June Mortgage update and another wishy-washy post on our uncertain money plans

Last month (May):

Balance: $79,500.45
Years left: 6.333
P =$893.52, I = $320.89, Escrow = 613.58

This month (June):

Balance: $77,928.74
Years left: 6.25
P =$899.71, I = $314.69, Escrow = 613.58

One month’s prepayment savings:  $2.66

I’m getting summer money so we’re still pre-paying the mortgage at our regular rate.  That will probably stop in September or October.  We’ll see.

For the past year or two we’ve been trying to decide how to deal with a 40% drop in income when it comes [DH resigned his TT job], and what to do with any surplus before said drop came.  As of last month we still hadn’t decided.  We kept tantalizing readers with the idea we’d decided, but then I’d run the numbers again and we’d change our minds again.

We’re also not doing the best job of keeping our spending below my regular (sans summer money) income.  And that’s mainly because I’m not convinced that we’re really going to be in a situation in which we need to do that.  I keep wanting to smooth my consumption based on my expected lifetime income, probably because I took far too many macroeconomics classes in school.

These big expenditures are primarily things involving the children– I want them to have educational and cultural opportunities and I want us to have time to do work.  And that can be done on my income alone, but not without making other cuts that we could make, but those cuts tend to add stresses and decrease joy.  And we could make those cuts and we’d adjust and so on (we both certainly grew up with much less), but if we don’t need to, then it seems like a lot of unnecessary stress to no real end.

Before the recent stock market surge, we were doing just fine for retirement.  We now have enough money stocked away in our retirement accounts that any number of early retirement blogs would be demanding that DH quit his job (and me mine, though they might let me keep it for the little lady’s mental health and uh, her group health insurance) if he hadn’t already… although the majority of this wealth is locked away in retirement accounts and untouchable for a few decades.

The point being, if we spend more than we earn even a couple years in a row we’re still doing far better than the majority of the US population.  I should probably thank my ERE father for the training to create this bounty.

So, when I was trying to decide how much extra money we’d have at the end of the summer, and how much we’d have to save for next summer, I thought, well, why just put big lumps away?  Why not play it by ear each month and stop doing the extra saving once you run out of money?  If DH brings in extra income, or you finally get your spending down, then you won’t have to go through all the additional hassle of trying to figure out where to put the extra money each time you have it.

So… previously we said were going to stop prepaying the mortgage, stop contributing to DH’s work retirement funds, stop contributing to my extra 403(b), stop funding our Roths, stop contributing to the 529 plans and so on.

DH’s retirement funds are still going away with his job.  And we’re going to only prepay the mortgage enough to get the check up to 2000/month rather than 2500/month.

But I’m going to let the 529 and the 403(b) keep auto-deducting until we run out of extra money.  After taxes we will make a separate decision about the IRAs.  This new plan is essentially splitting our money across the 529 plans and extra retirement saving while leaving an additional cushion in case of emergencies or other opportunities.

So rather than putting away big lump sums, I’ll let our extra money just sort of dribble away into various tax-preferred savings vehicles. This has the advantage that if the bucket starts getting to empty I can shore up the leak.

If we weren’t doing so well with retirement savings, I’d prefer the lump sum approach because it would force us to cut our spending.  But since we’re doing just fine on that front, it seems silly to not enjoy food or to keep DC1 from going to the ballet with hir aunt etc. just to leave the kids an inheritance they (hopefully) won’t need later.

So… what do you think?  Are you disappointed that I’m not putting big lump sums into the mortgage or retirement?  Is the possibility of spending more than we earn a bad thing?

32 Responses to “June Mortgage update and another wishy-washy post on our uncertain money plans”

  1. NoTrustFund Says:

    No disappointment here. You have so much in retirement already, that doesn’t seem the best place to stash extra right now. And for what you’ve said, it seems highly likely the DH will bring in some extra money, so a wait and see approach seems perfect.

  2. investfourmore Says:

    I think it is smart not to pay down your mortgage.
    1. You see no actual returns until it is completely paid off, you sell or refinance.
    2. That money is no readily available, you have to sell or refinance if you ever need it.
    3. If you retire it will be almost impossible to refinance because your income will be so low banks won’t loan to you.

    I also think it is smart not to out all your money in retirement plans.
    1. Like you said you can’t touch it for years without huge penalties.
    2. You may have an amazing opportunity come up that requires money in liquid form.
    3. Not all Fun and enjoyment can be delayed.

  3. bogart Says:

    No complaints here, I am totally there with you (or worse, but in the same vein).

  4. Rosa Says:

    Sounds good to me. I think you’re at a place where the psychological factors are the most important, so if this doens’t make either of you quake with dread, you’re fine. I like the flexibility, too.

