What I have learned in the past few years I wish I would have known before I got out of high school. I wish I was smarter about money from the beginning. Would I have listened? Probably not. I do have to say I am very thankful for my mom that although didn't explain to me the way credit works entirely she always said to me, "you don't need a credit card it will only get you in trouble." That is the fact for 9 out of 10 people in my age group that are in debt. Which apparently are the most in debt group in history.
I think when Mark and I got serious about debt we really started to understand what you pay for the convenience. For too many years I thought of things as the lowest monthly payment. What is the most we can have for the least amount of monthly expense. Not thinking about the long term cost. Let me run some numbers for you. In 2008 the average house cost $292,600 dollars. The best rate in 2008 was about 5% so I will go with "best" case. (going to use the Dave Ramsey calculator). Results ....
$290,600 financed for 30 years at 5% = total of $271,009.52 paid in interest. The total cost to you for your home is actually closer to $562,000! My point it this no matter what the number you plug interest is almost double the amount mortgaged for your home at 5%. Every percent more is more paid in interest and eventually you pay more in interest than the actual loan. The sad part is you get a sheet at closing with all this information. You want to know what the last lawyer told us at closing? Sign this and never look at it again. WHAT!? I say frame that piece of paper as a reminder of why you need to pay off your house ASAP!
So what did Mark and I do to save money. First we ditched the new cars, paid extra toward the house, and lastly we try to live below our means. Let me try and explain as briefly as possible.
Let me start with the cars. In 2002 we paid off my car I worked the first part of the school year before my first child to pay it off. Mark sold his Passat in 2003 or 2004. He replaced it with a paid for truck. I am pretty sure it was before our second child was born. Then in 2005 we were blessed with pregnancy number three in which a CRV was not going to hold three car seats. I tried. We traded the paid CRV for a one year newer Odyssey. We paid it off within the year, we didn't pay new car prices and I have driven it ever since. Almost 5 years car loan free.
The next thing we did was send extra money toward the mortgage. Sending extra is saving money long term savings. Let me crunch some numbers again for you....
Take the $290,600 financed for 30 years at 5% = total of $271,009.52 paid in interest. Take that same loan and pay an extra $50 a month. You take the loan down by two years and save $21,000 in interest. Even $20 extra a month will save you almost $10,000 in interest.
If you want to plug in your numbers use this calculator at DaveRamsey.com http://www.daveramsey.com/tools/mortgage-calculator/
Since the time we got pretty serious about paying off the house we moved from Florida to N. Alabama. We had to buy another house. What did we do? Well, we bought something we could easily afford. Below our means. A fixer upper that our realtor said we got for investor pricing. I can't even believe what the bank was willing to loan us. We did get a 30 year loan because we where comfortable with that low monthly payment but have always paid more than the monthly payment. Always, every month. I think that is key. Just doing it every month and pretending that is the payment.
Last week we did refinance the house for 15 years, at a great rate with zero closing costs and are actually are saving even more money by doing this. It took another 10 months off our mortgage. Remember we have been paying more than our low monthly payment. We are also saving us $50 a month with the new payment. A total of around $24,000 saved. If we keep sending the old amount we will have another 2 years off our mortgage and would have this house paid off in 13 years.
Bottom line is I do think about money differently. A loan is paying more for the convenience of having it today. I would rather wait and pay cash. In the long run I will save more money by waiting. Debt free is a good place to be. I will continue with the idea of not cheap but intentional spending next.
So what did Mark and I do to save money. First we ditched the new cars, paid extra toward the house, and lastly we try to live below our means. Let me try and explain as briefly as possible.
Let me start with the cars. In 2002 we paid off my car I worked the first part of the school year before my first child to pay it off. Mark sold his Passat in 2003 or 2004. He replaced it with a paid for truck. I am pretty sure it was before our second child was born. Then in 2005 we were blessed with pregnancy number three in which a CRV was not going to hold three car seats. I tried. We traded the paid CRV for a one year newer Odyssey. We paid it off within the year, we didn't pay new car prices and I have driven it ever since. Almost 5 years car loan free.
The next thing we did was send extra money toward the mortgage. Sending extra is saving money long term savings. Let me crunch some numbers again for you....
Take the $290,600 financed for 30 years at 5% = total of $271,009.52 paid in interest. Take that same loan and pay an extra $50 a month. You take the loan down by two years and save $21,000 in interest. Even $20 extra a month will save you almost $10,000 in interest.
If you want to plug in your numbers use this calculator at DaveRamsey.com http://www.daveramsey.com/tools/mortgage-calculator/
Since the time we got pretty serious about paying off the house we moved from Florida to N. Alabama. We had to buy another house. What did we do? Well, we bought something we could easily afford. Below our means. A fixer upper that our realtor said we got for investor pricing. I can't even believe what the bank was willing to loan us. We did get a 30 year loan because we where comfortable with that low monthly payment but have always paid more than the monthly payment. Always, every month. I think that is key. Just doing it every month and pretending that is the payment.
Last week we did refinance the house for 15 years, at a great rate with zero closing costs and are actually are saving even more money by doing this. It took another 10 months off our mortgage. Remember we have been paying more than our low monthly payment. We are also saving us $50 a month with the new payment. A total of around $24,000 saved. If we keep sending the old amount we will have another 2 years off our mortgage and would have this house paid off in 13 years.
Bottom line is I do think about money differently. A loan is paying more for the convenience of having it today. I would rather wait and pay cash. In the long run I will save more money by waiting. Debt free is a good place to be. I will continue with the idea of not cheap but intentional spending next.
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