Mini Dave's Quest to be mortgage free!

Wanna_Be_Mini_Dave

Hi all,

I apologize in advance if I make a posting mistake, I JUST stumbled onto this forum. (also I'm an American so I'll try to do things the European way, like day/month/year, but I do apologize in advance if I slip up)

I figured I'd start a thread to keep myself motivated, and to seek advice from the collective experience on this board. Basically I'm wanna be mortgage free (plus I thought it'd be fun to be a part of the community instead of just lurking)

My quick background story: I'm 24 and bought my house 2.5 years ago. I did a subprime loan, with 0% down (80/20), and it had a HORRIBLE adjustable rate. About 6 months ago I was turned on to Dave Ramsey and per his advice, I paid off my 20% 2nd mortgage. In addition I refinanced my 30 year 80% adjustable first mortgage to a 15 year fixed rate mortgage. (which was effective Jan 1st 2009)

As of right now my mortgage principal is $201,403. The original balance was $204,000 but I've paid extra with January and February's payments.

My first big problem is I work in sales. My salary is 100% commission based. My worst months are $500-$1,000 and my best months are $20,000-$25,000. So as you can tell my income fluctuates like crazy!! :mad: That makes it very tough for me to determine how much extra I can pay each month.

Anyone else with an irregular income? And how did/do you handle it?

(right now I keep a 12 month emergency fund due to the odd nature of my job, should i just "pay as much extra each month as I can?" and if I hit a dry spell just dip into my emergency fund? My monthly bills (counting minimum payment on the mortgage) is right around $3,900)


Goal: To be mortgage free before I'm 30...so I have a little over 5 years GOGOGO!!!

phizzimum

Hi Mini Dave

Good to have you on board

What rate is your mortgage fixed at, and what are savings rates like in the US?

It sounds to me like you're being very sensible keeping a 12 month emergency fund. Employment is uncertain for everyone these days but being on 100% commission makes it even trickier for you. It's great to aim at being mortgage free but you have to be realistic too.

Who is Dave Ramsey? Is he the US equivalent of our Martin Lewis?

abouttimetoo

Hi Mini Dave, welcome to the board.

I was thinking the same things that phizzimum has asked. Also, with reference to your 12 month emergency fund, can you tell us a bit more about it, for example, it is based on the minimum you would need to cover 12 months committments based on last year or does it have other stuff built in, eg home repairs, car items, holidays, money to enjoy yourself.

If you were to have a 'worst month' with $500-$1000 income is this massively under what you need - do you know how much you would need to borrow from your emergency fund if you had a few months at $500.

One last thing - is the job market you are in relatively safe for you?

Regards
ATT

setmefree2

Hi mini Dave,

to MSE and with your mortgage free journey.

Keep your emergency savings pot in tact imho. As others say, check that you think it is sufficient.

We have been trying to be MF for nearly 6 years now. We don't really have a plan - though other MFWs do have a goal date - we just overpay our mortgage when we feel we a) don't need the money and b) there is no better place to put our money.

I tend to think of our financial position as a net debt position ie mortgage less savings. This way we're not tempted to pay-off-the-mortgage when we would be better saving it - say in cash ISA. But not everyone sees it like that. You'll find the best way for you I'm sure.

Tons of good luck on your journey. I'm sure you'll find loads of areas were you can save abit of extra money and keep posting.

Wanna_Be_Mini_Dave

Thanks for the warm welcome everyone.

First I'd like to say that 5 years is extremely optimistic. But hey, maybe if I shoot for the stars I'll land on the moon And 5 years is possible....I just have to keep up the super high sales figures. (so maybe calling it possible but unlikely is a fair statement, I'd put my chances at ~20%)

In regards to my job security, there are 72 salesmen in my company and in 2007 I was 5th best and 2008 I was 3rd best. So I feel like if layoffs started (and they haven't yet) that hopefully my results and younger age would help shelter me more then the average employee. (to be 100% honest I highly doubt I'll lose my job, but anything is possible) My biggest fear in the job realm is the fact that last year 20% of my entire income came from 1 client. And another 10% came from a group of companies that buy as 1 client (so they can get a discount). I mostly fear a plummeting income.

