First, congrats to my fellow blogger, Len Penzo on his 16th wedding anniversary. This week he posted What Were They Thinking? 10 Grocery Product Ideas That Flopped. Well, Len, if you’re reading, my favorite product to fall into this category is “I hate peas.” I remember it somewhat fondly, and of course a quick search found that I wasn’t the only one. “I hate peas” was a product made of, yes, peas, but shaped like french fries and fried up. It was made in the 70’s before packaging was required to list things like calorie and fat content. I suspect the added fat negated any benefit of coaxing your kids to eat peas. Kind of like broccoli tempura, which I love.
Photo Credit: Gone But Not Forgotten Groceries
Jeff at Deliver Away Debt talked about Emergency Credit Cards, asking Is a credit card necessary for emergency purposes? For those in the debt payoff mode, Jeff’s answer was a strong “no.” And I agree. Jeff has done a remarkable job paying off his own debt and documented much of his progress at his blog. An inspiring story.
Boomer wrote How To Pay Off Your Mortgage Faster. If that’s your desire, go for it, but for reasons I put in my comments at Boomer and Echo, I’d avoid the Bi-Weekly mortgage.
From the department of really stupid tax mistakes, Joe Kristan posted Million dollar mortgages: when division = subtraction. A great warning about how choosing the wrong filing (joint vs marries filing separately) status can cost you dearly.
Generation X Finance article How Bartering and Trading Helps You Make Money and Help the Environment really intrigued me. There was no talk of tax consequences. As I understand it, the trades mentioned, even trading clothes for other clothes, is considered a taxable barter transaction. Hmm, I wonder if anyone will add a comment or question about that at Gen X.
And to wrap up this week, Hank Coleman wrote Being Too Frugal Can End Up Costing You Money. He offers instances of taking frugality too far, which really bring the point home. Good examples of when you don’t want to be that guy.
Not all biweekly mortgage payment plans are equal. If the mortgage is originally set up to require biweekly payments instead of the more usual monthly payment, then the savings are comparatively small to nonexistent and may be hidden in differences between the interest rates offered. On the other hand, if a home-owner has a standard mortgage requiring monthly payments and simply pays half the monthly payment amount every two weeks, then in effect the owner is in effect making thirteen monthly payments each year instead of twelve, and so the mortgage is paid off faster and the savings are considerably more. But why bother? Well, some folks are paid biweekly, and might find it more convenient to do their budgeting on a biweekly basis. Also, in these days of automated electronic funds transfers, it is not necessary to go down to the bank with a coupon to hand in along with the check, or do the same thing by mail and spend money on stamps! So I urge you to rethink your strong objections to biweekly mortgages; maybe they are of some use to some people.
Dilip, I’m not so against the idea of prepaying, although in this low rate environment, it would be low on the list of priorities. I do agree, if one wishes to prepay and sync with their own pay cycle, the appeal of biweekly is there. Some banks will have an issue accepting a partial payment and the DIY bi-weekly takes more thought than simply paying every two weeks. So the process would be to ‘set aside’ the half payment, and when the next half is available, make the full payment. It’s only when a payment is due and you’ve accumulated three half payments that you then make a principal-only payment equal to half the mortgage payment due. So the process itself is tough to automate, that principal payment needing special attention.
In my experience, budgets are a great tool, but people are always happy to get a windfall. This is why when I write that a tax refund is nothing to brag about. My response is usually, “You lent the government money tax-free, withholding too much all year, and now you brag that they are sending it back?” I find that they use it as a savings account, and like the ‘bonus’ in April. The bi-weekly paid people like to look ahead and see that they have 3 checks between mortgage payments twice per year. That check might pay off a credit card or go to savings. To your point, if they’re up to date on the rest of the budget, a prepay is great. My “hatred” of the biweekly was targeted more toward the sale of it as a product, either an addon to the existing loan, or sold by the bank. As DIY, it makes sense, if understood.