One of the most controversial subjects around the family finances is the decision to payoff the mortgage early.  Some say you should keep the mortgage around as long as possible, citing low interest rates and tax deductions as opportunities you are giving up by paying it off early.  Others enjoy the freedom that comes from no mortgage payment, and the huge amounts of disposable, monthly cash that comes along with being mortgage-debt free.

Life Without a Mortgage

Can you afford your mortage? I don’t mean can you afford your mortgage payment, I mean can you afford to even have a mortgage considering all you’re giving up to finance a home?  Mortgages are sort of a necessary evil nowadays, mostly because real estate is too expensive for the average person to pay for a house with cash, but in some cases because people buy more home than they can really afford.  In many cases people could nearly pay for a home in cash, or at least put 50% down, if they would settle for a smaller place.  Of course, some in extreme real estate markets would argue even this plan is impossible with modest homes starting in the $400,000 range.  I would agree.

Still, it is hard not to enjoy the idea of not owing anyone any money.  Imagine the freedom that comes with being debt free, including the house and all credit cards.  Let’s say for example that you are in your late 40’s, and your kid(s) are wrapping up college.  Instead of carrying out that thirty-year mortgage to the full term you worked to pay it off in twenty years.  Now you own a $200,000 paid-for home, and have no other debts. And if you really liked having a house payment, you could always refinance your mortgage.

At this stage in your life, could you seriously consider an early retirement?  Would a career change, or relocation now seem plausible?  Of course!  With no payments you simply have to earn enough to cover your basic needs such as food, lights, insurance, etc.  And assuming you had adequate savings there is nothing stopping you from going after the career you’ve always wanted, but could never afford.

But Couldn’t I Earn More in the Markets?

Maybe.  At the time of this writing the markets are doing so hot, so passing on extra mortgage payments to invest in a flat (or declining) market doesn’t yield the kind of returns you might expect in a bull market.  The flip side to that is that when markets are in a decline it is a good time to stock up on beaten up companies with solid fundamentals, so setting aside some money to invest does makes sense.

I try to look at things through a short-term-pain, long-term-gain filter.  I may have to miss out on a few hot investments now, but down the road I’ll be able to make huge contributions to retirement funds and taxable savings vehicles if I have no debt payments.  I’ll also be free to make more decisions about how to spend the remainder of my life energy, rather than continuing to work in a passionless career just to make a house payment.

If you are looking to refinance, check out Mortgage 123 to lock in record low rates today

My college matriculation is best summed up by the famous line from Robert Frost’s The Road Not Traveled, “I took the one less traveled by, and that has made all the difference.”  I guess you could say I got a well-rounded education, because I bounced around three different schools and several majors before finally finishing up the process online. My only regret from the whole experience was that I didn’t pursue online degree programs earlier.

Pre-Medicine Requires Too Much Chemistry

For as long as I could remember I wanted to be a doctor. It seemed natural, and I had a genuine desire to want to help people.  So, I enrolled my freshman year declaring pre-medicine as my intended path of study and away I went.  Two years into the program, and six chemistry courses later, it all became rather overwhelming.  I had officially reached burnout with several years of school, medical school, and residency to go.  Being the practical personal I am, I realized I wasn’t going to stay motivated all the way through, and accepted the change of heart.

After a short stint as a physical therapy major, and after seeking out an athletic training internship, I decided my heart just wasn’t in medicine anymore.  Good thing I recognized this when I did–just imagine the money I could have wasted pursuing something my heart was no longer in.  A death in the family brought me back home about half way through my third year.  I decided to go to work, and eventually married my college sweetheart, and less than two years later we had our first child.

School, Family, and a Full Time Job

The birth of my daughter inspired me to get back in school and finish my education. I recognized my career opportunities and earnings potential were somewhat limited by the fact that I had not finished my undergraduate degree.  I enrolled at a nearby college, and thanks to a change in majors, transferring from the quarter system to the semester system, and going to school in different states, I practically had to start over.  And so I began a long, painful process of attending school at night from 6:00pm-10:00pm, Monday through Thursday, while working full time 8:00am-5:00pm and missing my newborn daughter and my wife terribly.  It was an exhausting time.

I kept up the pace for a couple years before a job relocation took me away from that local university, just a couple semesters shy of graduation.  A friend recommended I check out an online program offered by another local school.  He knew I was sick of being a “traditional,” in-class student because it kept me away from my family.  At the time online degree programs were relatively new on the scene, and I was a little skeptical.  I decided to look into it and I am sure glad I did.

