May Mortgage Update: And I might get a month of summer salary(!)

This month (May):
Balance:$24,703.22
Years left: 1.833333333
P =$1,112.22, I =$102.19, Escrow =$809.48

Last month (April):
Balance:$25,815.43
Years left: 1.9166666666666666667
P =$1,107.83, I =$106.57, Escrow =$788.73

One month’s prepayment savings: $0

I’m not holding my breath yet, but since I’m too lazy to dig up before/after pictures of our bathroom and the whole fixing the house up for potential renters is seriously depressing me (as is house hunting for a rental), I thought it would be nice to do a little financial planning based on potential new information.

So, last week I was informed that this service thing that I’ve been doing has a little extra money and that little extra money might translate into a month of summer salary.  Count me in for summer salary!

With me going to half pay next year and our housing expenses potentially going way up we’ve cut back on our savings in order to afford housing (and to keep us from having to worry about what happens if nobody rents our house… also all those additional expenses that come with a temporary move).

Here are the assumptions we made when we figured out what we could afford for housing

1.  stop contributing to my retirement next year other than the required 6% plus match (not counting the changes I made to max out the 2015 403(b)), and 2. stop contributing to 529s, 3. get someone to cat-sit for the cost of utilities rather than rent our house, 4. don’t cut back our frivolous spending, and 5.  stop pre-paying the mortgage

So what should we put that one month summer salary towards?  Well, I assume that I will be able to fill the 2016 403(b) in another year when I go back to regular salary, so not that.  I will still have plenty of room in my 457, so that is probably what should come next.  It is tempting to just continue to fund the 529s because they happily auto-deduct every month, but with DH having crappy retirement options, it makes more sense to max out mine to make up for what he’s not contributing (since we’re no longer IRA eligible).  Retirement is more important than college savings, especially given that DC1 has 80K in hir 529 as of this writing.  (DC2 has 20K.)  If we do rent out our house, then finishing out the 457 for the year will be the next priority, followed by restarting 529 savings.  I guess these priorities are the same if we rent out our place or pay less for rent but don’t get that summer salary!

I don’t think we should spend more than 5K/mo for housing.  If we were going to do that, we should have grabbed that perfect furnished 6K/mo house several months ago.  Yes, I know that’s a sunk cost but loss aversion is real, as is that bias you have to make your current actions cause your previous actions to have been the optimal actions.  But in reality, spending 60K/year on housing already makes me feel a little ill– 72K is just completely implausible, especially when we could get an imperfect place for more like 36-42K/year.  I do hope we find a closer to perfect place in our price range.  But we’ll see what happens a little later this summer.

What are your priorities when you get an unexpected temporary income boost?

April Mortgage Payment: Posted payment half a month early

Last month (March):
Balance:$26,923.26
Years left: 2
P =$1,103.46, I =$110.94, Escrow =$788.73

This month (April):
Balance:$25,815.43
Years left: 1.9166666666666666667
P =$1,107.83, I =$106.57, Escrow =$788.73

One month’s prepayment savings: $0

We sent off the mortgage payment for March before February ended.  By the beginning of the second week of March it still hadn’t posted.  So we called up and were like, what happens?  They said to wait a few days and if it doesn’t post, then call up and make a payment over the phone.  No late fee until 3/15.

So we did.  On 3/11, it still hadn’t posted, so we paid via phone.

On 3/13, we checked our account and not only had our 3/11 phone payment posted, so had one on 3/9!

Which means that we paid our April mortgage payment early.  Luckily it didn’t post as a pre-payment after all that deciding to stop prepaying!

(In other news, it looks like escrow is going up $20/month starting with our May payment.  Fun times.  Fun times.  Not really.)

What do you do when a payment doesn’t post after you’ve sent it?  Do you avoid late fees or being double-billed?

March Mortgage update: And why we’ve stopped prepaying

Last month (February):
Balance:$28,026.73
Years left: 2.083333333333
P =$1,091.24, I =$123.16, Escrow =$788.73

This month (March):
Balance:$26,923.26
Years left: 2
P =$1,103.46, I =$110.94, Escrow =$788.73

One month’s prepayment savings: $0

After a lot of time on Craigslist and Zillow looking at apartments and houses in Paradise, and quizzing people on utilities costs, and so on, and then sitting down and doing a bare-bones BOE about income vs. outflow, I started getting titchy.

