I’m tired, but I am what they would call happy tired. I put a second coat on 1 of the walls in my living room. In Amy’s own words, I find happiness in doing some home renovations on my own. Yes, towards the end of our reading today she talks about what makes a tightwad happy.
Let’s get started.
PAGE 252 – SAVING MONEY ON YOUR MORTGAGE
Amy notes that they had a mortgage payment of $758 per month. They had lived in their home for 19 months when they sat down and calculated that they had made total payments of $14,402 and of that amount only $1,804 went to principal. But, they knew this was going to be the case.
Many times the only mortgage that individuals can afford is the 30 year mortgage. House buying is hard and usually the 30 year mortgage makes it easier to afford the purchase of a home. Amy noted that you should get a mortgage that doesn’t penalize you for pre-paying.
Over the past 10 years with the onset of the subprime mortgage market, people were able to get mortgages a lot easier. Unfortunately, many could not really afford even these mortgages and when the rates adjusted, they had to let the bank foreclose. Even so there are mortgages out there that don’t require the usual 20% down payment so you do have more mortgage options than they had 20 years ago.
Here is a direct quote from Amy: “One of the common misconceptions about the mortgage is that you shouldn’t pay off your mortgage because you need the tax write-off. However, if you are in the 15% tax bracket you only save about $1.00 on income tax for every $6.66 you lost in interest.”
Amy uses the example of a $75,000 mortgage financed over 30 years at the rate of 10% (Remember this is 1992). The monthly mortgage payment is $658.18 a month and if the family rounded their payment up to $700.00 a month, the 30 year mortgage would get paid off in 22 1/2 years and would save $47,944.32 in interest.
If they committed to paying off the mortgage in 15 years they would need to pay $147.77 more per month and would save $91,872.63 on interest.
This is an example of how a little extra money (such as rounding up your mortgage payment) can cut the life of a mortgage and save a lot of money on interest. If you are curious there are many online mortgage calculators that you can play with to see what a few more dollars a month would do to paying off your mortgage early. It is an eye opener.
PAGE 253 – SIX MISTAKES WE MADE
Even tightwads make mistakes.
1. Amy and her husband put their savings into a mutual fund account. Because of a lack of attention and knowledge, namely buying and selling their shares at the wrong time, they ended up losing $1,500.
2. They had their “nest egg” diversified in long term CDs and half a dozen funds. On the advice of a broker they bought into a fund that was tied to the stock market. Within 60 days the market crashed (Oct. 1988). The fund did not recover so they liquidated it. This cost them $800.
3. They bought two new vehicles and negotiated 20% off the price. They read a Reader’s Digest article after the fact that stated you could easily negotiate 25% off the price of a new car. This mistake cost them $1,500.
4. They bought a new set of bunk beds for their children after shopping for a second hand set for months. Within a matter of months the new beds were trashed to the condition of most of the used ones. This mistake cost them $200.
5. When they placed an offer on a house, they hired a building inspector. The inspector found problems that they should have seen – such as one part of the house had no foundation. After that, they inspected the properties themselves before hiring an inspector. This mistake cost them $275.
6. Before they were married they had a combined 20 years in the work force and had assets only valued at $1,500 between the two of them. They will never know how much this mistake cost them.
PAGE 254 – MILK JUG MAGIC
Milk jugs can be recycled or they can be made into some other useful item. This benefits the environment because an object fabricated from a milk jug replaces another object that would be otherwise manufactured.
1. Cut off the top to make a container to hold children’s toys such as Legos.
2. Punch holes in the bottom to make an irrigation jug. Set into the ground near plants to be watered.
3. Cut off the bottom at an angle and it becomes a pooper scooper. Or in my case a scooper I keep in my bin of bird seed.
4. Cut the top and handle off to make a toilet brush holder.
5. Cut off the bottom to make miniature greenhouses. Remove the cap during the day. Or use to cover plants when frost threatens.
6. Fill with water and put in the toilet tank for a water saver. Or fill with water and put in the freezer to fill the empty spaces (and improves the energy efficiency.
7. Cut large holes in the sides to make nonaesthetic but functional bird feeders.
PAGE 256 – A COMMENT AND A QUESTION
COMMENT: A Reader wrote to Amy to say that her husband is very mechanical and can do repairs along with making furniture and fixing lots of things. She in turn has the knowledge of gardening, sewing and creative cooking, organization and cleaning. They both help each other out by having specific gifts that benefit both of them. This reader said “Teamwork yields some good ideas and saves us money. We can do about anything we need to.”
Amy agreed that this is why she and her husband are good at saving money because their talents complement each other.
QUESTION: A reader wrote in “How do you get your own house cheaply if you are financially responsible, but don’t have a big credit history? We’ve promptly paid thousands in student loans but have been told these don’t count. We pay cash, and make our money go much farther than the general public does, but from what we hear banks would rather lend money to people who live beyond their means.”
