After flirting with the idea of moving last fall, we decided to stay put in our home. So we just refinanced into a 15-year, fixed-rate loan. We had 22 years left on our 30-year mortgage, so we shaved off about seven years for an interest savings of $75,000 over the life of the loan. Our interest rate dropped from 5.125 percent to 4.25 percent. We didn’t take out any cash. We like the idea of being entirely debt-free, including no mortgage, around the time our kids finish college.
Our new payment is a little bit higher, of course, because the length of the loan is shorter. But I’m thinking about accelerating the mortgage by rounding up the payment to an even number. I feel like it’s a fresh beginning with a new bank, and since I have to write a bigger monthly check anyway, why not train my brain to think of the payment as a nice round number right from the start?
For example, let’s say you took out a 15-year, fixed-rate loan for $175,000 at 4.25 percent interest. Your monthly payment would be $1316.49. Now let’s say you round your payment up to $1,400 a month — an extra $83.51, or a little less than $3 a day. You would be finished with the loan almost a year early and save $5,442 in interest. Check out Bankrate’s mortgage calculator to see how much you would save by rounding up your mortgage payment.
You could apply the same principle to a credit card. If your minimum payment is an odd number, say $41.26, round it up to at least $50. Obviously you want to pay down high-interest debt as fast as possible. But if you’re struggling and feel you can only make the minimum, use the rounding up trick to reduce the debt. Every little bit helps.
Some people think paying off a mortgage early is a bad idea with the prices of homes continuing to fall. U.S. home prices fell for the seventh straight month in January in 19 of the 20 cities tracked by the S&P/Case-Shiller index, according to a report earlier this week. It may indeed be a bad idea, depending on where you live and how soon you plan to move. Our home is less than 40 minutes by train to New York City, so while prices have definitely moved lower in our area, it’s not the shocking decline you see in places like Arizona, Nevada, Florida and California.
Moreover, I don’t think of an extra mortgage payment as a particularly good investment (I could probably do better in the stock market). I think of having the mortgage paid off before we retire as a form of insurance — a hedge against a job layoff, a pay cut or an unexpected medical expense.
Are you accelerating your mortgage payoff or would you like to? Why or why not? Comment here or email me at laura at laurarowley dot com.
- Understanding Points in A Mortgage Transaction
- Should you pay off your mortgage early or invest in your 401(k)?
- Financial Literacy Quiz
- What Really Happened in the Subprime Crisis?
- Should I Pay Off The Mortgage?
The April issue of the Atlantic offers a sneak peek at a new study by Boston College on the super rich — those with fortunes above $25 million. Respondents gave written replies to survey questions relating to love, work and family. The conclusion: The very rich have different problems from you and me, but problems nonetheless.
I know — cry me a river. We could all figure out how to be happy with $25 million-plus. But in any case, the study, which will be published over the next several months, reveals some of the wonderful benefits of being merely comfortable – and even suggests that the pursuit of extreme wealth isn’t a worthwhile use of time (especially if it crowds out other values).
First, there’s the issue of career fulfillment. Like everyone, I’ve occasionally fantasized about winning the lottery and filling my days with tennis and manicures and home decorating (none of which I do now). But I’ve realized life is pretty simple when you have to work for financial reasons. It removes all ambiguity, uncertainty, waffling. I don’t have to explain to my kids why I do what I do — I enjoy my work, but it also pays the mortgage.
Growing a career demands energy, effort, discipline, and ever-changing skills. It keeps you on your toes. The payoff is satisfaction, confidence and — for every difficult work relationship you learn to tolerate and manage — a certain amount of wisdom and empathy.
By contrast, freedom from the need to work can produce anxiety. As one survey respondent wrote: “In my own life, I have been intimidated about my abilities because I inherited money.” Ultra-wealth can facilitate a slide into shiftlessness, thrill-seeking or risk-taking, or at minimum raise the question of “whether one’s time is well spent,” as the Atlantic put it.
Moreover, the very wealthy who do work can leave the moment a job gets boring or frustrating, and have the wherewithal to act on their take-this-job-and-shove-it impulses. The Atlantic story gives the example of an intelligent man who earned an M.B.A. but hopped from one tech job to the next. “At some point, something would happen at each job that those who have to work for an income would learn to tolerate,” said a researcher at Boston College. “And he’d just say, ‘I don’t want to deal with this.’ Eventually he had to say, ‘I don’t have a career.’”
Second, there’s the issue of friendship and love. I am confident that my finances (or lack of them) play no role in the fact that my husband or friends hang around with me. By contrast, the respondents across the board felt their relationships were somehow altered by their wealth. Some people who came into a windfall found certain friends disappeared and others materialized when the money showed up. “Very few people know the level of my wealth, and if they did, in most cases I believe it would change our relationship,” wrote one respondent. Another noted: “I start to wonder how many people we know would cut us off if they didn’t think they could get something from us.”