The Benefits of an Online Education

There are many reason to finish your degree online.  For a husband and father of two working full-time I needed something with maximum flexibility.  Online education provided the ability to work around my job and family schedules while pursuing the exact same degree as those poor souls stuck in a classroom until 10:00pm.  The online degree program also forced me to upgrade technology, and stay on top of new web-based applications (something that later helped in my career).

Is an Online Degree Right For You?

Continuing your education online requires a greater degree of discipline than attending school in a traditional setting. All interaction with professors and classmates will be done virtually, usually via online chats, forums and email exchanges.  One of the main complaints about online degree programs is that you miss that social interaction sometimes required to fully grasp a new concept.  Professors will not be able to spoon-feed you information for exams.

When I attended a university full time professors made a point of emphasizing which areas of the text were most important, and often repeated contents of their lecture (a signal to write it down, because it would likely be on the test).  In an online environment you are often told to read pages 145-227 and expect any material contained to appear on the midterm.  It was up to you to figure out what was most important, and what would most likely appear on the exams.  It was an adjustment, but a good lesson in ignoring fluff and focusing in on what was most important.

I’d be interested to hear some of your experiences with an online degree.  Please feel free to share your story in the comments section below.

Regardless of which side of the fence you sit on when it comes to how to implement a debt snowball, there is one thing we can all agree on–it is highly motivating to see debt balances falling.  So much so that when you have to put the snowball on ice it can be a bit demoralizing.

Murphy Has Set Up Shop at Our House

Over the weekend I mentioned all the things that have gone wrong over the past few weeks, and the various hits to our emergency fund.  Fortunately, the emergency fund was there to cover these expenses so we didn’t have to turn to credit cards, or try to cash flow them by completely rearranging our budget.  Unfortunately, we will now have to put debt repayment on the back burner while we rebuild our emergency fund.  I’m just not comfortable living with a reduced emergency fund and throwing every extra penny at debt.  With a reduced emergency fund the next rash of emergencies could deplete our savings entirely and force us to once again turn to credit cards.

Here are some of the steps we’ll use over the next few weeks to get the emergency fund back up to our $3,000 goal:

1. Pay only minimum payments on credit cards. Instead of piling anything extra on debt, we’ll be diverting it to savings in the short term.  After attacking debt so aggressively the last few months this will prove difficult.
2. Snowflake any extra money into savings rather than towards debt.  I normally take any found money (snowflakes) and apply them directly to the debt snowball as they are received to boost the amount going towards debt repayment each month.  Now, I’ll pile up those snowflakes in savings.
3. When the emergency fund balance reaches $3,000 we will turn our attention back to our debt reduction plan.  I’m not sure how long it will take to get the emergency fund back to a fully funded status.  Thankfully, we didn’t have to dip too far, and I have a couple payments due for some freelance writing work I’ve completed recently–that should help.

Flipping the Switch

I believe this exercise is actually good for us (not that I want more visits from Murphy).  When we are finally debt free we will need to flip the mental switch to savings rather than debt repayment, without increasing our spending.  Sure, we might add back a few small expenses that we’ve eliminated to become debt free, but for the most part our budget won’t change much.  Shifting from debt paying to savings mode and back again should help us get comfortable with both styles of living on less than we make.

The other day I opened my office door after coming back from running an errand during my lunch break and someone asked about my lights being turned off.  “Do you always turn your lights out when you close your door?”  I laughed and explained it was just habit.  However, as I thought more about it I realized I had brought many of my frugal habits to the office, and that’s not necessarily a bad thing.  Here are a few ways to be a frugal employee, starting with the one that inspired reflection on the topic.

Turn off the lights when leaving an office or conference room.  This is by far the easiest solution to implement.  Just because you are not paying the electric bill it doesn’t mean you cannot take the same energy-saving approach at work as you do at home.  Flipping off a light switch requires very little effort, but it will reduce your company’s energy usage.  Not only is conserving power good for the environment, but things like this have a cumulative effect on decreasing your company’s overhead expenses.  This will help your boss look better by improving the company’s bottom line, and increase your chances for career success.

Try to eliminate printing to hard copy.  This one is easy for me, because if it winds up on my desk in paper format it is likely to get lost in the shuffle.  I would much rather have something electronically stored with an adequate backup system.  A good electronic file system is more searchable and secure than paper copies floating around the office.  It is also more friendly to the environment and cuts down on the overhead costs of stocking reams of paper.  I also like to order my own business cards, rather than take the 1,000 box supply that comes standard with a new job.  When I left my last job I had 996 left.

Repair or upgrade technology when possible.  Often times when a PC is bogging down a simple increase in RAM, a disk cleanup, or a defrag would to the trick.  But impatient employees, and spend-happy IT personnel often just replace the machines with a new one and “retire” the other machine.  Take time to investigate what the real problem is and make small corrections as long as possible to extend hardware’s useful life.  If a replacement is in order try to find ways to save money on your next computer.

