PocketCoinage

Wow, it’s been one month since my last posting!  Things have been really busy at work.  I had two weeks of overnight work and had two decent snowstorms that made travel treacherous and time consuming.  This left me with minimal time for myself and blogging.  I’m going to realign my schedule to allow more time for writing quality blog content.

It’s been one year since I closed on my first home and I cannot believe how time flies!  I only have about 28 years left on the mortgage!  Paying down the principle helped.  The house has come a long way since we first moved in:

• Removed all the carpet upstairs and restored the hardwood floors
• Planted a plentiful vegetable garden
• Landscaped the front yard
• Removed carpet on the enclosed porch; cleaned and primed all the walls

These are only a few of the larger projects we have done around in the first year.  Not bad for working full-time on a rotating schedule!

Some of the projects lined up this year include:

• Install a new fence while expanding the flower and vegetable gardens
• Complete the porch by sealing up all leaks, installing electric radiant floor heating, tiling, and possibly a small wood/pellet stove
• Complete the office with furniture and other items.

On another note, I received a letter from my mortgage broker advising me that the escrow is underfunded.  To correct this, I can pay the $604 up front and keep a smaller, almost similar monthly payment.  The other option is to divide the $604 into 12 months to fund the escrow; essentially increasing my payment by roughly $50 per month.  Whether I pay in full or in increments, it all comes out to the same amount in the end.  There are no fees or additional charges if I choose one or the other.  So now the big question: Do I pay it all up front or keep my money and pay more per month?

After talking with a few people, they seem to go with the option of making the larger monthly payments as this gets reevaluated every year.  One person also had an experience where he paid it in full, to only have it all returned one year later.  This was because they over-projected the taxes and insurance.

Since I over allocate for my mortgage every month, this increase will not affect my current goals.  So I’ve decided I will be paying the increased mortgage payment, while continuing to pay down the principle.

I set aside biweekly for my mortgage so I can accumulate one additional  payment per year. Over the next year I want to try something new: Take the extra allocated money and make a monthly principal payment while still making one large principal payment every year.  This will allow me to cut my mortgage down even faster.  However, I am having remorse about paying the house down more when I have student loans that I want to pay down quickly.

The emergency fund is probably the most important savings account.  Think of it as self-insurance.  You save for an unforeseeable event: loss of income, furnace goes, or the roof springs a leak.  So how much do you need to keep in an emergency fund?  It all depends on your comfort level and what you are saving for.  You may even want to have different, targeted, emergency funds.  Some people recommend saving for at least 6 months of expenses.  Personally, with everything going on in the world, I would save for at least 12 months of expenses.  This will give you some flexible time to look for another income.

My current emergency fund is for anything at this point in my life.  Once I reach my ultimate goal of $20,000, I will set this account aside and name it the “Loss of Income Fund”.  The $20,000 will keep my current lifestyle afloat for about a year.  I may even open short-term CDs to make some more money rather than letting it sit at a lower interest rate.  To keep my savings on track, I could direct the money a few ways:

• Keep putting money into the “Loss of Income Fund” after I reach my goal
  • Every $1,000 I go over my goal, a 1-year CD gets opened
• Create a new emergency fund targeted towards another goal
  • Maybe an “Emergency Home Repair Fund”?
• Send it to another savings account for non-emergencies
  • Vacation fund
  • Auto fund
• Save more towards my Roth IRA

I also use my emergency fund for when I overspend on my credit card the previous month.  I refuse to maintain a balance on my credit card unless I have no other choice.  Most of the items are unforeseen expenses and this is where it is very nice to have a fund to tap into.

Do you have an emergency fund?  How do you use it?

This is the third in a series of weekly posts titled “How I Did It”.  I’ve been so inconsistent with the weekly postings, I’m not sure that I can call it a weekly series.  The past week has been very unusual with two blizzards and getting stuck overnight at work.  I will try my best to post on a weekly basis. Throughout this series I will be describing my methods of personal finance, frugality, and what it took to get where I am today.

If you’ve read the series from the beginning, you’ll notice that I received my first credit card when I opened my checking and savings accounts.  This was around 2004 when they were giving credit out like free pancakes at the diner.  To recap, my local bank offered me a credit card.  I was hesitant at first and I asked a few of questions that were important to me:

• Is there a monthly/yearly fee associated with this card?
  • No
• Does it cost anything to apply?
  • No
• What’s the benefit of holding this card?
  • Reward Points: 1 point for every dollar spent
• If the card it paid off every month, will I incur a finance charge?
  • Not unless cash advances are made

Once I had the questions answered, I sat and thought about the positives and negatives of holding a credit card.

Positives

• Building a credit history at an early age
• Have it in case of emergencies
• Order items online without too much worry; It’s not linked to my checking account
• Ability to reserve hotels and rental cars without putting a hold on my checking account

Negatives

• I could slip into debt if I did not think about my spending.
• Someone could steal my card number and use it.
• The company could change my terms of agreement at any time.  If I did not pay attention to the changes, it could cost me in fees.

After careful consideration, I decided that the pros outweigh the cons and I went for the credit card.  About a week later the approval letter arrived in the mail.  The credit limit: $500; not too bad since this was my first card and I haven’t held a job for too long.

Using this card responsibly, every month, opened up another door from my local bank.  About two years later, they were offering me another credit card.  After reading their terms and talking with the local representative, I decided to go for it.

The advantage of this card was:

• It was from the same company as my local bank
• It had a better rewards structure
• A higher credit limit

Now I had two credit cards in my name from the same bank.  A few weeks later I understood what their reasoning was.  I received a letter in the mail about how my first credit card company was separating from my local bank.  I believe the local bank wanted to keep me as a customer.

In the end, I am glad I signed up for these credit cards.  It’s been 5 years since my first card and I’ve had a great experience ever since.

By making this small first step, I was able to build my credit history at an early age.  Keep in mind, I always pay my cards off.  It does not make any sense to leave a balance on them.  You’ll never gain back the money in interest payments through a savings account.  If I overspend, I tap into my savings account to pay it off.  Yes it hurts, but it hurts less than owing more money in interest.