Comments on: Weekly Roundup: Car Payment Almost Gone Edition http://frugaldad.com/2009/05/14/weekly-roundup-car-payment-almost-gone-edition/ Tips for living frugal while still having a life Sat, 20 Mar 2010 20:06:24 -0500 http://wordpress.org/?v=2.8.5 hourly 1 By: Bryan http://frugaldad.com/2009/05/14/weekly-roundup-car-payment-almost-gone-edition/comment-page-1/#comment-24657 Bryan Mon, 18 May 2009 16:57:27 +0000 http://frugaldad.com/?p=2534#comment-24657 JerryB - sorry I bounced around a bit there. Not knowing your entire situation leaves me to generalize a bit. I am a big advocate of paying yourself first. In MOST situations, giving yourself the money to ultimately pay off the mortgage will fare better for you in that you have control of the money, access to the money and could be earning compound interest on that money. Whereas giving it to the bank each month you have none of the above. What I meant about giving it to them for free was that you are giving them the control and the ability to earn interest on it instead of yourself. Even if you pay yourself monthly and pay down principal once per year, you are better off than doing it monthly. Obviously, how much time is left on the mortgage and the original amount and term factor into selecting the right strategy, so this may or may not be right for you. My suggestion to continue paying yourself the car payment right away is because you already have it budgeted, so you are disciplined to conserve that money. Lie happens and things change, in the "plenty of time" you have to re-establish the good habit, anything could happen. So why wait? If you already have an emergency fund, are contributing nearly $1,000 per month to accelerating the final piece of your debt portfolio (mtge), you are in a great place! Seriosly consider starting the car account right away. At 2.5%, you will have $27,000 cash to buy a car in seven years or $49,000 in twelve years. No debt, no mortgage, paying cash for the cars, and contributing $1,000 per month to creating wealth. Jerry, you are going to sleep Real Well at night! Congrats! JerryB – sorry I bounced around a bit there. Not knowing your entire situation leaves me to generalize a bit.
I am a big advocate of paying yourself first. In MOST situations, giving yourself the money to ultimately pay off the mortgage will fare better for you in that you have control of the money, access to the money and could be earning compound interest on that money. Whereas giving it to the bank each month you have none of the above. What I meant about giving it to them for free was that you are giving them the control and the ability to earn interest on it instead of yourself. Even if you pay yourself monthly and pay down principal once per year, you are better off than doing it monthly.
Obviously, how much time is left on the mortgage and the original amount and term factor into selecting the right strategy, so this may or may not be right for you.
My suggestion to continue paying yourself the car payment right away is because you already have it budgeted, so you are disciplined to conserve that money. Lie happens and things change, in the “plenty of time” you have to re-establish the good habit, anything could happen. So why wait?

If you already have an emergency fund, are contributing nearly $1,000 per month to accelerating the final piece of your debt portfolio (mtge), you are in a great place! Seriosly consider starting the car account right away. At 2.5%, you will have $27,000 cash to buy a car in seven years or $49,000 in twelve years.

No debt, no mortgage, paying cash for the cars, and contributing $1,000 per month to creating wealth. Jerry, you are going to sleep Real Well at night! Congrats!

]]> By: JerryB http://frugaldad.com/2009/05/14/weekly-roundup-car-payment-almost-gone-edition/comment-page-1/#comment-24652 JerryB Mon, 18 May 2009 14:55:12 +0000 http://frugaldad.com/?p=2534#comment-24652 Bryan, I'm having a hard time following your logic. As you said earlier each situation is different. I've been to several sites with pre-payment calculators and they all say in my particular case it's better to pre-pay my mortgage. Paying down my principal isn't giving the bank my money, paying them interest on the outstanding balance is. Last year I LOST approximately $2650.00 to the mortgage company in interest that, because I take the Standard Deduction, I don't even have the illusion of getting back by writing it off. I have a well established emergency fund. Since my car is less than 3 years old, I have plenty of time to build a new car fund. My experience with Toyota's tells me that it will be many many years before this car is driven into the ground. Bryan,
I’m having a hard time following your logic. As you said earlier each situation is different. I’ve been to several sites with pre-payment calculators and they all say in my particular case it’s better to pre-pay my mortgage. Paying down my principal isn’t giving the bank my money, paying them interest on the outstanding balance is. Last year I LOST approximately $2650.00 to the mortgage company in interest that, because I take the Standard Deduction, I don’t even have the illusion of getting back by writing it off.
I have a well established emergency fund. Since my car is less than 3 years old, I have plenty of time to build a new car fund. My experience with Toyota’s tells me that it will be many many years before this car is driven into the ground.

