Mortgage update: Saving for summer

Last month (January):

Balance: $132,837.63
Years left: 12
P = 673.28, I =541.12, Escrow = 591.95

This month (February):

Balance: $131,455.39
Years left: 11.83333333
P = $688.59 , I =$525.82, Escrow = 591.95

Saving for the long unpaid summer has begun. Target goal: 4 months expenses. That’s 3 months unpaid plus 1 month emergency funding. If there are no beyond-normal emergencies, we should end up actually having almost 5 months expenses in the bank by the time we get our last paychecks for the school year. However, we decided that even if we exceed 4 months we’ll still keep that money in savings… just in case. Additional funds, however, will go to the mortgage or to savings on a case-by-case basis.

I talked with DH about how much we needed. This is the first year with no summer income scheduled (unless a grant proposal gets funded!) and the first year that we’re funneling extra money into something that is not so easily accessible (we used to have high interest savings accounts!). Our first thought was to save up 4 months of modal expenditure (3 months unpaid + one month emergency) and then funnel any extra back into the mortgage, but then we remembered that there are some annual expenses (like private school tuition) that come in September before our October 1 paychecks.

In an emergency we could sell stocks but we would rather do that by choice instead of having to do it. We could also cut expenditures dramatically– if we tried, we could cut our expenditures to almost half of what they are, but we’d be eating a lot of beans and oatmeal and not going anywhere (well, except the office, since working from home requires a lot of a/c), which would make for a very sad summer. We could also undrip index dividends in our taxable accounts, but that also seems silly.

Right now we have 2 months expenditures in savings partly because we spent less than usual a couple months in a row, partly because some expenditures we’d been planning (like trees) haven’t been paid yet. By the end of the year we’ll also be owed back $5000 from our flexible savings account for daycare (2K so far).  And of course there are taxes, which is always a big mystery until we do them. We got money back last year but we’d been doing a lot more prepayment each quarter than we were this year. I’m guessing that we’ll be getting back less and paying a larger chunk in estimated taxes this year.

Of course, we don’t have to do all or nothing with the mortgage prepayment. I always round up to the nearest 00, and I figure I can round to the nearest 500 too. $3000 extra is a lot of money to send to the mortgage each month. However, $500 is pretty manageable… so even during the unpaid months we’re going to try to prepay about $693.65. Possibly more if we get positive rather than negative income shocks.

So, to summarize our end decision:  $693.65/month additional for a payment of $2500/month. We will put in quarterly single stock non-drip dividends if/when they come and will decide on a case-by-case basis with other income shocks.

AFTER we get paid on Oct 1st, if there’s money leftover we’ll put the lump sum into the mortgage.  So we’re losing some money in interest by paying potential extra cash in October rather than in February, but it also buys peace of mind.  How much are we losing only prepaying $693.65 in Feb instead of $3193.65, assuming we still have that $3193.65 to prepay in October?  Well… something like $35 in interest, give or take.  I think we’re willing to pay $35 for peace of mind and still being able to eat in restaurants in September.

Hm, now that that’s decided, I really need to request that daycare FSA reimbursement!

(Of course, I also kind of feel like the stock market is settling down and wonder if maybe I should be plowing money back into it rather than into the mortgage… but maybe I’ll discuss that in a future month.  Or maybe the world will just continue into economic unrest because of government overhauls in developing countries.)

25 Responses to “Mortgage update: Saving for summer”

  1. everyday tips Says:

    Sounds like you have some pretty ‘good’ decisions. (Wondering where to put extra money.)

    Maybe put half into the mortgage and half into the stock market?

    • nicoleandmaggie Says:

      Lots of money is getting shoveled into the stock market right now via our 403(b)… more than we put into the mortgage this year! But we’ll see what the world is doing in October… it seems like an infinite number of things could change by then!

  2. SonyaAnn Says:

    I think that you have a wonderful plan and that it really will work well. You always have to have a bit of fun money or it won’t work.
    Have a wonderful week!