    I’ve been not working for a year and a half now and my partner is remarkably relaxed about money at the moment. Last time I didn’t work we’d just had a baby and I’d almost died, and I think that terror bled over into his feelings about money. This time he was most worried before I quit and has gotten less worried the more time goes by without us being broke. We’re having a bunch of not-unexpected-but-not-expected-all-at-once expenses this month (new computer, gutter repair, next step of kitchen remodel) and he’s not freaking out at all.

    • nicoleandmaggie Says:

      I’m sort of zen right now about our a/c limping along. Hopefully they’ll be able to come out and fix it this week, or I may get less zen. Last month was a little insane with expenses (mostly kid-related, as detailed in the post).

      Glad you didn’t die!

      • Rosa Says:

        me too!

        I know it’s dumb, but the voluntary kid-related stuff somehow don’t feel as expensive as the exact same dollar amount spent on basic home upkeep. I would be a lot crankier about replacing A/C than paying for enrichment activities.

      • nicoleandmaggie Says:

        The guy added some refrigerant and said he’d be contacting us with an estimate of how much it will cost to replace the coil that is leaking.

        And definitely on the kid stuff.

  5. oilandgarlic Says:

    We’re also spending more than we earn (some months). it doesn’t seem to faze my husband but I have panic attacks. I’m just telling myself this is temporary..or that we’ll make more consistently very soon.

    The problem is that we do have savings and my husband double dips — i.e. he sees that account as both regular savings and retirement savings and doesn’t feel like we need to create sub-accounts.

    • nicoleandmaggie Says:

      Hm. Can the retirement savings go into a different account? I guess he doesn’t think so.

      • oilandgarlic Says:

        I’ve mentioned the sub-account idea,,but he resisted, saying he knows it’s different but all his actions/words indicate otherwise! Now I’m thinking of getting him to open a separate Roth account.

      • nicoleandmaggie Says:

        Just given the tax advantages to a Roth (and in a true emergency, the principal can still be withdrawn), that would make logical sense. (And emotional sense too! But not just that.)

  6. Laura Vanderkam (@lvanderkam) Says:

    Why are you pre-paying the mortgage? Do the numbers come out that that’s the best use of some chunk of extra cash? Rates are just so low right now, and as long as the interest deduction is still around…
    On the income smoothing, though — totally with you. If your retirement account is well funded, you have emergency savings and you have health insurance, than your money is there to be used.

    • nicoleandmaggie Says:

      Our rate is not that low (4.75%), but it isn’t high enough that it makes sense to refinance either (under most scenarios I have run). If you click the “mortgage” tag, you can read all about those decisions. Essentially pre-paying the mortgage was diversifying risk, and it’s a way to inexpensively (one-time $250 cost) lower monthly expenses should we need to through a recast.

      What is happening from this point forward is that we’re no longer prepaying the mortgage much except the amount it takes for my ocd-must-write-round-number-check thing (so a little over $100/month rather than the little over $600 we’d been pre-paying).

  7. Comradde PhysioProffe Says:

    I keep wanting to smooth my consumption based on my expected lifetime income, probably because I took far too many macroeconomics classes in school.

    If you were really serious about the expectation that your income will increase steadily over time, then wouldn’t you have all along been doing the opposite of pre-paying your mortgage, and rather using that money to increase your consumption of non-housing goods and services in the present?

    • nicoleandmaggie Says:

      I don’t think I ever said that my income would increase steadily over time– if anything my assumption would have been that at most I’d receive cost of living increases (damned state university lack of COL raises). HOWEVER, right *NOW* we just got a 40% drop in income because my husband has gone from making something to making nothing. One could assume that he will go back to making something again.

  8. Mutant Supermodel Says:

    I really don’t think you guys have much of a chance of screwing this up regardless what you choose unless you have identity crises and go batshit crazy.

  9. Jacq Says:

    My threshold is that if my taxable accounts drop below $X, I will diligently make the effort to go back to work as quickly as possible (or within a year or so.) But I won’t drop what I spend unless the dividends drop. I have a bottom-line threshold there too where a reassessment would be triggered (optimal spending / pain point). Once I made up those “rules”, I stopped thinking about what I could or should do or mapping out different scenarios since it’s all kind of a crapshoot anyway.
    It doesn’t sound to me like you’re spending *beyond* your means if you’re counting mortgage overpayments and retirement savings as “spending”? I think some bloggers count that as savings…

    • nicoleandmaggie Says:

      We’re still trying to figure out new rules. A lot of things have changed since we last had rules! Like having kids…

      We’re spending equivalent to or more than I earn with my regular salary… not including mortgage payments (and including the mandatory retirement savings, but not other savings). But we still have a big hunk of cash from DH’s salary this past year and me getting summer salary this year which is providing a buffer.

