I always overpay my mortgage by $15.oo each month so that I am now two months ahead. that means I owe a mortgage payment in Feb of next year. my goal is to keep about a 300.00 credit in both my electric account and my water/sewage bill and garbage bill. I do this in case ... 1. I forget to pay one of these in a month. No penalties or fees. 2. I end up in the hospital and am indisposed (nobody is going to remember to pay my water bill while I lay in post op) 3. I get fired, quit my job and need that cushion for a month or two. 4. I need to move and can use the surplus refunds as my start-up in my new address. Does anybody else do this instead of keeping these funds in a savings account? , is it as smart as it seems?
How long have you been doing this? In my state they cannot hold a credit on your account like that and have to send you a check after so long. It's a non-interest bearing account they can't just sit on it. Why not Open a savings account that does pay interest, hopefully more soon and build up and emergency fund and then on top of that a fund to save up for large purchases. Sign a power of attorney over to someone in case you are indisposed. Plan ahead to have automated payments made out of your account
I do have a savings account, but savings accounts do not pay enough interest in an entire year, to compensate for even a single bounced check 30 dollar fee or penalty! You get NOTHING from savings interest. That power of attorney is great if you are indisposed for 4 or 6 months, but not one or two. I could allow a loved one access to pay my bills to someone I trust, but they are not going to be thinking of my car payment or my electric bill when tragedy strikes. Its the last thing I want them to have to worry about. Automated payments make me nervous because I tend not to pay enough attention to the details on those bills. I won't see the fee increases, or the electrical use patterns etc.
I pay an extra half mortgage payment every month in most months other than when property taxes or my annual homeowners premium are due. I sometimes throw money into my brokerage account when I have extra which is readily gotten back within a matter of a week if need be. I really don't have to worry about those bills getting paid if something happens to me like an illness or injury. My Bookkeeper and my sister are both anal about making sure bills are paid, both are my powers of attorney, and my bookwench has multiple presigned blanck checks from my business accounts and my sister from my personal account so I am covered either way. If I croak, my money bags sister will be getting a million bucks in insurance so she is covered regardless. No it is not a horrible idea what you are doing, but if you are not being paid interest, it is not the best thing financially speaking. Interest is so low though, it is really more theoretical than reality you could do better. Now, one month I had the flu when my utility bill was due and completely forgot I did not pay it. I always have a credit balance as I just round it up every month (say my bill is $252. I will pay some random amount above that up to $300) so when I freaked out when I realized I forgot to pay my bill a few weeks after it was due, the lady did waive the late fee without me asking based on my history of having never ever been even close to late before. Prepaying your mortgage can be a bit convoluted if you have to refinance. On a commercial loan, we were paying the whole year in January. When the ARM was adjusting in December and we went to refinance, we ended up having to write a second check for an additional interest payment. You would be better off in the long run just making that an extra payment toward principal. Banks have to wait 6 months to foreclose on you under federal law now anyway.
Thank you. That all makes sense to me. I am unmarried and have no 'bookkeeper'. Just three kids who are liable to forget. Somehow if I think of myself has having paid up on these bills x months ahead, saving money is easier because my goal is more concrete than x months of savings or putting aside x percentage of your check and at least this money I can't spend it on a vacation to Hawaii.
Is a good strategy for someone who already has... ... a couple thousand in a regular savings account... ... but not for someone who may be in need of quick cash.
I do something similar. I always round up my payments to utilities, for reason number 2. That way, if I'm in the hospital ect, I will still have a "payment" credited to the next month's payment, even if it's just a few cents. That pushes the calendar for their action as far as reporting my to the credit reporting agencies back a month. I think.
Part of financial security is doing the things that make you feel most secure. For me, that will be paying off my mortgage. For some people it seems to be never owning a house because fears of unexpected maintenance..
I have what I call a 'long term' savings which is in fact the residue of my father's retirement fund which has all the limitations that a retirement fund carries, including huge tax penalties and a cumbersome slow process to gain access, and it is by definition in its 'withdrawl phase' which means a requirement that 250 a month be withdrawn. I actually receive 155 per month. That has about 75,ooo in it. In my savings account I keep between 1000 and 2000 dollars. I can't seem to ever get much more before car trouble hits, or I have to replace a water heater or something. Thus the overpayment of my bills seems the only way to get to a two or three month emergency savings, that experts like.
I agree, the first thing you need is an emergency fund in a readily accessible account. But then again just letting money sit as a credit in a CREDIT account is simply not putting your money to work. I had an credit due to a refund being made for $9 in a credit card I hardly use. After three months they sent me a check to clear the credit. Don't let other people use your money unless they are paying you to do so, pay off your credit card every month, owe a little tax on April 15th, have your emergency fund and invest everything else. My bank has a program that everytime I use my debit card $1 gets transferred from my checking to my savings and at the start of the month $100. When I get over $1500- $2000 in it I transfer to my brokerage cash account and when that gets over a certain level that surplus gets invested in the markets.sd
