Pay the taxes challenge

Now that my job is currently not offering overtime, I've been trying to think of ways to make extra money. But then I realized I'm actually making some extra money already, but it's just not that much. I want to start a challenge to myself for the second half of the year starting July 1st: pay for our income taxes without using money from our "day jobs". My estimation of our taxes is $700.

Here are some of my other sources of income. This income varies a lot each month and some months I don't earn anything from them.

(Very) Part-time job:
A former employer has me do some work for them on an as-needed basis from home. It usually ranges between 0 and 2 hours a week (usually closer to 0 than 2) and they pay me $10.50/hr. It seems they are the busiest during the Spring, and the second half of the year is usually a little slower than the first half.

Babysitting:
My sister needs someone to babysit her daughter every once in a while. She pays me $5/hr. However, she recently moved about an hour's drive away, so she probably will not ask me to babysit nearly as often.

Blogging:
I have something like 6 or 7 blogs that I recently monetized with advertising and affiliate links to products from Amazon (I get paid a percentage of the money spent when people buy using my referral link). However, I'm really only making money on one of the blogs. It's not this one in case you're wondering, it's one that's been around for over 3 years. The rest of my blogs are all less than a year old and account for maybe 0.5% of the money I've made blogging.

Ebay:
Once in a while I sell items on Ebay. It's garage sale season, so I might be able to find some items for cheap that I could sell for a profit on Ebay.

So it will be a challenge to make $700 with just these.  I would like to find new ways to making money and while increasing the money I make on my current sources of income as well.

IRA Asset Allocation and Balance

My husband is doing better after having surgery on Monday and will probably be back to work full time next week (thankfully it's a desk job). Of course I still don't know how this will affect us financially, so for now I'm going continue my financial plans as I had planned. Since part of my plan is to stock pile cash, that should hopefully be enough to cover any medical expenses we can't cash flow.

For some reason I don't feel that same drive to put money in my IRA as I did with paying down the second mortgage. So I want to start measuring my progress. Here is my starting point:

It was over $19,000 not too long ago, but with the Dow Jones decreasing so much lately, it's not a big surprise it's in the $18,000's. It seems like I'm always saying "Dave Ramsey says" in this blog, but Dave Ramsey says to invest in a good Growth stock. As you can see only 17% of my IRA is in growth stock right now. So I will probably work towards increasing that percentage as I add more money into it.

When it rains it pours

As if my financial situation didn't look bleak as it is, I have even more bad news. My husband was complaining about back and stomach pains on Sunday night, so he went to the hospital to get it checked out and found out he has gallstones and will need to have his gallbladder removed. He went in for surgery yesterday afternoon, but the doctor was running behind and it didn't get started until 6:30PM. Usually it's an outpatient surgery, but because the surgery was so late in the day and my husband has sleep apnea they decided to have him spend the night in the hospital. I've heard horror stories that overnight hospital stays are more expensive than the nicest 5 star hotels. I really hope we have good insurance coverage! So sadly yet again, Murphy came and messed with my financial goals. I know we got through the payoff the second mortgage faster than planned despite all the unexpected expenses that we went through in the past six months, but this time we don't have as much savings, money set aside for vacation, or opportunities for overtime pay. As a matter of fact, I should be at work right now, but instead it looks like I'll be taking an unpaid day off while I wait for my husband to be discharged. The bad news is it'll take a couple months for the medial bills to arrive so I don't know how bad this will be for awhile. But the good news is it'll take a couple months for the medial bills to arrive because I don't have much cash yet since I just cleaned out most of it paying off the mortgage.

Back underwater

I almost wish I had not taken a look at my financial situation today because I found out that we will owe about $700 in taxes next year when we are used to getting a refund and I also found out our house is worth almost $8,000 less than I thought it was. I'm trying to remain optimistic, knowing Zillow is not official and it could bounce back as fast as it dropped. However, I'm still in a bad financial mood.

One thing that makes me feel a little better is to take a look back at how far we have come in 6 months. Just a little over 6 months ago, we owed $208,786.14 on our house and as of today we owe $183,985.87. So we have paid the mortgage down $24,800.27 in six months! Even though we used some savings, vacation money, and a work bonus my husband received, we still did a good job paying that down. Six months ago I had said I wanted to have the mortgage paid down to $200,000 by September 2011 - well I more than surpassed that goal!

One of my initial reactions to finding out about the house value was I should immediately start paying extra on our main mortgage. However, values change so much it could bounce back fairly quickly, and right now it's a small enough amount if we needed to sell, we could cover the extra still owed. It's not super likely we will be moving anytime soon, but my husband has been casually looking for a new job. Most of the jobs he has applied for have been in the same area we live now, but he has not ruled out looking for a job in another state (to be closer to his family). So right now I just plan on continuing everything as planned. The mortgage principal is decreasing by $250 every month as well, so every 4 months it'll be $1,000 less. I'm hoping it just works itself out.

