Last month (May):
Years left: 4.25
P =$983.37, I =$231.03, Escrow =788.73
This month (June):
Years left: 4
P =$995.17, I =$219.23, Escrow =788.73
One month’s prepayment savings: $7.90
So one of the things I’ve been noticing as we spend down our extra cash stock-pile is how irritating it is to see the balance go down every month instead of up. Part of this decrease is because we’re prepaying the mortgage more than we can afford to on our monthly income alone. Some of that money is coming from savings instead of a paycheck.
Instead of paying an extra 2K each month, we could instead pay a big lump at one point and then not do any more prepayment. We’d see a one time hit to our cash savings, but then they would start growing every month again, at least during the school year. (Of course, our monthly mortgage update would be super impressive one month, and not as impressive each month going forward, though more of each regular payment would still be going to principal because of how amortization works.)
Getting rid of extra money in a big lump all at once instead of in drips and drabs every month means you can enjoy watching a money account growing instead of shrinking.
In the past, this has been what we’ve done when we’ve had more money than we needed. It went straight into the stock market or to the mortgage in one fell swoop and I could just forget about it and go back to managing our money using cash flow instead of factoring in savings. I’ve always liked that, sort of like skimming the cream off the top of our savings account and putting it someplace it will do good stuff while we drink the milk left behind.
But getting rid of money in a big lump all at once is still risky because you can’t stop it in the middle and it’s harder to reverse course. Which is, of course, why we haven’t made a big lump payment to the mortgage and have instead been slowly bleeding out.
It would be nice to get all that excess spending done in one fell swoop (bathroom carpeting…), but as we’ve noted before, figuring out what to buy takes time and effort. So we’ve been dribbling that too. And putting things off. (“What are your plans for the weekend?” “Mow the lawn” “Why not call the guy to set up mowing instead?” “I’d have to talk to him on the phone and I don’t want to.” “Want me to call instead?” “No.” [update: we finally did set up with the lawn person… the xeriscaping people never called back, but we did get a lawn cleanup done and they’ll be mowing our lawn and doing light weeding once a week for $$])
Laura Vanderkam notes that a lot of people could buy a lot of lattes and housecleaning with the amount they spent on a wedding or a fancy engagement ring. But maybe it’s easier to spend a large targeted cash stock-pile in one action rather than to spend it down slowly to zero over a longer period of time. (If only we all had enough money to invest and spend off the dividends!)
And I suppose one could set up a separate savings account for the big lump and have it automatically transfer money to the regular account each month for the planned additional spending. (Heck, one could even buy an annuity for right now.) But eventually that account will run dry. And you have to worry about it shrinking, because the only way to make it grow again is by putting in more money and then you’re in the same situation as if you didn’t have a separate account at all, just with more complications.
When you have a windfall or a bunch of savings, do you prefer to spend it/invest it all at once or to dole it out on a regular basis over a long time period? Why?