Sayreville & Piscataway NJ Real Estate Blog

It is always thought-provoking to see what other bloggers write. I read the JD Roth article, Mortgage Prepayment Made Easy: Own Your Home in Half the Time, while I agree that paying off the mortgage sooner rather than later has emotional advantages (Who doesn’t want to own their home outright?) , the goal like the name of the blog was to get rich slowly. So while his method of paying off his mortgage was to pay the mortgage company principle only payments, I find a different method more to my liking (#6 below). The thing each of us on the road to wealth must bring with us is discipline. It will require quite a lot of discipline to reduce spending and eliminate debt. It will also require a lot to make payments, be they mortgage, utility, or cable, on-time, every time. 

Reducing spending frees money to help eliminate debt. As the amount of indebtedness decreases, wealth building opportunities increase. With the increase in foreclosures and people just walking away from their homes and mortgages, here are a few tips that might help homeowners and buyers before they find themselves on the road to foreclosure.

1. Pay your monthly bills on time for at least six months before beginning to shop for a mortgage.
   • Primarily this is for buyers but if you are behind in your mortgage don’t exacerbate things by not keeping your other monthly bills current. Paying bills on-time will effect your FICO score.
2. Where possible pay off all other debt.
   • Ideally it is much better to pay off credit cards and bank the payments to  “rainy day” account that is equal to the credit card limit. Homeowners need about $4000-$6000 cushion against repair/replacement costs.
3. Reduce food, gasoline, and entertainment expenses.
   • Dining out and movies are treats. In our fast food society it is often convenient to just grab a burger meal for dinner.  Discipline is knowing when the budget will allow for a treat and when it will not.
4. Get a copy of your credit report and make sure it is correct.
   • While there is usually some lag between paying off a debts and the updating of the credit report, it is your responsibility to correct any errors in the report 
5. Begin saving enough to cover all your bills for 4-6 months. Do this as you are paying off the credit cards and any other debts. The amount of this account will of course vary from family to family but in the event of some unforeseen catastrophe, it will mean the difference between frantic desperate measure and just desperate measures.
6. Know up front with banks you are either current in your account or you are delinquent. They do not recognize that you prepaid two month ago. It is better to put your extra mortgage payments in a prepayment bank account and let it earn interest. Pay the mortgage regularly until the prepayment account is equal to the mortgage balance then write the one check for the mortgage. Watch the monthly balance in the account grow closer to the amount owed feels just as good as getting that monthly statement from the mortgage company. By banking the money yourself, should something happen and you cannot pay the mortgage from your regular earnings you can pay it from the prepayment account. Having that cushion against hard times could be the difference between keeping your home and losing it.
7. Pay the maximum retirement account payments.
   • As you payoff credit cards increase the amount of money you pay into your retirement account until you reach the maximum allowed.
   • Yes, I know I said earlier to use the money to build a cushion for repair and replacement costs but the retirement account needs to be increased as soon as possible.
8. Begin to invest in things that will produce passive income. That means something like bonds or even stock. 
   • As money becomes available through the achieving of eliminating debt, hitting target saving goals, maximum retirement savings,  etc. the money should be invested into income increasing ventures.
9. Stay the course. In order to be in a position to build wealth one has to have the discipline to resist the temptation to spend unwisely, accumulate debt, or decrease investment dollars.  One also must be able to forgive past mistakes, recognize the lesson each has to teach and keep working toward your goal.
10. Treat yourself once a month. If you have done everything else as you should, then remember to treat yourself once a month. Rent a movie, take in a show, or have a nice dinner out. Whether it is date out night or snuggle together in night, make it special for a job well done.

Now, I make no guarantee this will work for everyone, but I know it works. Don’t jump in expecting to get it right the first time. You are a babe, and babies crawl and fall down before they are steady on their feet. Discipline is learned and mastering saving rather than spending takes time. Just know you are not the first to step on this road and certainly not the last. Remember number 9 when you make the mistakes that are part of growing wealthy.