To refinance or not to refinance... Ugh! Nevermind

Dave Ramsey says now is a great time to refinance. Trying to refinance last year was what first alerted me to the fact that we owed more on the house than it was worth. We signed the paperwork and everything, but then found out they couldn't do a mortgage because the mortgage would be over 105% of the house's value. We ended up losing $500 by trying to refinance last year because the appraisal was non-refundable. So I have to admit, I'm a little gun shy about trying again. I want to know for sure that we owe significantly less than it's worth before we make the same mistake again. Last time I checked the house was worth about $190,000 and we owe $184,000, so we should be ok.

Another issue are the fees associated with refinancing. Last year my husband was in charge of trying to refinance. He mentioned a few times that it would cost us "points". I didn't really understand what he meant by that. So I did some research on it and realized one "point" is 1% of the loan. Most of the re-financing options I've seen cost one point. Right now we owe about $184,000, so I would assume re-financing that mortgage would cost us $1,840 in fees.

Here is a video explaining points on a mortgage:



The next question is should we get a 15 or 30 year mortgage? If we got a 15 year mortgage, we could get it at a 3.75% interest rate. We are currently paying 5.75%, so it would drop by 2%. If we got a 30 year, it would be 4.625%. For the 15 year, the monthly payment would be $1,338.09. For the 30 year it would only be $946.02 per month. So that would be an extra $392.07 every month extra to pay it off in 15 years rather than 30.

We currently pay $1,133.01, so if we did a 15 year, we'd owe $205.08 more than we currently do. If we did a 30 year, we would pay $186.99 less than we currently do, but we'd also have to start over at 30 years. We are already 3.5 years into our current mortgage.

If we did the 15 year option, we would pay only about $10 more than we were used to paying when we had 2 mortgages. But we would have it paid off in 15 years rather than 26 and a half years. I kind of like that idea, but here are my concerns:

Not only was I so intent on paying down the second mortgage to get us to the point where we owed less than our house was worth, but I also wanted to owe less every month. My job in temporary, so some day I will not be employed at the place I'm working at now. Also, it's still a possibility that we will have kids. If I'm only making $13 an hour, it probably wouldn't be worth it to have the child go to day care. So if I stay at home, then we need to be able to make it on just my husband's salary. If we only had a $946.02 house payment (or $1,133.01 if we didn't do anything), it would be a lot easier to get by than if we had a $1,338.09 house payment.

Another concern is if we will be in this house long enough to justify refinancing the mortgage. I don't know how long we'll be living at our current home since my husband may find a job in a different city. If we are going to pay $1,840 that we'll never see again, we have to make sure that is worth it as well.

... And nevermind. I just typed all this out and thought I'd get an up-to-date quote from zillow for the numbers in the first paragraph and now it's only appraised at $182,300 so we now still owe more than our house is worth again!  I guess I'll have to finish this post another day :(

I used to look forward to tax time

One "negative" thing, if you can call it that, when paying off a mortgage is the tax consequences. I've already had to reassure myself it was a good idea to pay the second mortgage off despite the tax deduction on the interest paid. But I thought I better take a closer look at how it is going to effect us next February when we file taxes (we always file early). Last year we got back around $700 on our Federal taxes, but had to pay the state $400. However, before we entered our energy efficient tax credit for a new patio door we had purchased in 2010, we were only going to get about $200 back on our Federal taxes. So we are already going to owe about $500 more this year. Even if everything else stayed the same, it looks like we would owe approximately $200 in taxes (we'd have to pay the state $400, but we'd get $200 of that back from Federal). But because I paid off the small mortgage, we will not be able to deduct as much interest on our taxes this year. Last year's tax records show we paid $2,131.21 in interest on the second mortgage. This year we only paid $295.23. I'm not an accountant, so I don't know the exact calculations to figure out how much more tax we'll owe, but here is my guestimation:

We paid $1,836.98 more interest last year than this year. So if we pay about 25% on our income taxes, I estimate we lowered our taxes by $459.25 last year by paying the interest (25% of $1,836.98). Again, not sure how accurate this is, so if you know, leave a comment below!

So if we assume we would owe $200 if everything else was the same as last year, but now we'll owe an additional $459.25 because we didn't pay as much interest, then I should be planning on a $659.25 tax bill in early 2012. I'll round that up to $700 because we'll also be paying a little less interest on the main mortgage as we slowly pay that down with just our regular payments. So I guess I better start another goal of saving up $700 so at least we're prepared for it. This will be the first year we'll ever have to pay in over all. I used to look forward to tax time because it meant getting money back.

Next weatlh goal: To have $5,000 invested in my Roth IRA

I figured I should do a more specific plan for the rest of 2011 with dates and numbers. Of course things could happen like extra expenses, but as far as I can see things today, by the end of the year I could have $6,000 liquid cash in the bank and a fully funded IRA! Now that the second mortgage is paid, and it looks like the medical bills have slowed down, I'm hoping all our expenses can be paid with just my husband's income so all my income can be used for saving and investing. I want to fund the Roth IRA ASAP, but I also want to re-build our cash reserves.  So I'm kind of splitting my income between the two for the next four months.