If we 1.  stop contributing to my retirement next year other than the required 6% plus match (not counting the changes I made last month to max out the 2015 403(b)), and 2. stop contributing to 529s, 3. get someone to cat-sit for the cost of utilities rather than rent our house and 4. don’t cut back our frivolous spending, then, given only our take-home pay, we can afford to spend 2K/month on housing from our cashflow.

Of course, we cannot get a 2br/1ba apartment even in an awful part of paradise for 2K/month.  And we have our heart set on someplace in walking distance to school and public transportation and a library (that allows pets and has w/d and a dishwasher).

We planned for that though.  As of this writing, we have 72K just sitting in a savings account doing nothing waiting to be turned into goods and services.  Some of that is going to need to go to get our house painted [Update:  This has happened– we’re down $4500, but the bathroom is no longer shredded].  Some of that is going to go towards moving expenses.  Some of that will go towards travel costs to find housing, and deposits and so on.  But some of that is earmarked to go towards rent.  (And some of it will go towards weekend trips to places a day’s drive away from Paradise that I’m longing to show my family!  Camping!  Bed and Breakfasts!  The beauties of nature!)

We’re aiming for rent between 3K/month and 5K/month, depending on what we end up with.  We won’t know what we end up with until closer to the time we need to go.  The market seems to be 2-8 weeks before you move in.  And some of those 3K/month apartment reviews are really scary (maintenance badly needed but never coming, paper-thin walls and floors, etc.).  Many of them aren’t, but we won’t know what’s available when we need it– right now is a slower part of the year than summer and we only have a limited window for shopping.  Wiggle room is nice to have.

And even at 5K/month, we’ll still have wiggle room given our savings.

So why stop the mortgage pre-payment (thus freeing up 6K total that we wouldn’t have had had we continued those last three paid months)?  Because our scenario above assumed that other than the 2015 403(b), we wouldn’t be contributing to any tax-advantaged accounts.  And tax-advantaged accounts are a bigger priority.

Previously when we started prepaying without maxing out our retirement savings, that was in order to manage risk.  Pre-paying the mortgage meant that we could lower our monthly fixed payments in an emergency through recasting or get some of that money back when needed by selling the house while we were still young.  Now, with the mortgage balance so low, we don’t really need to get it down much lower in order to manager risk– we could re-amortize at any time and our monthly payment wouldn’t be much more than escrow.  It makes more sense to direct our money towards use-it-or-lose it savings.

So now these tax-advantaged accounts are a greater priority than mortgage pre-payment (with which we could save at most, 2K in total interest over the remaining life of the loan, at this point).  We can pre-pay the mortgage any time, but 457s are use it or lose it.  We might be IRA eligible next year, and that’s use it or lose it.  529s aren’t use it or lose it, but contributing early helps more than contributing later.  And there’s charitable donations… we’re not paying school for DC1 next year but we’re thinking of offering a scholarship to another student while we’re gone.  We’re not sure yet.

So that’s why we’re not pre-paying the mortgage.  Because we don’t want to cut our frivolous spending because we’re really not Mustachian (though we’re also not Vanderkamdian).  Because tax-advantaged retirement savings is a bigger priority than mortgage prepayment right now.  Because we want to enjoy our year in paradise without worrying too much about money, even the unexpected expenses.  Because we think 6K more in cash savings will make me feel a little less anxious.

(This is actually the first time we haven’t done *any* prepayment… given increases in property taxes, the bill is just a little bit over 2000, so I can’t round up to 2000 and rounding up to the next 500 is just too much.  I feel really weird writing a check that isn’t a round number.  Makes me wish I’d prepaid the escrow difference when I had a chance to keep the monthly payment under 2K.)

February Mortgage Update: Moving Money Around

Last month (January):
Balance:$31,114.84
Years left: 2.25
P =$1,079.06, I =$135.34, Escrow =$788.73

This month (February):
Balance:$28,026.73
Years left: 2.083333333333
P =$1,091.24, I =$123.16, Escrow =$788.73

One month’s prepayment savings: $7.90

Still pre-paying the mortgage.  But I did make one other big change right before the New Year.

Usually I do all my retirement stuff from September to September, ignoring the tax year.  But 2015 (and 2016) we’re going to be paying half of our taxes in a state with super high income tax.  So it makes sense to get our taxable income down a bit.  So I’m switching to 100% traditional 403b instead of half Roth.  On top of that, the 403b/457 amounts that you can save went up by $500, so I’m increasing the amount saved.

