.  See what you observe about the bills, note any follow-up needed. Make the calls to get things fixed.  You are more in control of your finances than you were a month ago.  Feels good, doesn’t it?  Now, you can browse the internet for your next adventure.

A little research can keep hidden costs from hitting where it hurts most — your wallet!

The unexpected costs of buying a home Buying a home is expensive, but it’s not just the price of the house itself that you need to plan for. If you’re considering a new home, BetterMoneyHabits.com can help you look beyond the sale price to understand and plan for the extra expenses that come with making this big purchase. Low Credit Score Your credit score has a big impact on what your mortgage interest rate will be and how much you will need for a down payment. If your score isn’t great, you might not even be approved for a home loan. You can check your credit report at annualcreditreport.com, or by contacting one of the three credit bureaus: Equifax, Experian, or TransUnion. But if you find you fall into the lower range of credit scores, it is not the end of the world. Check out these BetterMoneyHabits.com videos to get back on track: Build Credit and Keeping Yours Healthy What Really Goes Into Your Credit Score Down Payment and Private Mortgage Insurance The more you put down on your new home, the better. Ideally, you will need to put down 20 percent. At that point, you will receive a better interest rate, have lower monthly payments, and you will not have to pay for private mortgage insurance, or PMI. PMI is a type of insurance that lenders require you to pay if you are unable to make a full 20 percent down payment. This protects them if you default on your loan. And it’s not cheap. PMI can cost up to about 2 percent of the total loan amount. PMI is either required up front, or rolled into your monthly mortgage payment. With some loans, you won’t have to pay PMI forever, but check with your lender for more details. If you cannot come up with a 20 percent down payment, there are some alternative options, such as government programs that require just 3.5 percent. For more information, watch Understanding Alternative Mortgage Options.  Closing Costs Closing costs include things like title insurance, appraisals, and attorney fees. Plan on these closings costs being 3 to 7 percent of the total loan amount. And remember, this is on top of the down payment. Unanticipated Expenses Homeownership may come with some unexpected expenses. These could be increased energy costs, the price of new appliances, homeowner’s association fees, or even just the expense of maintaining a nice yard. So make sure you’ve accounted for all these in your budget. And for good measure, start an emergency fund for those things you cannot prepare for. Learn more by watching Create a Safety Net for Life’s Unexpected Events.

First Step to Control – Review your Bills

A strong first step for you to take to control your finances is to review all of your bills.  Gather a month’s worth of paper or online statements.  Get settled in a comfy chair with a shredder highlighter and your stack of papers (or computer with electronic statements). 

Here are some things to look for:

1.   Look at whose name(s) are on the account – is there an ex who shouldn’t be?

2.   Is the address right so you don’t miss any statements?

3.   What kind of fees did they charge you: over limit, late payment, payment processing

4.   Does the balance appear to be correct

a.   What is the minimum payment?  How much will it take to pay off in three years? They are required to provide that information on your statement.  Pay Off Loan Calculator

b.   What is the due date? 

c.   Review the interest rate(s) for the balance(s)

5.   Review all transactions every month

a.   You typically have 60 days to dispute an error with the card issuer and have the charge removed

b.   Credit card fraud sometimes starts with a very small charge to see if the card number is valid – catch it quickly and report

6.   Ensure your most recent payment recorded correctly

7.   Review the special messages section to see if they are increasing any interest rates, or making other changes to your account

The point of this review is to help you control your finances, and not every action step requires throwing money at it to make it go away.  One of the big things this review does is ensure you are not a victim of credit fraud, a lingering ex using your card, or a processing error by the credit card company.  Prevention and early resolution of errors will save you from the larger crisis that looms around the corner.