  3. Jacq Says:

    Problem with both the mortgage and the market is that they’re both not liquid. I’m sitting here with a whack of cash too, looking at my stocks bounce up dramatically this last week and just sick about it that I didn’t put more in a couple of months ago. :-(
    Thought about it, wanted to, but those pesky cautious GRS readers made me pessimistic.
    Any summer holidays planned?

    • nicoleandmaggie Says:

      Yeah, we’re shoveling things into savings until October. Gotsta have that liquidity. And short term termshare rates aren’t really worthwhile just yet.

      No, we don’t really do vacations other than family and conferences. I presume we’ll be seeing DH’s family, and/or we might all go to Boston instead of just me.

  4. Roshawn @ Watson Inc Says:

    I completely understand why you would prepay “only” $693. It’s nice to see things going so well!

    Good luck with achieving your savings goals!

  5. Debbie M Says:

    I don’t see the stock market settling “down” so much as settling up. My extra money is going toward my mortgage. On the other hand, my mortgage will be paid off in 1 – 1.5 years, so that’s more like investing in a 1 – 1.5-year CD at this point than anything too scary.

    One exception is that the extra money I’m getting because of the SS tax reduction this year is going toward retirement. To help make up for the SS system crashing that much earlier.

    • nicoleandmaggie Says:

      Well… it was settling down until the middle east decided to overthrow all their dictatorships. That’s what happens when I write posts too far in advance. Who knows what will happen by October when we’re done with the long summer?

  6. Spanish Prof Says:

    Wow. I feel like a novice. I understood half of your post. I don’t even own a house. I graduated without students loans, and then married to a 70K one. I must really love my husband.

    • nicoleandmaggie Says:

      #2 also yelled at me for vocabulary… so I added a post in a couple days (after tomorrow’s super controversial post on parenting!) explaining the words I made up. :)

      I notice some other things aren’t incredibly clear too. Basically it looks like I could prepay the mortgage 3K this month and we’d still be good to go for the summer, so long as we start saving next month, but there’s a chance we wouldn’t be, and we’d have to spend less in August and September, which would be sad. So we’re not prepaying this month… just sticking it in savings.

      We also have a target of 4 months spending put in savings, and we could put any money after that amount into the mortgage, but we decided that even if we get to like 6 months spending in savings (if we spent less), we won’t apply the extra to mortgage until we get paid again.

      Basically we decided we like having a cushion and not feeling artificially poor, even if we’re losing $35 on interest from not pre-paying our mortgage this month (and don’t have an emergency and thus put the extra money into the mortgage in October when we get paid again).

      I don’t know if that makes any more sense than the original post…

  7. Money Reasons Says:

    Sounds like you got a great financial plan…

    Either investing in stocks or paying down the mortgage is a win-win… I just liked paying down the mortgage better because it’s less risky. With it paid down now, I’m more open to more investment risk :)

  8. retirebyforty Says:

    Hey, thanks for sharing a different lifestyle. It’s interesting to see the planning that goes into saving for summer.

    • nicoleandmaggie Says:

      It took less planning when DH had summer salary!

      Some people would prefer to have their salaries prorated to 12 months so that they don’t have to plan like this. But I’d rather have the money earlier so I can make the interest.

      Still… I sure wish we were paid in September instead of October!

      • nicoleandmaggie Says:

        #2 here. I have mine spread over 12 months because it’s easier to budget. My salary is small enough that the amount of interest I would earn by having the money earlier is negligible.

  9. Comrade PhysioProf Says:

    Why are you trying so hard to pay off your mortgage as fast as possible? Since that is the cheapest money available to borrow, why not take your time paying off the mortgage and use the extra cash flow to enjoy yourself now?

  10. First Gen American Says:

    I like that your years left is down to the 8th decimal point.

    That mortgage will be gone in no time. I would just round up payments and put windfalls towards it (like tax refunds, etc). It wasn’t til the very end when we did big chunks of payments and it was still gone in 10 years.

  11. Lindy Mint Says:

    Come the turn of the year we are looking at summer savings too, although only half of our income goes away for the summer. It’s great that you can still focus on your mortgage and investment goals. We usually just try to survive the summer and then start thinking about goals again in September.

  12. DRIPping « Grumpy rumblings of the untenured Says:

    […] #2 recently asked me what it means to undrip. […]

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