Have a pot-luck lunch rather than going out as a team. Pot-luck lunches are like the ultimate brown bag at the office.  Create a theme, such as “Backyard BBQ,” and set up a sign-up sheet for team members to select something to bring.  If some team members aren’t up to cooking a dish ask for plates, forks, cups, drinks, etc.

Spend company money like you spend your own.  This idea assumes that you are a frugal spender at home.  At my last employer I was given a healthy per diem to cover food expenses while on the road, and if entertaining clients or going out as a group with fellow employees I could charge dining expenses to my company credit card.  I wasn’t much fun to go out with!  I didn’t see a need to eat steak and lobster every meal simply because someone else was paying for it.  My typical meals on the road looked like a continental breakfast in the hotel lobby, Subway for lunch, and a grilled chicken salad or similar for dinner.  I typically spent about half my daily food per diem, and rarely used the credit card for allowed entertainment purchases.

Don’t be cheap when it comes to raises.  One mistake frugal managers make is being cheap when it comes to handing out raises.  The people most valuable to an organization should be near the top of the pay scale, and it’s your job as a leader to recognize their value and compensate them accordingly.

What are some other ways to be frugal at the office?

photo by OiMax

Welcome to Sunday Conversation #10! If you would like to participate in next week’s Sunday Conversation, simply ask your question in the comments section of today’s post and I will respond next Sunday. Remember, any subject is on the table (but keep it family-friendly). 

“I just found your blog and I am enjoying catching up on all your posts. I was wondering if you might have a suggestion for a website that tracks CD rates. My Mother is a widow who is watching her pennies very carefully now that Dad is gone. She has money that needs to be rolled over and I know that there is a better way than watching the paper.”

- Janelle

Janelle, I’m sorry to hear about the loss of your Dad.  I know this is a difficult time for your family, and having financial responsibilities thrust upon your Mom makes it even more stressful for her.  As a fellow reader (Maha) recommended, I also find BankRate.com to be one of the best online sources for finding rate information.  In fact, BankRate.com also offers rate information on credit cards, mortgages, and a variety of other financial products.  Here are a few other sites that offer CD rate information:

• eMoney Central
• Bankaholic
• Interest.com

I hope one of these sites will provide some leads.  In a low-interest environment it is difficult find deposit products that offer high yields.  You may want to encourage her to check out a high-yield online savings account such as ING Direct to park money moving in and out of CDs, or other investments.  This way she is at least earning a decent rate in the interim.

“Where do you get the pictures you use on your blog? I’m working my way up to starting one of my own, but I know stock photos are expensive.”

- Maha

Maha, nearly all of the photos you see here at Frugal Dad are used under the Creative Commons license at Flickr.com.  Occasionally, I take my own pictures, such as those you may have seen of our garden.  Check out this thread over in Frugal Dad Forums for more information on using pictures from Flickr.

“My other question is this, have you addressed or discussed separate spousal accounts? We do that, and we have a joint account to pay for household stuff. We each get an allowance to spend as we please. Just curious about what you and your readers might think of this.”

- Also from Maha

I know many couples who have separate accounts, and a joint account that they both contribute to for household bills, the mortgage, etc.  This scenario seems to work particularly well with couples who marry late, or who have been divorced before.  In other words, separate accounts seem to work better for those couples who have lived independently, financially, for some time prior to marriage.

My wife and I have had combined finances since the day we married.  All of our accounts are joint accounts, and we pay all expenses (except for those related to my freelance work) out of a single checking account.   I don’t think having separate accounts is a necessarily a problem, unless one partner is hiding finances from the other.  Hiding finances is a symptom of a dysfunctional relationship.  So if you maintain separate accounts make sure your partner knows about them.

photo by pointnshoot

It has been a rough month in our household.  It all started when my wife took a spill in a parking lot after rolling her ankle.  She severely sprained her ankle, and even did some ligament damage.  She was prescribed crutches for a couple days, and an AirCast for 4-6 weeks.  Fortunately, it appears she avoided the need for surgery, but we won’t know for sure until the boot comes off.  The medical bills for x-rays, the ER visit, the orthopedic follow up, the AirCast, and the crutches are starting to roll in.

When It Rains, It Pours

A few days after her fall, on the morning of July 4th, we awoke to an unusually hot house and a broken air conditioner.  It was a particularly hot day, and by noon it was already hovering near 85 inside our house.  Our service guy discovered a burned out fan motor on the unit outside our home and put on a temporary replacement.  Fortunately, the motor was still under warrantly (barely), but we still owed $125 for the labor.

