The race to pay off the mortgage

I am always reading, learning, eager to grow my knowledge and skill set.

Some of my current topics of learning is of FIRE (financial independence, retire early). So wish I know about this 15 years ago! Despite the late discovery, it will be something I will want to implement when I’m at Dave Ramsey’s baby step #7.

If you know me or have followed me you are aware that I’m a Dave Ramsey follower and a money nerd. 🙂 I am currently on baby steps 4 -6. Those steps if you aren’t familiar are: 4) 15% of income into retirement account 5) Percentage of money going into the children’s college fund 6) Pay off mortgage early.

Back in September 2019, I refinanced my mortgage to get my ex off. I refinanced at a 15-year fixed rate (per Dave) since my previous mortgage was a 30-year (pre-Dave). I also have decided that I wanted to pay the mortgage within 6 years (2025 – before my youngest graduates from high school – EEKK!) instead of 15 based on paying at least an extra $250+/month. I feel my goal obtainable and will keep my inspired.

Since I refinanced my mortgage I had paid off $2,769.80 in principle in those 3 short months in 2019. As for 2020, right now as of the date of this post, I have paid over $11,700, with a principle balance of just over $55,000!

My future goals are as follows:

2021 pay mortgage down to $45,000

2022 pay mortgage down to $35,000

2023 pay mortgage down to $25,000

2024 pay mortgage down to $15,000

2025 pay mortgage down to ZERO!

See! An obtainable goal! Will there be hiccups along, the way, sure. Will there be tough years, sure! Will there will be great years, heck yeah!

I have a little chart on my refrigerator tracking my progress which is VERY exciting! Each month when I make my payment, I get excited if I can color in another square, moving one – maybe 2 step(s) closer to my goal of being 100% debt free! 😀

On my way to Debt Free Land! Woohooo!

What nerd doesn’t get geeked when there are new squares to color?!

In the picture above you may notice numbers along the colorful path. I have used my shorthand to “document” where I’m at on the path. For example: 3.20 = March 2020. Very highly sophisticated, I know. ;D

I got this wonderful Debt Free Land layout from debtfreecharts.com for anyone who would like their own Debt Free Land game board on their refrigerator.

What’s your Health Insurance IQ?

As many of you, it was that time of year to make sure I had my health insurance figured out for 2019.

My employer doesn’t offer health insurance benefits so it’s something I take care of on my own. That’s okay with me because it gives ME control of what kind of health insurance I want or need. It’s my health insurance and I should know what I need, right?!

Before choosing a plan:

So there are a few things about health insurance one needs to become familiar with prior to comparing plans.

Copays: a fixed dollar amount you pay each time for a certain type of care. For example: $25/ doctor visit. Many of us are familiar with this one.

Deductible: a amount you must pay for most insurances begin to pay. Beware: the deductible may not apply to all services so check over your plan. Again, many of us are familiar with deductibles, specially with other insurances we have. KEY: The higher the deductible, the lower the premium.

Coinsurance: your share of cost of a covered service calculated as a percentage. For example: 20%/80% = you pay 20% of the bill and your insurance would pay 80%. This breakdown kicks in after the deductible is met.

Common breakdowns I’ve seen are 20/80 and 30/70. This is one not everyone is familiar with and it doesn’t really tell you an actual dollar amount it’s going to cost you. KEY: The lower your share, the higher the premium.

Out-of-pocket-max: The most you have to pay for health services during the year. The out-of-pocket maximum includes your deductible, copays, and coinsurance. This can get over looked, when people focus more of their time looking at the other items above.

What I look at in choosing a plan:

Most people would consider lower copays and 20%/80% better than a 30%/70% plan with higher copays, right?

I only look at 1 number when I compare plans and that is: OUT-OF-POCKET-MAX -aka what is the most this is going to cost me in a year?

To me, the other items of fluff and mean little to nothing to me.