I was thinking about how on half my salary next year, we may [will] not be able to max out retirement *and* pay for health insurance and benefits simply because my gross pay once taxes are taken out may not be enough to cover all of that.  (DH’s retirement options suck.  Though our income might be down enough next year to be able to do a Roth again, something to keep in mind.)  So here we are making extra money now that we don’t need right now, but next academic year we may not be making enough to bring home any take-home pay from my paycheck if we keep things as they are now.

We already have a lot of cash just sitting in savings waiting to be turned into rent and deposits and daycare payments and state sales tax payments and all those things that we can’t afford on DH’s salary alone next year.  It doesn’t make any sense to just keep stock-piling in there when we can pile extra money into retirement savings *this* (school) year and keep money in the paycheck *next* (school) year.

So that’s what I’m doing.  I sent in the form to completely max out my 2015 403(b) from January to May (18K/5 = 3.6K/mo for the rest of the school year).  I still haven’t sent in my 457 plan increase because I’m not sure we’re going to be able to afford to do both plans for 2015– it’s going to depend on housing and schooling options.  If it turns out we *can* afford to keep adding to the 457 for 2015, then we should still be able to pay just it (and health insurance etc.) and still have at least some take-home pay left over.

So… from Jan [Feb paycheck] to May we will be:  Prepaying the mortgage, maxing out my 403b in the traditional option, saving to (but not maxing out) the 457 (half Roth/half traditional), and putting any extra $ in cash.  In May we will stop any substantive mortgage prepayment.  In September we will re-evaluate the 457 situation and decide whether or not we can afford to save to that option or not while we’re living in paradise.

I had been planning on having >80K in savings before we moved to Paradise (because we are going to be spending more than we earn this next school year), but now it is going to be less than that.  However, I will be getting half-salary (yay!) and (as of this change) won’t be making any 403b contributions during that time period, so our monthly take-home pay will be higher next year than I had been planning on when I set that savings target.

So, go me for shifting things around some.  I hope I’m making the right decisions and doing the right things.  I think we’ll be getting some pretty significant tax savings for the year from putting all this money in a traditional 403(b).  And I think we’ll still be in pretty good shape, so long as DH doesn’t lose his job.  (And if he does lose his job, Paradise is probably the best place for him to be to find a new one right away.)

[UPDATE:  I may be doing completely the wrong thing– I had assumed we would be counted as residents because of someone’s previous experience, but it looks like there are significant differences between that experience and this one (namely that I will not be getting any Paradise income during this time frame).  If I’m only temporary, then I should be funneling all our money into the ROTH choice to take advantage of lower tax rates.  If I’m a part-year resident, then I should not be maxing out my retirement now, but trying to make my take-home pay as low as possible when we’re in Paradise.  I think we need to talk to an actual tax professional about this stuff.]

UPDATE 2:  Talked to the Paradise tax board.  They are very confident that we will be nonresidents.  “You are not planning on a permanent move, it’s temporary.”  Which means a lot of the choices I’ve made (like timing donations, changing the IRA), were not great choices.  But hey, maybe one of my grants will hit and I’ll get summer salary.  I wonder if I should change the 403b back…

UPDATE 3:  Talked to someone in almost my exact situation from two years ago, and ze didn’t have to pay Paradise state income tax either.

What are your 403b/401K/457/IRA plans for the year?

January Mortgage Update: Getting ready to spend a year in paradise

Last month (December):
Balance:$34,190.77
Years left: 2.5
P =$1,066.94, I =$147.47, Escrow =$788.73

This month (January):
Balance:$31,114.84
Years left: 2.25
P =$1,079.06, I =$135.34, Escrow =$788.73

One month’s prepayment savings: $7.91

If we kept up with our current rate of pre-payment, we would be done with the mortgage completely in less than a year.

We aren’t going to do that.

Why not?  Because we need the money!  Why do we need the money?  Because I’m only getting half-pay and we’re moving someplace for the year where daycare and housing are both twice as expensive.  (It’s all official!)  And taxes are insane because they provide social services and things.  Crazy, I know!

So we will need that extra 2K/month to pay for goods and services instead of pre-paying our mortgage.

It seems like there’s always something going on with money–getting ready for DH to quit his job, adjusting to DH having a job, then adjusting to a year at half pay with bigger expenses.  Life is never really in steady-state.

There’s so much to worry about.  Housing, schooling, daycare.  Months worth of money posts, eh?

We still don’t know what to do about the house.  I’m strongly tempted just to get a trustworthy grad student to kitten-sit in exchange for free rent and taking care of the house and utilities (we’ll be bringing Little Kitty with us, but we can’t take 3 cats, so either the cat formerly known as mean kitty will have to go with a relative while we take nice kitty who pees with us, or we’ll leave both kittens with a sitter.)