]]> By: Dominique http://frugaldad.com/2009/05/14/weekly-roundup-car-payment-almost-gone-edition/comment-page-1/#comment-24626 Dominique Mon, 18 May 2009 07:50:00 +0000 http://frugaldad.com/?p=2534#comment-24626 Congrads on doing away the car payments. I'm sure that it will be a great load off your hands now. Congrads on doing away the car payments. I’m sure that it will be a great load off your hands now.

]]> By: Bryan http://frugaldad.com/2009/05/14/weekly-roundup-car-payment-almost-gone-edition/comment-page-1/#comment-24599 Bryan Sun, 17 May 2009 15:59:38 +0000 http://frugaldad.com/?p=2534#comment-24599 JerryB - The rate of return from where you put your money is not the key here. While it is important, what's more important in your situation is that your money EARNS A RATE OF RETURN in a safe, accessable place . If you are contributing $1,000 per month to principal reduction, you are giving your hard earned money to the lender for free. Yes, you are ultimately saving interest , but saving interest is not the same as earning interest. Even if you put the $1,000 in a safe deposit box each month for the next 35 months and then make one big payment, you are better off than losing access to that money (this, aside from the access, is equivelant to giving it to the lender for free). And, if you already are putting that much toward pricipal, you should open a "car" account and pay yourself the $290/ mth if you plan to own more cars in the future. Do you have a sufficient emergency fund? JerryB – The rate of return from where you put your money is not the key here. While it is important, what’s more important in your situation is that your money EARNS A RATE OF RETURN in a safe, accessable place . If you are contributing $1,000 per month to principal reduction, you are giving your hard earned money to the lender for free. Yes, you are ultimately saving interest , but saving interest is not the same as earning interest. Even if you put the $1,000 in a safe deposit box each month for the next 35 months and then make one big payment, you are better off than losing access to that money (this, aside from the access, is equivelant to giving it to the lender for free). And, if you already are putting that much toward pricipal, you should open a “car” account and pay yourself the $290/ mth if you plan to own more cars in the future. Do you have a sufficient emergency fund?

]]> By: JerryB http://frugaldad.com/2009/05/14/weekly-roundup-car-payment-almost-gone-edition/comment-page-1/#comment-24598 JerryB Sun, 17 May 2009 15:17:44 +0000 http://frugaldad.com/?p=2534#comment-24598 Bryan, My mortgage is 5.58%. Where can I get that guaranteed through any investment in today's current market conditions? I should also note that other debt reduction snowball funds are also going toward the house payment and I'm at close to $1k a month in principal reduction. Just the knowledge that I soon will have my house paid off is a good feeling. I'm also fully funding my Roth IRA as quickly as I can, seeing as I am behind the curve in retirement savings. Bryan, My mortgage is 5.58%. Where can I get that guaranteed through any investment in today’s current market conditions?
I should also note that other debt reduction snowball funds are also going toward the house payment and I’m at close to $1k a month in principal reduction. Just the knowledge that I soon will have my house paid off is a good feeling.
I’m also fully funding my Roth IRA as quickly as I can, seeing as I am behind the curve in retirement savings.

]]> By: Bryan http://frugaldad.com/2009/05/14/weekly-roundup-car-payment-almost-gone-edition/comment-page-1/#comment-24597 Bryan Sun, 17 May 2009 14:49:50 +0000 http://frugaldad.com/?p=2534#comment-24597 Kevin - I agree that the advice is terrible. I'm in NY and always looking for good CPA's to send my clients to. JerryB - I guess Retirement income and tax advice is very situational, based on source of income, taxability, etc. I'm not a CPA either and (no offense Kevin) they seem to be adamant about their advice. Speaking of keeping money that you would otherwise send to the mortgage company, you can pay your $35k mortgage off faster if you save the $209/ mth in an interest bearing account rather than giving it to the bank monthly. Assuming your loan was interest only, your savings at 5% will accumulate enough to pay off your mortgage in 8 years, whereas giving the $209 to the mortgage company will take 10 years. If you continued the $209 savings after 8 years, you'd have $10,000 in the account in 10 years. If your mortgage is amortized interest, both scenarios will happen sooner. Congratulations and Good Luck! (I'm envious) Kevin – I agree that the advice is terrible. I’m in NY and always looking for good CPA’s to send my clients to.

