Oprah shows budget tips

[dizcrazy]

Hi All,
Did anyone watch Oprah yesterday? Our station played a re-run of the show where she had on David Bach, who wrote a bunch of financial advise books. I think he's been on twice so far.

What did you think?

I thought the idea of automatically have your money taken out of your paycheck and moved elsewhere (401K, savings account) was similar to posts I have read here.

he also spoke about automatically making an extra mortgage payment every year - anyone do that?

 

[bigbabyblues]

We contribute to a 401(K) from each of DH's paycheck; I think it's around 10-12%, then his company matches it. Lookin' forward to retirement! The way our house payments are set up, we pay an extra mortgage paymet every year. Half of each month's payment is taken from a dedicated checking account every other week, and twice during the year, this happens 3 times, allowing the extra payment by the end of the year. It cut quite a bit of time off our mortgage, I believe it was 7-8 years at the time. I was pleasantly surprised when we refinanced that this is the way it was done (our choice).

I didn't watch the show, so I can't comment on that.

 

[Jodi3530]

We make about 1 1/2 extra payments on our house a year. We pay in whatever extra we can scrape together every month and we never miss the extra money but will be trilled when our house is paid for a little bit sooner!!!!

 

[tinaluis]

I didn't see the show but agree that making an extra payment a year on your mortgage is a great idea. As bigbabyblues said it can take 7-8 years off of a 30 year mortgage and you hardly notice it if you do it in monthly increments. We pay $78 extra a month on our mortgage which equals one payment over the course of a year. We don't even notice it because we have our mortgage automatically drafted from our account. If it's something you can manage, it really makes good financial sense.

 

[crisi]

Paying your mortgage off early is one of those things financial experts like to endlessly debate.

We are paying ours off early (orignal 30 year mortgage should be paid in 10 years). Originally I did this by paying quite a bit extra each month - now both my husband and my company offer employee stock puchase plans - so we put the money there, make the 15% over six months, and immediately withdraw it and pay the mortgage - so that's a lump sum towards principle four times a year.

However, a lot of financial experts believe (and I do to) that if you have the disipline to invest that money - you will do better over the long term (I don't like risk, so I'm more comfortable with the mortgage). The deal is - my mortgage is at 6%. Paying it off early "earns" me 6% on my money. But I do get a tax writeoff on that interest, so I'm really earning less than 6%. I could invest the money and see 8% in, say, an index fund. I would have to pay taxes on the money I make, but capital gains tax is pretty low. However, you need the disipline to invest that money, and it isn't the sure thing your mortgage is. As I am risk adverse, love the idea of owning my home outright, love the thought of the increased cashflow once its paid off, I like the pay the mortgage off early idea.

 

[karemore]

LOL, DH and I differ on the mortgage thing too.

He wants the tax write-off, I'd rather have it paid off.....

But hey. As long as I get to go to Disney!

Karen

 

[frannn]

I pay 50 extra towards my mtg each month. It doesn't even pay 1/2 of one total mtg payment over the course of a year, but its better than nothing. I also put 7% of my check into my co's 401K. Whenever we get a large check, like a tax refund, etc, we pay off any outstanding bills & repairs, use some for our annual WDW trip, and leave the balance in our savings account, which we only touch for emergencies. I keep a personal savings acct that I add money to whenever I can, which I also never touch.

 

[liznboys]

Yes I saw the show! Lots of great advice offered there. My dh has a 401K account, has had it for 10 years. And we are looking into the bi-monthly mortgage payment thing. There is a fee you pay to sign up for it (at our lender anyway), but still in the long run, it's worth it.

The best advice he gave though is to stop spending money on the little things (the latte factor as he called it). Boy does it add up! We are guilty of doing that, but that show re-motivated me to stop wasting money on those little unnecessary things!!! I'm on a mission now to spend as little as possible so we can save more for our WDW trip in 8.5 months!!

 

[crisi]

My lender has a fee if you want to send them bi weekly payments. They don't have a fee if you pay a little additional towards the principle each month. But to do so, I needed to call and let them know that any additional payments should be applied to principle. So I'm better off just paying additional payments.

 

[ceecee]

You should always do the 401 K especially if your employer matches. We always paid an extra principal payment at first when it was low. We always paid extra towards the principal each month.....then we refianced a 30 yr 9% interest to a 15 yr 7% and continued to do the same. We paid off our house in 10 years. There is debate on investing to make more than your interest on your house, but it sure feels good to have your house paid in full.

 

[mad4themouse]

By putting an additional payment on the mortgage every month, we have been able to pay it down so much faster. In December, the house will be completely ours after only 8 years into the mortgage! The amount of interest that we will not be paying is phenominal!

 

[crisi]

ceecee,

I completely concur. Take advantage of any "free" money your employer offers. 401k to the match. The money won't be yours for a while, but how can you turn down extra money.

Other "free" money:

We take advantage of the Dependent Care Spending Account (we don't do the health care thing as our health care expenses have been pretty minimal and hard to plan). This means that $5000 worth of daycare is pretax. (But then you can't write daycare off on your taxes).

We take advantage (as mentioned above) of Employee Stock Purchase Plans. How this works for me is that I put a percentage of my salary towards stock purchase, and at the end of the six month purchase period, I buy the stock at a 15% discount off the price it was at the first day of the period or the last - whichever is lower. So its pretty much a guarentee 15% return in six months - more if the stock appreciates during the six month period - one period I doubled my money! Not all companies offer this, but if yours does, you should try to enroll.