Over the weekend I was mowing our lawn and the mower died about half way through the job.  The nearest service center is about twenty miles away, so I asked if they could come pick it up.  They said, “Sure, for a $150 fee!”  Of course I said no, and immediately thought about the stuff I had loaded on a trailer that I could use to transport the mower.  When it rains it pours.

Our home computer crashed last week.  I guess it is expected since the desktop is now close to eight years old, which is an eternity in PC years.  While downloading email the system froze, and upon restart it would not boot up, citing a missing or corrupted windows file as the culprit.  I did manage to salvage my wife’s pictures she had transferred from a digital camera, but not backed up (lesson learned).  When I get some time I plan on wiping the hard drive and reloading the operating system to see if we can’t squeeze a little more life out of it.  However, we will definitely be backing up anything we save to CDs and will probably keep an eye out for any good deals on a new PC in the interim.

The real icing on the cake came last Monday evening.  My wife had prepared a new dish that we were all looking forward to trying. We had gathered in the kitchen and the kids were telling me about their day when we heard a loud popping sound.  We looked at the oven and the inside glass panel in the oven door had shattered, spraying glass all over our meal and rendering the oven unusable. We let it cool down, cleaned up the mess, and headed to Subway for dinner.

Moral of the Story

There isn’t one.  I just wanted to vent.  No, I’m kidding.  The moral of the story is that all of these things would have been major, budget-busting events just a couple years ago.  However, with our emergency fund in place at ING Direct these strings of bad luck are just minor inconveniences.  Well, some are more inconvenient than others, but you know what I mean.  Having an emergency fund in place allows us to focus on making the situation right, rather than worrying about how we are going to pay for it.

I’m more convinced than ever that having a solid emergency fund in place should be priority one in any good financial plan.  Our mission over the next two or three paychecks will be to replenish the funds we’ve used over the last few weeks, and hope nothing else breaks for a while.

photo by david55king

I would not believe it if I hadn’t been standing there next to the oven on Monday evening. My wife had just put in a new dish to bake and we were so looking forward to trying it.  Suddenly, we heard a horrible sound from the oven.  We spun around and were shocked to find the inside glass panel on our wall oven had shattered into a million pieces, spraying glass all over the inside of the oven.  I’ve since read that both glass panels can shatter, and we are lucky this didn’t happen because the flying glass at least would have caused a serious mess throughout the kitchen, and at worst could have hurt my wife or kids.  We cleaned up the mess and had to toss the chicken dish.  Another great reason for having a solid emergency fund!

The Roundup

101 Dirt Cheap Ways to Enjoy Yourself.  Proof that you don’t need a lot of money to have a good time!  @marc and angel

Undermining Your Frugality.  What good is being frugal for a long period of time if you only blow money on something frivolous later?  I’ve struggled with this myself at times.  I’ll scrimp and save five dollars here, ten dollars there, and then blow twenty dollars on a book I could have checked out at the library.  @the simple dollar

10 Reasons to Finish Your Degree Online.  I finished my degree online, and my only regret was that I didn’t start my degree online.  It makes for a much more flexible schedule, especially for us “non-traditional” students with full time jobs and a family.  Look for my own post on my online education experience next week.  @the wisdom journal

12 Tips to Prepare Your Finances for Vacation.  A great list of things to consider before hitting the road.  Often times we worry over our packing list, or our itinerary, and forget the financial responsibilities we’re leaving behind.  @my dollar plan

Save the Planet, Save Cash:  25 Best Ways to Green Your Green.  I really enjoyed this one as a “Frugal Dad” who also cares about the environment!  @ecosalon

7 Benefits of Imperfection.  Simple Mom was vacationing this week, but I caught this great post at her blog.  As the author states, being imperfect helps us show our children that they don’t have to be perfect either–a very powerful lesson.  @small notebook via simple mom

The Fine Art of Saying “No.”  It’s hard to say no.  It’s hard to tell yourself no, and it is hard to tell others no.  This post does a nice job of identifying why uttering those two little letters is so difficult, and provides some ideas on how to make it easier.  @my super-charged life

21 Ways to Make Your Blog or Website Sticky.  If you run your own blog, or are considering starting one up, this is a must-read.  I’ve implemented a few of these great ideas, but still have some work to do.  @problogger

The Dirty Secrets of Debt Reduction (and What to Do About Them).  Some of the best posts from personal finance bloggers are ones that tell the story of their triumph over debt.  This is a great post from J.D. sharing the story of how he beat debt.  @get rich slowly

Some lively discussions are happening over at Frugal Dad Forums.  Won’t you join us?