November 8th, 2007

tsmith

Making Money Work

A few weeks/months ago I made a post about making your money work for you. Basically make sure that you're keeping ahead of inflation or that you're not penny smart and pound foolish. If you have a bunch of money in the bank that's paying 3% interest but you have a car payment with an interest rate of 8%, you're losing money. Of course having money in the bank is a good thing. Everyone needs a safety net for unforeseen expenses. It's also nice to have a little set aside if you find a nice new toy that you must have. And then there is the difference between "good" debt and "bad" debt. "Bad" debt is something like credit cards where you are paying off a depreciating commodity. Mortgages are "good" because hopefully property values will go up. If you just bought a house in the bubble market recently, however, you are possibly screwed. You can also write off mortgage interest on your taxes. On top of all of this, you have to live somewhere. If you're not paying the bank, you're paying a landlord. At least with a house you will eventually own it.

My bank account has been creeping up over the last several months. I'm finding out that it is cheaper for 2 to live than one. Since Kitty moved in a couple of years ago we have been sharing the expenses. I pay the mortgage and she gets the utilities. This has an added benefit in that we don't fight over money issues. I don't yell at her if she takes a long hot shower because she's paying for the gas and water. If I do yell at her it's because I believe in water conservation.

So I looked at my bank account and decided that earning interest in a checking account was not doing me any good. I could invest more in the stock market, but these are very uncertain times. Besides, I already have a nice chunk in the market. I don't have any debt except for my mortgage. Hmmmmm. Maybe I could save some money there! So I looked into re-financing. Right now I could save 1% if I refinanced. That's not a lot, but if I paid down some of the principal and shortened the loan life with the lower interest rate, I'd save some serious bucks in about 10 years. So that's what I did. I'll use up a good chunk of my savings, which is earning less than 3%, to pay down the loan. Instead of owning my house in 2029, I'll own it in 2017. It will cost me an extra $100/mo which should be no big heartache. Especially when I see that I will be saving approximately $60,000 in interest!
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