JerryB – I guess Retirement income and tax advice is very situational, based on source of income, taxability, etc. I’m not a CPA either and (no offense Kevin) they seem to be adamant about their advice.
Speaking of keeping money that you would otherwise send to the mortgage company, you can pay your $35k mortgage off faster if you save the $209/ mth in an interest bearing account rather than giving it to the bank monthly. Assuming your loan was interest only, your savings at 5% will accumulate enough to pay off your mortgage in 8 years, whereas giving the $209 to the mortgage company will take 10 years. If you continued the $209 savings after 8 years, you’d have $10,000 in the account in 10 years. If your mortgage is amortized interest, both scenarios will happen sooner. Congratulations and Good Luck! (I’m envious)

]]> By: JerryB http://frugaldad.com/2009/05/14/weekly-roundup-car-payment-almost-gone-edition/comment-page-1/#comment-24520 JerryB Sat, 16 May 2009 01:32:36 +0000 http://frugaldad.com/?p=2534#comment-24520 Good job FD. My car payment ended March 25, 2009 and the $209.00 that was going to Toyota Motor Credit is now added to paying off my Mortgage. With the exception of my <$35k mortgage I am debt free. @Bryan, I'm not a CPA but I can see the sense in not having a mortgage payment. If I send my bank $4,000 in interest the government does NOT give me that money back at the end of the year. All they do is not tax me on that amount. Personally I would rather keep the $3500ish that I would otherwise have sent to the mortgage company and lose the rest to taxes. It's been 2 years since it was worth while to itemize my deductions and now I am paying my last debt off as quickly as I can. Good job FD. My car payment ended March 25, 2009 and the $209.00 that was going to Toyota Motor Credit is now added to paying off my Mortgage. With the exception of my <$35k mortgage I am debt free.
@Bryan, I’m not a CPA but I can see the sense in not having a mortgage payment. If I send my bank $4,000 in interest the government does NOT give me that money back at the end of the year. All they do is not tax me on that amount. Personally I would rather keep the $3500ish that I would otherwise have sent to the mortgage company and lose the rest to taxes. It’s been 2 years since it was worth while to itemize my deductions and now I am paying my last debt off as quickly as I can.

]]> By: Linette http://frugaldad.com/2009/05/14/weekly-roundup-car-payment-almost-gone-edition/comment-page-1/#comment-24510 Linette Fri, 15 May 2009 19:54:10 +0000 http://frugaldad.com/?p=2534#comment-24510 Congratulations on getting rid of that car payment! I have been car payment free for 2 years and in about a year my house will be paid off! After that I am going back to school with only credit card debt to pay off. It will be sweet! Congratulations on getting rid of that car payment!

I have been car payment free for 2 years and in about a year my house will be paid off! After that I am going back to school with only credit card debt to pay off. It will be sweet!

]]> By: SpeedFlux http://frugaldad.com/2009/05/14/weekly-roundup-car-payment-almost-gone-edition/comment-page-1/#comment-24505 SpeedFlux Fri, 15 May 2009 15:48:03 +0000 http://frugaldad.com/?p=2534#comment-24505 Congratulations on getting out from your car payment, it's great to be debt free. Congratulations on getting out from your car payment, it’s great to be debt free.

]]> By: Kevin M http://frugaldad.com/2009/05/14/weekly-roundup-car-payment-almost-gone-edition/comment-page-1/#comment-24481 Kevin M Fri, 15 May 2009 02:07:15 +0000 http://frugaldad.com/?p=2534#comment-24481 @Bryan - I'm a CPA...find those people that are getting that terrible advice and send them to me. Or better yet, have them send me $10k and I'll send them their "$3k deduction" back to them on April 15th every year. We couldn't even utilize our interest deduction last year though sense we bought a sensible house and our total deductions were just below the standard deduction threshold. To piggyback on FD's advice on donations - here in MO if you donate to certain charities you can get up to a 50% state tax credit for the money given. So in that case you would get a $5k state tax credit on top of your federal deduction. Not too shabby! @Bryan – I’m a CPA…find those people that are getting that terrible advice and send them to me. Or better yet, have them send me $10k and I’ll send them their “$3k deduction” back to them on April 15th every year.

We couldn’t even utilize our interest deduction last year though sense we bought a sensible house and our total deductions were just below the standard deduction threshold.

To piggyback on FD’s advice on donations – here in MO if you donate to certain charities you can get up to a 50% state tax credit for the money given. So in that case you would get a $5k state tax credit on top of your federal deduction. Not too shabby!

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