DH thinks it will still be worthwhile to try to find someone to rent at market price, even though that means we’ll have to fix the bathroom, repaint, and keep things clean constantly (also probably pay for storage for our furniture).  I think we’ll end up probably doing a hybrid– posting to sabbatical and new faculty sites and then getting a house-sitter if nobody bites.  Possibly striking a deal with new faculty if they are amenable.  We’ll see.  We may not worry about this until March.  I don’t know.

The most we would get for renting the house would be around 20K.  DH thinks that’s a lot, but given the amount of work we have to have done first and the annoyingness of keeping lawn and house sparkling (not to mention housecleaning expenses), I’m not so sure.  But maybe if we avoid Craigslist and just stick to a few exclusive sites it won’t be so bad.  Maybe we’ll get lucky.

I hope this all works out!  But if it doesn’t, I don’t want to be stressed.  Based on my projected savings calculations and the savings we did when DH was unemployed that we never put away (because we knew this was going to be a possibility, though we *thought* it would happen last year), we should have about 85K in our emergency/to-spend fund by May.  Hopefully that will be enough to keep us from stressing out if we don’t find tenants along with the paycut and the additional required expenses.  Right now I’m hoping to continue contributing to retirement and the 529s (although retirement literally would take up all of my take-home pay, so I won’t be able to completely both max it out and do a DDA and pay for health insurance), but that’s another area we can loosen if we need to.

I’m both excited and scared.  But I’m not that worried about money.  Still, we’re still going to have to stop prepaying the mortgage sometime this summer.

(Technically if I had another 72K, or even another 48K, I would be less worried about money.  A lot of our problems would be solved if we could just afford 6K/month to rent out a furnished house from a professor on sabbatical.  Our friends say there’s going to be a market correction, but I’m not holding my breath that it will happen before we get to or even before we leave paradise.  Bubbles can take a while to pop.)

December Mortgage Update: And money and school zones

Last month (November):
Balance:$37,254.58
Years left: 2.75
P =$1,054.86, I =$159.55, Escrow =$788.73

This month (December):
Balance:$34,190.77
Years left: 2.5
P =$1,066.94, I =$147.47, Escrow =$788.73

One month’s prepayment savings: $7.90

DC1 currently goes to private school.  Ze goes to private school because ze needed to start K early and the public schools wouldn’t talk to us about that.

The public schools have now changed their tune.  They have a district webpage on how to start K early, how to skip individual classes, and how to skip grades.  They note that enough people have taken these options that they now offer 7th grade algebra and 8th grade geometry at the middle schools.

At the same time, while we’ve been living in this transition neighborhood (the last frontier not changed into student housing, though I’m fairly sure there’s a houseful on our block), our school zones have changed twice.  And each time they’ve gotten worse.  We are now in the worst elementary school zone, and the “athletic” middle school.  Note that neither of these schools are the closest to our house… no, we’re the “rich” neighborhood that gets moved every 5 years to even out the “poor” districts, instead of the actually rich neighborhoods that never get touched.

If DC2 doesn’t need acceleration, then we have a chance at lotterying into a bilingual program at one of the better elementary schools.  That still wouldn’t have been enough for DC1 (and hasn’t been enough acceleration for some of our collegues’ kids, though it did work out until said kids became fluent in Spanish, at which point the lessons became much too slow).  Of course, DC2 has been, if anything, hitting milestones earlier.  Hir birthdate means that maybe only one year of acceleration would be needed instead of two (ze just makes rather than misses a cutoff), but that’s still one year too many to be eligible for the bilingual program even if ze did get in.

So that leaves us with choices.  1.  We could move before DC2 needs to start kindergarten, which could happen sooner than we think.  If we’re going to do this, it might make sense to sell the house before sabbatical/unpaid leave so we don’t have to deal with renters, just storage.  (Untold moving costs, though we’d probably buy a smaller house if we bought again, but I’d probably also get a longer commute which would suck.)  2.  We could send DC2 to the same private school that DC1 goes to ($9K/year).  3.  We could not try to accelerate and see what happens with the bilingual program lottery.  (Free, except in potential future therapy bills)  4.  We could accelerate as fast as possible through the elementary school and just cope and deal. (Free, except in time spent in conferences with the school.)  We could also rent an apartment in a better school zone, but the quality differential isn’t enough for that to be a feasible option like it might be in a large city– none of the elementary schools are all that great.

