Wednesday, January 28, 2015

This Is Why We CAN Have Nice Things

Last weekend, my wife took some clothes out of our dryer and put a new load in. She pushed the button to start it and .... nothing happened. About 30 seconds later, it beeped and showed an error code:

Uh-oh. A little Googling told me this particular code means the main controller board is bad and needs to be replaced. The part typically costs $250 and that doesn't include the labor to install it. The total cost ended up being $398.

Luckily, I have been preparing for this contingency. As I posted last May, my budget includes putting some money away in an Appliance Replacement Fund. Unfortunately, that fund doesn't have enough yet to completely replace the washer and dryer (I'd want to replace them both at the same time), but it does have enough to cover the repair cost of the dryer. So a potential monthly budget busting event has been averted thanks to planning. Yay for budgets!

The dryer is 8 years old and, as I feared, its time appears to be reaching an end. Hopefully, the repair will buy me enough time to save up enough to replace both the washer and dryer. I'll probably need take a new look at my budget and make some changes though. I was contributing $100 a month towards this fund, but given the failure, I may try to bump that up a bit so that I can hit my goal sooner.

In Tesla-related news, I came across this video of people experiencing the acceleration of a Model S for the first time. I can't wait to experience it myself!

Wednesday, January 21, 2015

Biweekly Mortgage Payments: Why Pay A Company When You Can DIY For Free?

If you have ever taken out a mortgage or refinanced a mortgage, you've likely noticed that right after that process has been completed, you start getting letters in the mail offering you mortgage insurance and other such questionable products. Many of the letters try to fool you into believing they come from your bank by using generic sounding company names like "Loan Payment Administration." They may even reference your loan amount and interest rate. Don't be fooled. The companies that send these letters out are bottom feeders, trying to make money off the financially illiterate. They got your loan information because mortgage documents are publicly recorded. This means anyone can go down to your county recorders office and get a copy of your mortgage. Many states have this information online now - you can get it without even leaving your chair.

After my recent refinance, I received a bunch of these letters but I also received one that promised to save me thousands of dollars in interest and reduce the time it takes to pay off my mortgage by 6 years. This little miracle is accomplished by making biweekly payments - I'd pay one half of my mortgage every two weeks rather than once a month.

To be fair to the company, this will work. By making payments every two weeks, you end up making 13 mortgage payments per year, rather than 12 if you paid monthly. By making that extra 1 payment per year, you will, in fact, reduce the amount of total interest you pay and will pay off your mortgage sooner than normal.

Do It Yourself And Save Money here's the thing: You don't need a company to do this for you. The way these companies make money is they add a service fee to each bi-weekly payment. They may also charge you a one-time setup fee. From the reports I have seen, these companies typically charge a setup (or "administration") fee of $100 - $150 and a bi-weekly fee of $3.50. That bi-weekly fee adds up to $91 per year.

Furthermore, they don't actually make bi-weekly payments to your mortgage company. They hold on to your money and continue to make one payment per month. Then, at the end of the year, they make that extra 13th payment for you.

Don't fall for this scam. As soon as you understand what they are doing, you'll probably realize you can do the exact same thing yourself for free. Furthermore, by doing it yourself, you will save even more money - and not just by not paying unnecessary fees to another company. Here's how:

To achieve the same results that these bi-weekly payment companies tout, simply take your mortgage payment, divide it by 12, and add that amount to each monthly payment you make. (When doing this calculation, use only the principle and interest portion of your mortgage payment. You don't need to include any monies collected for your escrow account, which is usually for property taxes and insurance.) This has the same net effect as making 13 payments per year.

However, compare how doing it yourself works versus doing it through another company. Recall that the third party company still pays your mortgage once per month, but they retain your extra funds until the end of the year. That's when they make that extra payment for you. That means your outstanding principle is not reduced by your extra payments until the end of each year. If you make an additional 1/12th of a payment each month, your principle is reduced a little extra every month. Over the life of the loan, this will result in even greater interest savings for you.

Make Sure Your Extra Payment Is Applied Correctly

Now, if you do go the do-it-yourself route, you need to be sure that you instruct your mortgage company to apply your extra payment towards principle reduction. There is usually a spot on the payment coupon to specify this. (The other option is to apply the extra money to your escrow account. Some companies may instead apply extra payments towards future interest charges by default, which you do not want.)

