February 10, 2010

I have read a lot of subjective articles and on the issue, so I have decided to do the math.  Paying down my s mortgage is a safe way for me to diversify my retirement investments.  I also believe that investing in the stock market is an important part of my overall strategy, but paying down my mortgage ensures that I am not putting all my eggs in one (risky) basket.

The easiest way to invest in the S&P 500 is to purchase shares of SPY.  SPY is a high-volume Exchanged Trade Fund (ETF) whose  inception date was January 29th, 1993.   SPY seeks to correspond generally to the price and yield performance, before fees and expenses, of the S&P 500 Index.

Simulation Information

To keep it simple, I have chosen to ignore trading fees but consider SPY’s average 2.5% dividends.

Start Date: 01/29/1993 (spy’s first trading day)

End Date: 02/23/2010

Number of trading years: 17

Dividends:  Every 12 months, my simulation deposited 2.5% of the market value into the account.

Monthly deposit into simulation trading account = $300  (I deposited $300 on 01/29/1993 and $300 on the first of every month from there on.  I kept my monthly contributions at $300 for the entire 17 years of simulation.  I kept it at a fixed investment amount because mortgage rates are also fixed.)


Total Invested = $61,800

Total # shares purchased during the 17 years of simulation = 914

Current account value at $110.67 per share (that was SPY’s closing price on 02/25/2010 when I ran my simulation) = $100,414.98

Total return in 17 years = $38,614.98.   That’s a a total return of 62.48% in 17 years.

We would be in bad shape because it’s an average of 3.7% return per year.  At3.7% return average per year, our gains would have been outpaced by inflation whose rate is substantially higher than 3.7% per year.


Now let’s assume that we got a 30-year, fixed-rate mortgage at the very low rate of 5% 17 years ago (that rate did not exist back then).  Let’s borrow $100,000.  During the 17 years, we would have paid only paid the minimal payments.  The $300 extra money we had each month was used in the stock market while we only made the minimal payment of $536  (principal + interest).  After 17 years, we would still have 13 years left in our mortgage.   We would still have an unpaid balance of $61,487 left.

Now let’s go back in time and, instead of investing the $300 a month in the stock market, let’s apply it to our mortgage principal.  WE WOULD HAVE PAID IT OFF IN 2006.

But back in 1993, our mortgage rate would be 7%.  At 7%, the numbers look astronomical.  For our 30-year mortgage, if we paid only the minimal payment while investing our extra $300 a month, we would pay a total of $139,508 in interest in the life of the loan.  If we apply our $300 extra money towards our principal, we would again have paid off our mortgage in 2006.

So, the property that we purchased 17 years ago for $100,000 would be worth how much today, 17 years later.  (In my case, I know that the house that I purchased back in 1998 (that’s not even 17 years ago) is worth tens of thousands more today.)

Real estate as an investment

If you Google “housing prices chart,” you come across a site called  (I AM NOT AFFILIATED WITH THEM.)  And here’s their chart showing the historical housing prices in the United States.  You can see that real estate has been a solid investment vehicle even considering the recent drop in prices.  Our $100,000 property which we purchased 17 years ago would be worth substantially more today.



2010/02/05: Payday! Detailed financial planning. Getting ahead of schedule with my mortgage, long-term emergency fund, etc.

February 5, 2010

Today is that much-cherished payday for me.  Here’s what I’ve done today as soon as money showed up in my checking account:

1) Took 50% of my wife’s paycheck (50% is $205.50) from earlier this week and sent to our long-term emergency fund.  That is what is called PAYING YOURSELF FIRST.  That’s a checking account we have setup with  That’s a a high-yield savings account.

2) Took the other half of my wife’s paycheck (the $205.50 that was left) and transferred it to a special savings account where we are saving money to visit our families overseas next year.  To us that is as necessary as air, and we are trying to go every 3 years or so.  We do not go into debt for vacation!!

