As a single mom of three, I've been told that I need two to three months of savings in the bank in case something would ever happen, such as layoff, injury, etc. The interest being paid at banks is generally only 2 to 3 percent at best. Rather than put the money into a money market or CD, I have paid three months ahead on my mortgage. By doing this, I am actually getting 7.75 percent interest and I know that I have a three month cushion in case something should happen. This is in addition to the money that I have put into my regular savings to cover such things as electric, phone, gas, and food if something should happen. Now with my emergency fund firmly established, I put everything extra on the principal of my loan.
I've had a few people say that I should just put the money straight towards the principal to save more money. But, if something should happen to me, I would still owe the next payment. This works wonderful for me. In order to get the first payment, I simply put any extra money that I could into savings (be it $20 or $100). When I had enough for the first extra payment, I took it from savings and sent it in. Then I started all over again. But this time I made sure that I had $200 to $300 left in my savings before I sent it so that I had a cushion for the everyday bills. Sometimes, it would take me three months to save the extra payment. At other times, it would take eight months. By keeping at it, I have paid ahead three months within three years. My $92,000 loan is down to $82,000 in just three years.
On the day of the closing, the bank gave me a couple of coupons for sending my payments in until I received the payment book. I noticed that the first payment wasn't due until the third month after closing. Since I had already saved the money, I made my first payment the same day as the closing and I made a payment the second month. I'm not sure if it's true, but I've been told that I cut six months off my loan by doing this. That's a savings of $3,600 in my case. I'm not sure how much interest all this has saved me, but I do know it's a considerable amount. I would love to know the exact amount. My best guess is that I will have my 30-year loan paid off in about 23 to 25 years if I continue doing as I am. This means a savings of $37,800 to $52,920! Not a bad chunk of change.
As a side note, I've been divorced 4 years. During the first year, my home had to stay in my ex-husband's name until someone would take a chance on me. I have now remodeled my family room. Also, I replaced a drafty sliding door with a window in my bedroom. This was accomplished by doing much of the labor myself. On my birthday and Christmas, I asked my family to give me such things as rolls of insulation, light switches and covers, buckets of plaster, plaster board, etc. instead of clothing and knick-knacks that I did not need. I watched for clearance items, such as a $90 ceiling on sale for $35 and a five-gallon bucket of paint on sale for $35. Yes, it took some time, but everything was paid for in cash. Each room cost me between $3,000 to $4,000 with the largest expense being carpet. As an added benefit, I have seen a drop in my energy bill due to the fact that I put insulation in the ceiling and walls and replaced a drafty door.
"My Story" is a regular feature of The Dollar Stretcher. If you have a story that could help save time or money, please send it to MyStory@stretcher.com
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