In regards to my 12 month emergency fund, it can cover everything. Car repairs, Christmas, Birthdays, doctor visits, animal expenses, basically the whole 9 yards. My wife and I have a pretty accurate and complete budget. (like right now we're saving for our next vacation which won't happen till November of 2010)

I tried to google who Martin Lewis is and my best guess is he's a "get out of debt" guru? That's what Dave Ramsey is. He's on the radio and is pretty popular in America. He basically says cut up the credit cards, only buy things with cash, get on a budget, build an emergency fund etc. He wrote a book called the Total Money Makeover which is hugely popular in the U.S.

In regards to the question about how long can my "bad months" can last, it's hard for me to say. I've had my job for 5 years now and I've never had 2 bad months in a row. However with the economy getting worse, I could see it happening for 3-4 months in a row maybe. Usually when I have a bad month it takes $2,000-$3,000 from my emergency fund or so to cover the rest of my expenses.

My mortgage is fixed at 6.25% If I put my money in a high yield online savings account (best rate you can get no risk) it's at 2.5% right now. Even if I put it in a CD or bond the most I could hope for would be 4%.

setmefree2

An interesting post. Keep letting us know how you get on:D Dave Ramsey does sound like a Martin Lewis, I'll google him when I have a minute.

Good Luck

SMF2

phizzimum

It seems that you're facing the same dilemma as many of us.

Low savings rates mean it makes more sense to reduce the mortgage - but financial uncertainty means our emergency funds are more precious than ever.

It sounds like you're a can-do kind of person, who would easily find work again even if you lost your job. But as you say, sales relies on other people/businesses having money to spend, so much is out of your control.

Have you used an overpayments calculator to see how much you would have to overpay to be Mortgage Free in 5?

Keep posting, it really helps to keep motivated!

Floxxie

There's this calculator for working in $:

https://www.jeacle.ie

P.S. Welcome to our board.

Floxxie

Wanna_Be_Mini_Dave

Floxxie wrote: »

There's this calculator for working in $:

www.jeacle.ie

P.S. Welcome to our board.

Floxxie

Wow, that's by far the best online mortgage calculator I've ever seen, thanks a ton!

My monthly payment is ~$1,750. If I pay an extra $2,200 it'll be completed in 5 years. If everything keeps going like it has "the past 5 years" I feel I can do it no problem. So I guess I'll keep my fingers crossed and "see how it goes"

Floxxie

No problem.

The calculator makes a mortgage seem like an achievable debt to pay off. I can spend hours working out how much an etxra poungd or two will make to my mortgage term.

Good luck on your challenge.

Floxxie

StuartGMC

Mini Dave
Welcome to our side of the pond and best wishes on the journey ahead.

One difference I think you have in the US vs UK is that you can claim tax relief on the mortgage interest which we can't do in UK? Does this hold benefit for you in terms of "augmenting" the interest savings would earn to any degree when looking at the comparison of savings vs OP on the mortgage?

In addition, your mortgages are typically fixed over a longer period than here, but, will you face charges for early repayment on your new 15yr plan?

If you OP I assume the cash is not available to draw down again if required?

OK, now a few comments; you note you and your wife (OH - "other half" is the usual acronym on this board FYI) have a good handle on the expenditure you incur. In combination with real data on true costs you can of course maintain records of true income then on a MAT (moving annual total basis) month by month, you should have a better handle on the average sum you can OP whilst keeping a day-to-day reserve in addition to the emergency 12month fund. Would this help address the question of how much to OP?

With a "routine" OP which now is part of your budget plan, like any other commitment, you can now proceed to build additional funds demarked as "possible OP" and drop these in when appropriate eg good income months etc without need to draw on the emergency funds at all in bad months. This should smooth your spend and income lines, perhaps allowing easier identification of any real "excess" or indeed trends in the opposite direction, better than reassessing each month?

Finally, you'll obviously be watching the trends in the sector in which you sell and the share values and comments in the media (Bloomberg?) on the companies who are your primary clients and others. This will help you to identify trends 6 months from now which is typically the inbuilt basis of the stock market valuation.

BTW credit cards aren't all bad if you treat them like charge cards and get the capital to work for you in the meantime but whilst offset mortgages started in Australia and came to UK in the past 5-10yrs(?correct me people) I don't think this product is available in the US?

I'll be in Houston and Atlanta next month so hope to be able to compare for myself the situation vs UK.