And who knows, the school zones might change again.

I’m guessing we’ll probably just stick with the same private school if it’s still in business.  Who knows.

Why is this all so hard?

November Mortgage Update: And hypotheticals

Last month (October):
Balance:$40,306.31
Years left: 3
P =$1,042.82, I =$171.58, Escrow =$788.73

This month (November):
Balance:$37,254.58
Years left: 2.75
P =$1,054.86, I =$159.55, Escrow =$788.73

One month’s prepayment savings: $7.90

Man, it sure is nice to be getting paid again.  Beautiful beautiful paycheck.  Bank account numbers are going up instead of down again.  :)

I won’t find out whether or not I’m getting a half-paid sabbatical next year for several months.  However, I may take the year off unpaid *anyway*.  We have an awfully large savings buffer and DH’s company swears they have enough money to stay in business for the next two years even if they earn no more money during that time (and they’ve got grants out and products being made, so hopefully they’ll get more money).  And DH is one of their valued employees.  And he should be able to find new employment even if he loses his job depending on where we do the sabbatical.

There’s a lot of questions about where to go too, but I’ll defer that for a later post.  All of the places, however, have a higher cost of living than where we are right now (which isn’t difficult!)  Think double the cost of daycare, 1.5 to 2x the cost of housing for something much less nice than our current mortgage (even without the prepayment).

The hypotheticals I want to address right now involve the house.

We currently have 3 cats, one of whom still occasionally pees on a comforter or pile of laundry if we leave it out when she’s out and about.

Our house is also a superficial mess.  Yes, the carpet in the kids’ bathroom is gone and the vertical blinds that were in the worst shape have been replaced, but that’s only the tip of the home-repair ice berg.  The kittens literally shredded the master bathroom when they were still kittens.  It will need to have the wallpaper completely removed, patching done, and paint.  The entire house needs to be painted– it’s grungy and chipping in places and occasionally sports two year old art.  There’s a sizable black ink stain in the carpet in DC1’s room that won’t go away with steam cleaning (it, in fact, just gets bigger every time we try).  The deck needs painting.  The screens need to be replaced or patched.  The guest toilet is getting rusty.  And on and on and on.

We are not allowed to rent to students by HOA rules.  (Though we’re fairly sure there’s a group of students living down the street from us, but the HOA board is currently weak.  When strong it has brought lawsuits to such houses and won against them.)

Our house, in theory, if it were in good shape, would rent unfurnished for $2000/mo.  Though one year rentals may drop as low as say, $1600/mo.  (Note, our required mortgage is $2003/mo, though as you can see the escrow and interest are under $1000/mo.)  Storage for our furniture would cost something like $300-500/mo, give or take.

In bad shape, any house in town will rent for $1200/mo, possibly even $1500/mo.  Our house would be a bargain at that price, even with stained carpet.  Though we’d still have to repaint, I think.

We’re not sure if anyplace we go will allow 3 cats.  Two, yes.  We might be able to leave one of the cats at a relative’s place for the year (though the two black kittens are very attached to each other, and we’d be breaking that attachment– it is unlikely that a relative would take the incontinent kitten).

Our utilities range from $50/mo to $800/mo depending on time of year.  Lawn mowing costs $35/mo, plus weeding $50/mo, but only during the growing season.  Our lawn has to meet a certain standard or we get nasty letters from the HOA  threatening to take our house.

Obviously we’ll stop mortgage pre-payment for next year if I go on leave.

So our choices:

1.  Fix everything up, try to get market rate for the house.

2.  Fix some stuff up (painting, but patch instead of replace screens, put a rug over the ink spot etc.), put the house on the market for cheap.  Potentially offer a discount for renting it furnished rather than unfurnished.

3.  Hire someone to house sit.  Here we could either ask that they pay utilities and take care of the lawn or we could pay utilities and pay them to take care of the house and the two kittens.  If we pay them, then we could get the house fixed up while we’re gone rather than this year when we’re both living here and busy.  With infinite money we could even have the kitchen redone (except we don’t have infinite money).

So I don’t know.  We have quite a bit of extra money in savings right now earmarked for home improvement (we’ve only spent ~$3K so far), though some of that may end up going for rent next year depending on what we end up doing.  If we had a lot more money we’d pick option #3 no contest.  But while we could afford that option (without the kitchen remodel), it would potentially drain our non-retirement/non-529 savings (when combined with our living expenses for next year).  

What are your thoughts on the options?  What should we be considering to make the decision?

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