  10. Bardiac Says:

    I think approaching things with flexibility makes a lot of sense. If you find you don’t have extra income one month, then don’t add to the mortgage (or Roth), and so on. But, I’d be hesitant to think that just because the market is looking great right this moment it will look great in five or ten years. That’s not to say I’d worry, since you seem to have a real handle on diversification, but I wouldn’t stop the Roths if I could take them (or the 403b, whatever). I might put into retirement rather than extra mortgage when there’s extra money.

    But let’s face it, you’re probably better off than 90% of US folks, and 99% of the rest of the world.

    • nicoleandmaggie Says:

      Well, given that I’m at a state school, I could contribute 12% mandatory (that’s 6% plus their 6% match), then another 16.5 or whatever the 403(b) limit is, then another 16.5 or whatever the 457 limit is, then another 10K to the IRAs. I don’t know about you, but I don’t have that kind of money (or at least, I like buying food, and the kids have daycare and private school etc.). Right now we’re dropping down to the 12% mandatory and we’ll be dribbling in every month to the 403(b) until we run out of money.

      • Bardiac Says:

        That sounds great! I’m at a public school which puts in about 3.5%, and then we’re required to put in the rest to make it 6% (if I recall). And no, I get nowhere near the upper limit, but I try to consistently add to the other retirement options so that at least there’s something there. No telling when my state will decide it doesn’t really owe us schmucks anything.

      • nicoleandmaggie Says:

        Retirement is where the bulk of DH’s income has been going (when he had income), so I don’t think we’re in any danger of catfood at this point, at least so long as I keep putting in 10-20% of my income.

        Everything is defined contribution, so they can’t take it away from me. I do worry about my mom though, since she’s on a defined benefit state system.

  11. cashrebel Says:

    I don’t think anyone ever kicked themselves later for putting too much money into tax advantaged accounts like 529s. Sure it’d be nice to pay off the mortgage, but having a little extra in savings is also a noble goal.

  12. Leigh Says:

    It makes me feel slightly better to know that other people are also super wishy washy on money decisions. I’m definitely with you on not leaving the kids an inheritance that they (hopefully) won’t need later.

    I’m being conscious of my spending now, but I refuse to not spend money on things I don’t want, just not on things I don’t value. I have a feeling that I will either quit working in my early thirties or I’ll donate a lot more money and put the (future) kids in fancy private school if I keep working. Since if you already have more than enough saved to quit work, but you like work, why not? One of my ideas is to set up a scholarship at my alma mater for female CS students if/when I have extra cash flow in my thirties and beyond.

    • nicoleandmaggie Says:

      I don’t have more than enough saved to quit work and to live the lifestyle to which we have become accustomed! But if we pulled our kids out of school, sold the house, and started homesteading in DH’s rural home town, we’d be ok except for health insurance. Oh, and going insane.

  13. Your Daily Finance Says:

    Great job on paying the mortgage down but if there is going to be a decrease in income I would say save some of money so you have it if needed or cut back on those things that you are spending on. Easier said then done but paying on the mortgage is not going to change the next few months. If you want to maintain your current lifestyle on less income I wouldn’t add it to mortgage payments right now.

    • nicoleandmaggie Says:

      Yeah, we’re going to just prepay enough to satisfy my OCD tendency of needing to write a check for a round number (so ~100-200 prepayment). Though we could always recast and gain that cashflow back.

  14. Linda Says:

    Since re-financing my mortgage a few months ago, I’m not pre-paying. The rate is low and simply paying the exact amount billed will get me to my goal of having it paid off before my SS retirement age of 67. In fact, at this rate it will be paid off by the time I’m 61. :-) I don’t have that OCD issue with rounding the amount since I signed up for auto-pay and I never have to write it out.

    Personally, I feel like I have to prepare for reduced income, too. I’m getting to the end of my rope with my job and facing the possibility of having to look for a new one. Some days everything seems fine and I’m happy, but other days I feel totally wrung out by it.

    • nicoleandmaggie Says:

      I suppose we could start autopayment now, but Wells Fargo messes up just enough that I’m not sure I want to do that. Plus if DH starts making money, we’ll be wanting to pre-pay. But that definitely would get rid of the OCD problem. Still, we can afford $100 or so a month, especially with the way our escrow seems to change each year, we need some wiggle room anyway.

      That sucks about your job. Having money saved definitely helps keep options open, and can help keep you from feeling trapped.


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