My plan for fully funding my Roth IRA for 2011 looks like this:

$800 already invested
$600 on July 1
$1200 on August 1
$1200 on September 1
$1200 on October 1
Total: $5,000

Now that the mortgage and this month's large credit card is paid off, I started right about $0 in liquid cash savings at the beginning of June. I still have the $3,500 in CD's that I ended up not using to pay off the mortgage - I just couldn't bring myself to be that risky! But my plan is to never touch those unless it's a true emergency.  So as far as liquid cash that I can take out at any time, I'm starting from scratch. I make around $1,772 a month, I'll round down to $1,700 to account for a little bit of spending money. In the next four months will be investing the majority of my income in my IRA. So, here is the projected left over cash to start pre-funding the credit card and for the $1,000 rainy day fund.


July 1: $1100 ($1700 - $600)
August 1: $500 ($1700 - $1200) = $1600 total
September 1: $500 ($1700 - $1200) = $2100 total
October 1: $500 ($1700 - $1200) = $2600 total
November 1: $1700 = $4,300 total
December 1: $1700 = $6,000 total

Total cash savings I should have as of December 1: $6,000.

We're debt freeeeeee!

I started listening to Dave Ramsey's podcasts right around the time I started this blog. It gives me motivation to keep reaching for my financial goals. I'm too shy to go on a national radio show to scream "I'm debt free", but I can't help but imagine how the phone call would go, so the following is made up, but I would imagine it would go something like this...

Dave Ramsey: M & J are on the line, how are you?

Me: Hi Dave, doing great, how are you?

Dave: Better than I deserve, what's up?

Me: Well Dave, we're calling to tell you we're debt free!

Dave: Excellent! How much have you paid off?

Me: We paid off $23,000 in 6 months!

Dave: Good for you! On what household income?

Me: Around $82,000 a year.

Dave: Good for you! What was this debt?

Me: Well, our situation is a little different. We were debt free except the house when we started, and we are still debt free except the house, but we only have 1 mortgage now! Our house is now actually worth a little bit more than we owe on it, and we could not say that 6 months ago.

Dave: Awesome, how much is the house worth?

Me: About $190,000 and we now only owe around $184,000 on it!

Dave: What was the most difficult part?

Me: Feeling helpless when our house was worth less than we owed and feeling discouraged when unexpected expenses came up.

Dave: Did you sell anything?

Me: No, we had an emergency fund larger than $1,000, so we did use some of that to pay down the debt and we also canceled a $10,000 vacation. It took an earthquake to do so though, we were planning on going to Japan about a month after the earthquake. But it worked out for the better. I would rather go to Japan in a couple years when we are in a much better financial situation. I think we'll enjoy the vacation a lot more when we can afford it!

Dave: Wow! It took an act of nature to help you pay down your debt! Well count it down and give us a great debt free scream.

Us: 3...2...1 We're Debt Free!!!!

The Check is in the Mail!

I went to the bank today to get a cashier's check (apparently another hoop one has to jump through to pay off a mortgage), and put it in the mail.  So the money has been withdrawn and it's pretty much official that the second mortgage is now paid in full!

For some reason I don't feel as thrilled as I thought I'd feel.  Maybe it's because I was so close for a couple months but then had to wait because of other bills.  Maybe it's because it's not really official yet until they receive it. Or maybe I'm a little frustrated that I had to wait for the pay off form to arrive, and I had to pay $46 for a "processing fee" plus $7 for the certified check they required.  The mortgage was through one of those big banks like Dave Ramsey was complaining about on his show yesterday.  Speaking of Dave Ramsey he also says interest rates are still really low and anyone who doesn't owe more than their house is worth should refinance.  We wanted to refinance last fall and couldn't because we owed more than the house was worth.  But I think now it's at least break even, if not, we're a little ahead. So that is something we should consider. I don't know if I could convince the husband to do it, but 15 year mortgages are under 4%!

Going at a snail's pace

I thought paying off the mortgage would be as easy as finding out my final pay off balance and then submitting my payment online.  However, I requested my pay off amount online on Tuesday, and they responded by saying they will be mailing me a payoff statement.  Well our US Postal Service must be very slow because I still haven't received this payoff statement.  So everything is going at a snail's pace through snail mail.  Hopefully this thing will get here by Monday.  I wish I would have known about this and I would have requested it a week earlier. Another gripe I have is the balance online says $458.71, but in the response I got it said my pay off amount is $511.33.  The interest should only by $3.31, so I don't know why it is so high.  I'm assuming it's some sort of fee to have the privilege to pay the stupid thing off. So anyway, maybe Monday is the day, but even then I'll have to send it through the mail, so it probably won't be official for at least another week.