If you are someone who wants to pay off their mortgage early, this is a popular method for doing so. If I did this on my current mortgage, I'd pay it off 4 years sooner than planned and would save about $22,000 in interest. You can see how much you would save by using the calculator here.

Wednesday, January 14, 2015

Don't Leave Money On The Table: Groceries and Gas

This is one in a series of short articles about claiming all the benefits you are entitled to – be that discounts, freebies, or whatnot. I’m not going to go to the length of, say, extreme couponing, but I have found there are often discounts or bonuses you can easily take advantage of that can save you money without making major changes in your spending patterns or behaviors.

For this installment of DLMOTT, I'm going to talk about something we all have to do - buy groceries. (And no, as I promised above, this is not going to be an article about extreme couponing.) Most grocery stores these days have loyalty cards that you can use to get discounts on items you buy. The stores like these cards because it lets them track what you buy and then they can market to you more effectively.

Despite the fact that I regularly post some of my financial information on this website, I am something of a privacy nut. I don't like companies tracking me so they can target me with more ads. But I also want to get all those good deals you get with a loyalty card. So what's a guy like me to do?

Get A Fake ID!

Well, not really. But when you fill out that application for a loyalty card, there is nothing that says you have to use your real information! I filled mine out with a fake name and address. I did not provide an email address, so I miss out on any emailed offers, but if you want to receive those and still retain some privacy, you can easily set up a disposable email address using or other such services. Sometimes this level of deception isn't even necessary. I have seen some applications that simply have a checkbox you can mark to remain anonymous. You can check that box and not provide any other information on the application. The grocer can still track that someone seems to always buy Kraft Deluxe Macaroni and Cheese together with hot dogs, but they have no way to tie that information back to me. (And I am in no way admitting to such behavior here. No sir. Not me.)

My grocer also has a website where I can go and load electronic coupons onto my loyalty card. I usually check out the site once a week and load coupons for anything that looks like I might possibly buy onto the card. If I don't end up buying it, the coupon expires and it's no big deal, but if I do, I get an automatic discount. These are really bonus savings. There are enough in-store discounts on items that if I don't want to check the website, I can still get decent savings..

Using my card, I routinely save between 12% - 25% on my grocery bills. Again, I only buy the things I would buy anyway.

But wait! That's Not All!

But the card doesn't just give me a discount at the grocery store. My grocer also operates a gas station. Using their loyalty card when I buy groceries lets me earn "fuel points" at the rate of 1 point per dollar spent. 100 points gets me a 10 cent per gallon discount on gas at their gas stations. Points accumulate monthly and do not roll over to following months. I save my points and at the end of the month, I fill up my tank at their gas station, rather than Costco, where I normally get gas, and I save anywhere from 40 to 80 cents per gallon. Their gas prices are normally only 5 cents per gallon higher than Costco, so it's a net 35 to 75 cents savings to me per gallon on a tank of gas once a month.

Yes, there is a little bit more effort involved. I spend about 5 minutes a week loading e-coupons onto my loyalty card and I do have to expend some thought at the end of each month to remember to get gas at a different location than normal, but it's a minimal amount of extra effort. Even without the card, I would still shop at the same grocery store and still buy the same things. By using their loyalty card, I make sure I am not leaving money on the table.

Do you have any tips for not leaving money on the table? Leave them in the comments!

Wednesday, January 7, 2015

Goal Update: End Of December 2014

At the end of each month, I post an update of my goals, including a brief discussion of any notable events that might have occurred during the month. The latest month's figures can always be found under the Featured menu in the menu bar at the top of the blog.

Last updated: End of December, 2014
Current value: $10,805
Change from last month: +1,153
Percent of Goal:  9.94%

Note that the funds in this account are invested in stock, so there will be fluctuations in value that are outside my control. I never withdraw money from this account, so any dips are purely due to stock price changes.

Events Of Note Last Month: No major deposits this month. The biggest one was just over $100 from sales of my online courses. I also got some money for Christmas that I threw into this account. However, I did reach a significant milestone this month:

This is mostly due to Realty Income stock hitting a 52 week high late this month. I'm sure next month, the value will drop, but hopefully my regular contributions will help keep me over the $10,000 mark. I'm also just a whisker away from hitting the 10% mark.
Apparently someone in Europe purchased a copy of my ebook or got it through the Kindle Unlimited program over there - my royalties for December included 1.07 euros. I am slowly conquering the world!!