3) This is February, month two.  On month 1 (January), I sent two separate mortgage payments.  My next mortgage payment is due on March 1, 2011.  That is 13 months from now.  That is an important part of my long-term protection plan.  If I lose my job, I want to make sure I have plenty of time to find another job.  Can you imagine having to worry about making mortgage payments while you have no income?  I can’t even imagine!  This month (month # 2), I will make a single payment, which will be the next payment (of March 2011) plus the principal of the following month.  By checking my mortgage amortization table, it means that I will include an extra $816.  I will submit the mortgage payment on my next paycheck two weeks today, on February 19th.  Total that will be paid towards my March 2011 payment = $1,640.64 (March 2011’s normal payment) + $816 (April 2011’s principal) = $2,456.64.    That is how I am going to finish my mortgage very early!!!  In March (month # 3), I will be once again submitting two separate payments.  My goal is to be two full years ahead of schedule in order to have that much protection in case of an extended job loss, which unfortunately is not impossible, not in the new and more socialist economy.


January 28, 2010

Well, I’ve been postponing the inevitable for a few months now.  The old, cheap shoes that I wear 7 days a week is in bad shape.  Shoe replacement is down in my priority, but these old shoes are finished.

So, here’s the question that I have for the frugal person who lives below his/her means:   Should I replace my worn-out shoes with another pair or cheap shoes or more expensive shoes and why?  I’m wondering if affordable shoes can be comfortable?  Please help!


$6 REWARD FOR MY FAVORITE ANSWER  (Increased to $6 on 01/29/2010)

If I get any answers, I will give a $5 $6 reward to my favorite answer.  If I find that multiple answers that I like, I will do a drawing.   I will send the reward as a money order or cashier’s check.  I will not send a personal check.  The winner winner will be notified by email.  It’s not much, but it’s all I can afford for an important and frugal shoe decision. 🙂

(Don’t include your email in your response below.  I will be able to email you.)


I have decided to try more expensive shoes.  I found a pair of Rockport (I have a friend who swears by them) for $70 yesterday.  I will report my experience here in the future.

THE WINNER: I wrote down the names of the authors whose replies I liked and drew a name.  I cut out papers with names, shuffled them without looking and pulled a name.  The feedback I received here helped me make a decision.  This is the first time that I don’t buy the cheapest shoes possible!

And the winner of the $6 was… Elysia.  I will be emailing Elysia now.





January 27, 2010

I’ve signed up for a free 30-day Score Watch trial with today.  I will cancel the free trial in 3 weeks.

My current FICO score is 785 as of today, Jan. 27, 2010.  That is better than 80% of U.S. consumers.


How I got my FICO score:  I only trust, which I was led to after reading posts and articles.  They are THE source.  I’ve signed up for the their free 30-day trial.  I will go back there just before a month from today to cancel my membership.  That was very easy!

POST UPDATE (FEB. 02, 2010):

I went back to MyFico today and, after drilling down into different places, it showed me that the following is hurting my FICO score:

My most recent late payment happened 3 years ago.

Then it had this comment:   “Most FICO High Achievers, about 93%, have no missed payments at all.  But of those who do have a mised payment, it happened nearly 4 years ago, on average.

What? I do not recall ever making a late payment.  I got my free credit report from Equifax and I have printed a letter to dispute that item.

All the information I needed was within rich at  I still have a couple of weeks before closing my account before the free 30-day trial expires. 🙂  From there, it had link to the site where I was able to get my free credit reports, a right we all have, from the 3 major credit bureaus.

You never know what’s lurking behind your credit history until you check!!!!


January 22, 2010

After losing enough sleep over personal/family finance issues, I am glad to report that I have made some decisions.  I have prioritized my goals, which include short-term emergency money, long-term emergency fund and paying off my mortgage as soon as possible.


Emergency Funds:

1) Short-term: $2,000.  (Maxed).  This includes unexpected emergencies, such as having to replace a tire that I didn’t know was going to cause my truck to fail safety.  I keep this savings account within reach, use it for unexpected, small emergencies, and pay it back as soon as possible.

2) Long-term:

After finding many different opinions on how long a long-term emergency fund should be able to last, I have decided that 2 years is the best answer.

* Current Balance: $9,111

* Amount needed:  I am not sure, I am going to start with a goal of $50,000 excluding mortgage.

* Two-year mortgage payment:   As of today (2010/01/22), my next mortgage payment is due in 14 months.  I will stop with the early payments once I reach 24 months.