 

Difference in plans out there:

Let’s play with some numbers. 🙂

Example of a Typical Health Insurance Plan: Premium $250/month – $3,000/year

Copays: $30/doctor visits, $40/urgent care, etc

Deductible: $3,300/member

Coinsurance: 30%/70%

Out-of-Pocket-Max: $7,300/member

 

Example of a Non-typical Health Insurance  – HSA APPROVED: Premium $160/month – $1,920/year

KEY: Member is to pay bills in full until deductible is meet

Deductible: $6,700/member

Coinsurance: n/a – after deductible is meet, insurance covers in full

Out-of-Pocket-Max: $6,700/member

 

Okay, hold up! What is an HSA?

A HSA is a health saving account. Think of it as an emergency fund just for your medical bills. 🙂

 

Now we got that out of the way….

Which plan would you chose?

Which plan would give you good coverage for the cost?

Let’s walk through the examples as I follow Dave Ramsey’s philosophy (cover the small stuff and transfer the risk of the big stuff to the insurance companies).

Typical Insurance: Total premium is $3,000 + $7,300 = $10,300 maximum potential total cost for a year

Non-tropical Insurance: Total premium is $1,920 + $6,700 = $8,620 maximum potential total cost for a year. A SAVING OF $1,680.

 

So why aren’t more people getting HSA approved health insurance?

Great question! Who wants to pay $1,680 MORE if they are hospitalized?! Not me. If I’m hospitalized, I have bigger problems to be concerned with, right?!

The kicker with HSA approved health insurance follows Dave Ramsey’s philosophy in that, YOU are responsible to cover the small stuff (doctor visits, minor medical care, etc) while transferring the risk of the big stuff (hello! being hospitalized, surgery, etc) to the insurance companies.

Taking on some risk up front, drills down the yearly premium, which is what you want too. Take that money saved in premium and put in into your HSA account.

But the HSA approved health insurance deductible is so high!

$6,700 is a lot for a single mom to dish out, but remember it’s also the Out-Of-Pocket-Max number too! That’s huge!

AND if you are like me, only really using the health insurance to cover something major, you won’t need to use the HSA account often, therefore it’s going to start building up. YESS!!!

The goal is to have your Out-Of-Pocket-Max saved in your HSA account along with some extra cash as a cushion for random medical bills that come in. The amount of the cushion would be the amount you feel comfortable with having in there.

For example, by the end of 2018, I will have almost all of my deductible saved. 😀

Talk about peace of mind! And if I get sick and need to see the doctor, I’m not worried how am I going to come with the max-out-of-pocket money in my tight budget to pay for it. I just write the check. Simple as that.

 

Before you dump your savings into your HSA….

The government limits how much you can put into a HSA account so make sure you are following those requirements.

Source: https://www.irs.gov/forms-pubs/2018-hsa-contribution-limit-for-individuals-with-family-hdhp-coverage

So per the IRS, 2018 limit was $3,450/year.

(Math time again! WHOOHOO!!!!!) 😀

I had set up automatically, $40 to come out of my checking account (after I got paid) to be transferred into my HSA savings account. That would be $1,040 ($40 x 26 paychecks) for the year. So I had room to add more money to my HSA account so today I transferred an additional $2,000 from my saving to my HSA saving. (Don’t worry, I’m going to hustle to replace that $2,000 ASAP!) 😉

Why contribution (deposit) the limit or close to the limit year year? Well, currently (not sure if what the new tax changes will be in the future), I am able to take what I contributed to my HSA for that year and DEDUCT it off my income when I do my tax return PRIOR to the standard deductions, etc (since I am using after tax-dollars to fund my HSA.

 

Other things to know about HSA’s:

1. You can’t pay your premiums from this account

2. Your health insurance HAS TO be HSA approved to be able to have a HSA account.

3. Any deductions have to be a medical expense and the monies in the HSA account can only be used for such.

 

Okay, okay, okay. Why am I so passionate about HSA’s and health insurance?

So yeah, I’m slightly passionate about the topic. Not only do I save money throughout the year via lower premiums, I have built up a saving in my HSA which give peace of mind if something major happens, and I get a tax benefit at the end of the year via my tax return.

Need another reason?!?!……

 

Why I feel having an HSA and choosing the right health insurance is SO IMPORTANT?

 

THE #1 REASON AMERICANS FILE FOR BANKRUPTCY IS NOT CREDIT CARD DEBT BUT MEDICAL DEBT.

Let that sink in for a moment……….