A. Several methods exist to obtain housing cheaper, such as a state subsidized loan for low-income families (perhaps a Federal Loan such as Rural Development), or buying a two family house and renting half.
B. The second part of her question deals with establishing credit which can be hard for tightwads since they pay cash for everything. Here are 3 basic strategies for establishing credit from someone she consulted with:
1. Get a co-signer on a loan to help establish credit. This could be either family or friends. I strongly and I mean strongly disagree with this as I have seen what happens when a person defaults on a loan and then the lender goes after the co-signer. It is not a good situation and breaks friendships and causes strife in a family. The only time I would say that this would be okay would be if a parent co-signs on a student loan knowing that they are willing to pay the loan anyway.
2. Get a secured credit card. Secured means that you have a deposit equal to the credit you want. I’m not sure if they still have these or not. I disagree and say that you should just get a credit card and use it, pay it off at the end of the month or to establish the fact that you can make payments pay it off over 3 months. Even if you pay a little interest, you are showing that you can make payments on time and pay the debt off. If you are a tightwad and are always careful with your money, you won’t be tempted to make unnecessary charges.
When our oldest son was a junior in college we had him apply for a credit card. The credit limit was $500. We told him to charge all of his normal expenses on the card and to pay it off each month. Then we told him to go ahead and carry the balance for a month or two and the pay it off. Now, we trusted our son as he is very financially responsible. He did this and was able to establish credit. It was the best thing we could have ever done for him. Last year he and his wife bought their first home and I know that they were able to do so because they have a great credit history and FICO score. It all started with that credit card in college that got him on the way to a great credit history.
3. Borrow money from a bank and put it into a secured savings account in the same bank. Pay back the loan with other cash. This costs you interest, but you also earn some interest on the savings account.
If you are a saver, then put away those large sums into a bank account. Those funds are part of your assets that bank loan officers look at when you are applying for a loan. If you have plenty of money in the bank, it will impress bank loan officers. Also if you maintain that balance in the bank and keep it increasing, that is even better. Lenders look at bank balances over a period of time to see what type of spender and saver you are.
Here are my ideas for establishing credit. Don’t pay cash for anything while you are establishing credit. Use a check, debit card or credit card to track your spending and payments. Pay your bills not only on time, but a little before they are due. A late payment can screw up your FICO score. You may have to pay interest on credit cards for a short period of time while you are establishing credit, but look at this as a cost of establishing credit. Also build that savings account.
If you are renting, be a great renter. Keep the property inside and outside clean and neat so that when you leave, you will get your deposit back. Always pay your rent on time. Your landlord will be asked to give a reference when you go to get a loan from the bank to buy a house.
Also, check your credit report often to make sure that there aren’t any mistakes on it. It’s easy to deal with mistakes on your credit report that have just been made versus ones that have been on the credit report for a long time.
PAGE 258 – BOOK REVIEW
Amy reviews the book “More with Less Cookbook” that I have profiled in my blog here. Amy likes the book as it does have simple recipes and shows you how to tailor recipes to your own pantry and ways to use up leftovers.
This book also has many recipes that contain white sugar, white flour and red meat. However the message is not abstinence but rather a strong suggestion that we attempt to limit these items and substitute more dried beans, whole grains and fresh or home preserved fruits and vegetables.
PAGE 259 – SAVING MONEY WHEN YOU HAVE NO TIME
1. Be more organized. Purchasing a marked down toy in January for a birthday in May requires the same amount of time as paying full price at the last minute. Planning meals a day in advance avoids trying to defrost meat in the microwave at the last minute.
2. Scale down. Expect to do, have or spend less. Eliminate the non-essentials. Eat out less. Make something last longer or buy something secondhand instead.
3. Do those time consuming thrifty things. Focus on using the time you do have on the ways to save that will give you the largest return for time spent. For me this would be grocery shopping. The time I spend looking at sales, reviewing coupons and making up a list along with a menu saves me the most money of anything I do.
PAGE 261 – CHEAP THRILLS
A relative told Amy one day “We worry that you and Jim aren’t having enough fun.” Amy responded with “Yes, we do have fun, but it is different than the fun we had when we were single.” Somewhere their sense of fun transitioned to being centered on conserving funds and working towards a goal.
Amy and her husband enjoy scrounging trash piles for “treasures,” beating the grocery store at their own game by challenging themselves to bring home the largest amount of food on a small amount of money, going to free festivals and concerts, gardening, repairing, renovating and refinishing furniture.
I can totally identify with Amy. I love to beat the grocery store at their own game too and along the way I love to go to free museums and concerts and right now I am enjoying painting my living room. Best of all I love doing all of this surrounded by my family.
Tomorrow we will read page 262 through page 269. Highlights from the reading are what is in the Tightwad Refrigerator, a recipe for Homemade Shake and Bake, holding a yard sale and more. See you then.