1) Furniture:  (We owe about $1,800 at 0% interest at the moment. )

2) HELOC: $9,800

3) Mortgage: $155,587.18   (Yes, a mortgage is a debt!  A good debt is one you don’t have!)

Car Replacement: Talk about a neglected item in most people’s financial planning.

* Balance: $1,500

Target date for replacing  car:  4.5 years from now.

My Mortgage

January 22, 2010


Here’s what I’ve done today:

  1. Transferred $211 from my account to my long-term savings account.
  2. Sent an extra full payment to my mortgage company.


Making some payments ahead of schedule (my goal is two years) is part of my long-term emergency plan.   Only paying down the principal on your house can be dangerous if you lose your job.


Current mortgage balance = $154,776.44.

First baby step for today:  More than double the principal on my mortgage

Double the principal:  It’s February, month 2.  I followed my plan and sent a single mortgage payment to my mortgage company but with double the principal.   It will work out to be a little more than double:

  • Payment due date:  03/01/2011   (I am building a large buffer for protection.)
  • Regular payment:  $1,640.64  (that’s principal, interest and escrow).
  • Extra amount towards principal: $940.00.  The principal is about $815, but I will know the exact amount applied to principal when the transaction is complete.
  • Breakdown:  Principal = $814.12.  Interest = $644.90.  Escrow = $181.62.  Extra towards the principal = $940.00.
  • Total payment today: $2,580.64

Next mortgage payment due date is in 13 months on April 20001.  As I read bad financial news today, I realize that paying my mortgage way ahead of schedule is a huge peace of mind.

Another baby step for today:  Long-term emergency

I made a deposit of $192.50 (50% of my wife’s paycheck) into our long-term emergency (trading) account today.  I’m investing it in oil this time.

I have almost $10,000 of my long-term emergency fund in CDs because I want the liquidity benefit.  The rest will be invested in commodities because I can afford the volatility in the commodity market with that money.  I am not planning on investing in company stocks with my long-term emergency fund.  Commodities is as far I am willing to go risk wise with that money.


Current mortgage balance = $153,022.32.

Step for today:  Sent my mortgage payment which is due next year on 2011/04/01. That is how I am building a big buffer to protect me in case of a job loss.

Next step:  In two weeks, I will be sending the next payment which will be due on 2011/05/01.

Thought:  I am staying on track by not spending, not eating out and no car payment.


Current mortgage balance = $152,200.89

Step for today:  Sent my mortgage payment which is due next year on 2011/05/01. That is how I am building a big buffer to ensure that my mortgage is covered if I experience a loss of income for any reason.

Next step:  From now on, I will be sending a single payment per month but  include two principal payments.

Continued Mission:  I am staying on track by not over spending, not eating out and no car payment.

Where should I invest my long-term emergency fund?

January 21, 2010

The so-called high yield savings accounts today pace behind inflation.  A savings account at my bank pays less than 1% in interest.  My current long-term emergency fund, which is slowly but surely growing, is $9,111.  It’s all in invested in pathetic CDs at my credit union, growing a few cents here and there.  I remain undecided.  Just keeping up with inflation is a major challenge.  Any suggestion would be appreciated!

“The rich rule over the poor, and the borrower is servant to the lender.” (Proverbs 22:7)

January 21, 2010


I am here to keep tracking of how I am progressing with our family finance.  There are many important decisions that affect our financial future, and I am here mostly for my own sake, to document how my decisions will affect my family’s financial health.

I am a middle class worker, holding a full time job in a cubicle all day.  I am a slave to the corporate world like millions of other people.  I am an honest, hard-working, law-abiding citizen who believes in personal responsibility.  I have had many financial mistakes, which is why I am 45 and still have a sizable mortgage and not much to show for.  Like millions of others, I am behind schedule for retirement.

My wife and I have made changes.  We now live below our means and we are showing some big progress.  We had $8,000 in credit card debt.  We paid it off a few years ago and have never again used a credit card. 

My biggest burden is my mortgage.    MORTGAGE IS A DEBT, AND THERE IS NO GOOD DEBT.  MORTGAGE IS SLAVERY.  How much more could you invest in your future if you didn’t have a mortgage at all?  I am tired of being a slave to a finance/mortgage company.