 

Source: https://www.fool.com/retirement/2017/05/01/this-is-the-no-1-reason-americans-file-for-bankrup.aspx

Additional Source: https://www.apexedi.com/medical-bills-the-leading-cause-of-bankruptcy-in-the-united-states/

 

So when you are building wealth, you don’t want to lose it all and your financial stability over one incident when you find yourself in the hospital.

 

As Dave Ramsey says, cover the small stuff and transfer the risk of the big stuff to the insurance companies.

Food budgeting

I have done my September budget and am ready to pay my bills. My September budget has some tweaks compared to my August budget – good tweaks. I lowered my gas allowance and increased my bi-weekly saving auto-transfers.

Also I don’t believe my food allowance is accurate. 😦 Right now I have it listed $200 a month and my other half also covers $200 per month so our household monthly food budget is $400/month. This allowance INCLUDES nonfood items like toilet paper, paper towels, cat litter, cat/dog food, toiletries, cleaning supplies, etc.

Having a budgeted amount does NOT guarantee that I spend that amount each month. Therefore I truly don’t know the exact amount of money I currently spend monthly on food. 😦

Past Habits

1. Every 2 weeks when I get paid, I deposit my paycheck and withdraw my $100 for food and my gas allowance. I put the food money in a certain spot in my wallet and my gas allowance goes on my gas card (to get 3 cents off a gallon). My other half will give me his allowance.
2. I clip coupons whenever possible and keep them in my purse. I’m not like one of those crazy coupon ladies. I only clip coupons for the items I know I will be buying in the near future.
3. I pay cash for food, except if we go over our budget, which has happened when we run low on a lot of items at certain times.
4. We buy our pork from a local farmer which does NOT come out of this monthly allowance. The money will come out of my saving. Also my other half hunts for “free deer meat”. Therefore I don’t buy a lot of meat when we go shopping, which helps my monthly budget.

Goals

I have a good start to stay on top of my food budget but I can see there is still work that needs to be done. I need to figure out if my current food budget is realistic, if it needs to increase or if I need to take future actions to stay within the budget amount.

To figure out if my current budget is realistic, I have involved my teenage daughter to help. 🙂

Putting Goals Into Action

I continue to do what I have been doing for my food budget.

Then after we shop, I will hand the receipt to my daughter who will record the receipt using the format below which I created. 🙂 (Daughter was SUPER excited to get the form below. LOL) If there is any nonfood items on the receipt she is to note on the side so we can see if that is why that grocery trip was high. Also we can see how often we go, where we go, etc. If we get any food at the farmer’s market, street stand, etc, we let her know and she’s to put that also on the form.

Then after the month is ended, she will total what was spent and fill out the summary part at the bottom. Then the three of us (daughter, other half, and I) will sit down and review the data.

I am very excited to have this area tracked and over the next few months of tracking data, then I will make a concrete decision about what direction I am wanting to go with my food budget.

How do you keep track of your monthly food budget?

My new ride, while staying debt free

I have been following the Dave Ramsey way for probably over six years. I paid off my current minivan in 1.5 years thanks to Baby Step #2 and I have been driving the van payment-free for a good 4 and 1/2 years and it feels so good not to have a car payment hanging over my head.

I’ve been slowly trying to save money for a newer car since the van is getting up there in miles and making some interesting noises. It’s my #DaveRamseyCar 😀 Yup, I’m proud to be driving one of those for over 4 years.

So for 3 years I’ve been saving money here and there and about 2 months ago I started to really look for a new-to-me car that was below 1/2 of my annual income – per Dave Ramsey. Now that I had the magical number, I wanted to stay well below that number. I also wanted to make sure this new-to-me car was about 3-4 years old, and had less than 40,000 miles on it because the game plan was to have this car around for 10 years. I had the van for 7 years so 10 years seem reachable, right?! (I’d settle for 7 years though… 😉 ..if I had to.) I also wanted to stay under my max budgeted amount. So when I started looking at vehicles on line, I worked within the limits listed above.

After 2 months of hard core looking (I didn’t want to rush anything….) I was told by my other half that I needed to pick a car already. lol

I found the car below under my budgeted amount – 4 years old with 20,135 miles on it!

And guess what I did?!!?! 😀

I paid CASH for the car!!!!!