Deferred compensation plans are worth looking into, although they tend to only be available to the highly paid. Deferred compensation plans sometimes have matches as well, and can move tax liability to a less peak earnings time.

 

[patsal]

I have been accelerating my Mortgage since it's inception. I read an article whe we were purchasing the house to add $10 to it every month and then continue in a pattern for the life of the loan. First year $10, Second year 20 to that total (making it $30 more in reality), Third year $30 to that total, etc. At the rate I am going I will have the mortgage paid off in 9 more years, but if I can continue to add to it each year I can lop off another three (It will turn out to be 14 years for the 30 year mortgage I took out with no fees for splitting the payment (when they se t you up for bi-weekly).
I'm not concerned about the tax write off since I can place the money I have saved into an IRA and write that off and use home equity to pay for cars and such and still deduct.
Since we started working DH and I have always had some money deducted from each of our paychecks. His 401K, my 403B, a small savings account so that an emergency can't wipe out our vacation savings (hot water tank, large appliance, emergency car repairs), a Christmas club and vacation spending account. I don't feel it since it comes out of the paycheck before I get it and I can adjust the amounts as my/his salary increases. All of these things can really add up. I have also kept up withthe Suze Ormon (sp) books and use her tips to keep me focused on what is important to me. I can't go cheap on everything, but my weeks worth of coffee from home is the same price as one large cup from the leading chains. My bagged lunches at work keep both my diet and wallet in better shape and I have never felt like I had to keep up with my neighbors, co-workers, etc. We buy our cars brand new and drive them to death (10 years over 100,000 miles), clothing for me is classic styles/colors bought off-season to get the best prices and the kids wear what is popular but nothe big ticket priced ones--I just tell them what the clothing budget is and set them free once they see that they can get 3-4 items for the cost of one they seem to move quickly form Abercrombie and onto something else. I have to admit Ido hit the second hand and thrift shops for these labels for them, I just don't tell them where they are from!

 

[Taja]

I pretty much do the typical things, but my mortgage is simple interest with no prepayment penalties, so I pay an extra $2,000 to $5,000 on the principal each year.

I want to maintain a decent tax deduction for the next 8 to 10 years, then pay it off completely (pushing retirement age at that point!).

That's if I don't downsize in the interim (which I hope to do). In that case, I'll finance as little as possible and try to pay it off in the same period!


__________________
Taja

 

[HenDuck]

I have read Bach's book "Smart Women Get Rich". It is fabulous!

I already pay additional principal on my mortgage by "rounding up" to the nearest hundred. I hope to add more to the principal next year, once we have done a few home improvement projects.

I also put 10% away into our deferred comp program here at work (like a 401K). Bach actually advises women to strive to put away 12%. I was doing that until we had to adjust our budget for DS's preschool and college fund.

I don't plan on working after my mortgage is paid off. I don't care what age I am, but it will sure be before I am 60! After that, I'll just live off hopefully a few mutual funds, a Roth IRA, and my savings until I can collect retirement money.

I think all of us here on the budget boards are of the same "ilk". We look for ways to make our money work for us.

Have read Suze Orman too. She gives similar advice as Bach. Both advocate saving for the future but what I like about Bach is that he gives you greater permission to have that "dream fund" too. (Not that Suze is against it).

Thanks for a great post!

 

[RobinMarie]

I did not watch the show but some of the things that drives me crazy are how people lose the opportunity for MAKING money on their money. Heck, I don't even care how little interest it is now, I believe you must form good habits.

Letting your change sit in your closet rather than the bank!

Having too much taken our of your paycheck for a tax refund at the end of the year!

The only time I agree with not saving money with low interest rates is when you USE the money to pay off HIGH interest accounts. Finance charges are the pits!

 

[4greatboys]

We pay an extra $100 towards the principal of our mortgage every month.

 

[KIRSTIN'S MOMMY]

We signed up for the "equity accelorator" plan on our mortgage as well. It was a flat fee of $250 to join, but if your mortgage ever is sold or anything, it goes with you. You can also add other accounts to it as well, for cars, credit cards etc. They take out 1/2 of the payment every two weeks, no matter what type of payment it is (house, car, whatever) so you end up paying 1 1/2 extra payments per year. Supposedly we'll pay off our house 8 years sooner this way, and we don't ever have to worry about late payments since you have to be a month early with the plan. (The payment is due on the 1st of the month). We also both have 401k accounts as well.

 

[kfeuer]

I saw that show when it originally aired. I also read his book "The Automatic Millionaire". I think his retirement savings ideas can be good for certain families, but there's no "latte factor" in our budget. We cut back to the bare bones so that I can be home as much as possible while my boys (who are 3.5 and 1) are little. We're averaging about 8% into our retirement accounts, but there's no way we can afford any more then that right now (I'm already a die hard coupon/rebater/clearance shopper/test driver/mystery shopper/survey taker ).

A couple years ago we refinanced our 30-year, 7% mortgage into a 15-year 5.5% mortgage. Again, because of our tight budget we're not trying to accelerate the payoff at this point. Even so, if we stay put (which is the plan) we'll own our home by the time we're 47. We feel pretty good about that.

 

[StephMK]

Thanks for the inspiration! I do pretty well on budgeting in certain areas, but get lazy & don't follow through as much I want to. This thread has motivated me to re-start couponing & take another look at how I can further reduce our bills.