Yes, you read that correct! CASH!!!! No car loan – no debt, no monthly car payment for this gal!

How many people do you know who pays for a car via cash and not through a car loan? 1? 2? More than that? None at all?

Why get a car loan and pay for interest and put that burden on my monthly cash flow like that?!

Isn’t she a beauty?!?!   😀   😀   😀

Let me tell you though – it was SUPER DUPER HARD letting go of that much money I was use to seeing in my savings as it slowly grew. There’s still money in my saving, of course, but not that nice number I was accustom to.   I think the fact that it took me 3 years to save up for the money instead of spending it on other things, the fact I didn’t get a loan but felt the “pain” of giving up that much money makes you realize the sacrifices made to get the purchase.

So I’m still in a “surreal” state right now over the past few days every time I slide into it and drive or just looking out the house window, seeing it chill in the driveway. I can’t believe I’m getting great gas mileage now (one of the reasons I downsized from the minivan to the car) and am excited to see what kind of monthly impact that will be to my gas budgeted amount – hopefully savings.

The downsize of getting a newer car that will be with me will the increase in car insurance. 😦 I will be definitely insurance shopping now before that increase occurs to ensure I’m not over paying for the coverage I need (again per Dave Ramsey).

If you are thinking, hey, I want to be able to do that too! I can help. Let me know here what you are looking for and I’ll be glad to help. 🙂 If you are interested to see what services I offer before reaching out to me, you can go here first if you like. 🙂

 

The always awesome 3rd paycheck….

For most of my working life, I have been paid bi-weekly on Fridays. With that comes twice a year when I get 3 paychecks in a month! WOOHHOO!!!

And for me, June is going to be one of those months! Time to make it rain with all that extra cash, right?!?!?!

But sadly, it’s not extra money, even though it sure feels like it during those months – what it feels like –> same number of bills with more income coming in.

Nerd time! hee hee

The reason for the 3 paychecks twice a year is because of when you are getting paid bi-weekly, you are being paid 26 times in a 12 month period. And when you do that math, it equates to 2.16 times a month…..which um….doesn’t happen. Those 0.16 don’t just fall off and fail to exist – they slowly add up to an extra paycheck about every 6 months. Also with each month having different numbers of days (28, 30, 31 days), that too will also play a factor as to what month that extra paycheck will fall.  (5 Fridays in a month are always the best!) ;o)

No, I’m not trying to suck all the awesomeness out of having a 3rd paycheck occurring. I will be honest, I look forward to them too! I get to be extra nerdy and my accounting brain gets geeked! 🙂 What I do with them may be different than what most do with it, though. I’m sure most people will buy something they have been eyeing, pay down debt, or stock up of groceries, etc.

Here is an example of what I do. =D

I created an example of my plan for June instead of trying to spell it all out in words. LOL NERD ALERT!! I get to use Excel! YESSSsssss! (Kindly over look my typ-o below.)

 

Why I do it this way:

1. I have always liked to try to save the extra paycheck since my budget each month is based on 2 paychecks. I do allot for my bills I pay weekly and bi-weekly. Plus its easier for me to save money when I set up the amount automatically to save….for other reasons. :o/ (A topic for a different day.)

2. There are 5 Sundays before I get paid in July so I have to cover the extra week’s donation with June’s income. Also my bi-weekly bills come out of each paycheck – automatically so there will be an extra transfer to cover. This is the main reason I don’t save the whole 3rd paycheck amount.

3. I also have learned over the years to spread out the extra savings because of how my bills hit during the month. I use to try to save all of the last one but it wasn’t as easy and then I was going 4 weeks of not having money in the checking account. Splitting it up in 3rds, made the $762 easier to save and more durable. Also it will keep me in check when paying bills, and not thinking I have extra money in my checking account when it was already earmarked.

4. I have also learned over the years of doing this, to now set up these 3 payments as online transfers so I don’t accidentally forget to transfer the money and then try to back track after spending money I wasn’t suppose to spend. (I have the system running smoothly now.)

If you are interested in saving your 3rd paycheck how I do, you can do it too! It may take a little practice but after a few times, it will be like riding a bike, while watching your saving grow throughout the year. 🙂