Others struggled with when to reveal their wealth during a romance: “If you tell (someone) too soon, you are going to worry that they want you for your money,” a Boston researcher said. “If you wait too long, can the person really trust you?”
The biggest worry of the ultra-wealth is how the money will affect their children. They fret about raising ungrateful, entitled, unmotivated brats. (How do you get the kids to mow the lawn when you have a gardener? asked one respondent.) The money can create inter-generational dysfunction as well, with wealthy parents, who grasp the strings to the grandchildren’s trusts, holding psychological sway over their adult children.
Finally, the rich squander energy worrying about the money itself. “Sometimes I think that the only people in this country who worry more about money than the poor are the very wealthy,” said one Boston researcher. “They worry about losing it, they worry about how it’s invested, they worry about the effect it’s going to have. And as the zeroes increase, the dilemmas get bigger.” They also recognize that it’s obscene to share their worries about security, relationships and work when millions live below the poverty line. That can be a lonely perch to occupy.
Would you trade your life for the life of the super-rich?
- Relying on One Kind of Wealth Creates Fear
- Perceptions of Security Matter As Much As Money
- More Factors that Affect Wealth-Building
- Stay Married, Get Rich
- Aligning with Your Partner Financially
Spring is a great season for free tomato seeds for your garden. (Think homemade salsa by summer!) That’s just one of the hot deals offered this week for M&H readers by Julia Scott, founder of the Bargain Babe. Check them out:
Scoop up free Haagen Dazs ice cream when you share some personal information with the company’s Facebook page. It’s unclear when this promotion ends.
Sam’s Club membership is free for one day with this coupon. You can redeem it anytime between now and Jan. 31, 2012. However, you do have to pay a 10% surcharge on everything you buy. So don’t buy more than $400 in stuff — it will cost you more than joining the club for a full year!
Hot! Grab this Sephora coupon to get a free mascara and a free Express Service, which is a quick makeup lesson. Valid only at Sephora’s inside JCPenney’s through Apr. 7, 2011.
Got good grades? Get a free DVD rental from Blockbuster Express with a current report card and an average of B or higher. Students from kindergarten to high school are eligible.
Start your very own ketchup garden with free tomato seeds from Heinz and Red Robin restaurants. While supplies last.
- My First Grocery Freebie
- Costco Coupon Policy
- Save on Groceries At Couponmom.com
- Check Your Receipts for Errors
- Valentines Freebies from the Bargain Babe
I got a little Valentine’s Day present from my credit card company today. I thought I knew everything about the ins and outs of credit card companies, but I just learned a new one. Here’s the background: I scheduled a payment to my Citibank credit card through my local bank’s online bill pay, giving the bill six business days to clear. Six business days later, Citi shows no payment.
So I call my local bank, which told me it issued and mailed a paper check to Citibank six days ago. I was stunned. My bank’s customer service rep could not explain why her employer couldn’t accommodate an ACH transfer to a giant money center bank.
“They’re not in our bill pay system,” she said.
“But it’s Citibank!” I protested. “You know, Citibank – third largest bank holding company in the U.S., $25 billion taxpayer bailout….?” (The paper check thing bothers me so much I may switch banks. It speaks volumes about the technological capabilities of my bank, not to mention the impact it must have on trees.)
So I contacted Citi, explained the situation, and the rep said she would put nine “grace days” on the account, extending the due date by nine business days with no additional charges or interest rate repercussions. In a week or so, if they still don’t have the check, I’ll have to put a stop payment on the original and issue a new payment. I’d never heard of grace days, but she said since I’d been a client for 20 years the bank was happy to extend them. So if you find yourself in a similar situation where your credit card payment will miss the deadline for whatever reason, call and ask for a few grace days to avoid a late fee and possible hike in your interest rate. (Get a confirmation number from the credit card company to prove you received the grace days.)
Has your credit card company done you any favors lately?
- Citi To Offer Consumer-Friendly Check-Clearing
- Fed Limits Credit Card Fees
- Avoiding Overdraft Fees with Account Alerts
- Regulators May Ban Unsavory Credit Card Practices
- The Move Your Money Campaign
What makes people happiest on the job? A new survey by the web site CareerBliss.com shows that money isn’t even in the top three. See my recent post at RealSimple.com for more. Meanwhile, if you’re not happy, or if you’ve experienced a layoff or life change (marriage, kids, a health situation), those factors may prompt a reevaluation of your career path. If you find yourself considering a shift, where do you start?
First get a handle on your personality, advises Shoya Zichy, a New York career coach and author of Career Match: Connecting Who You Are With What You’ll Love To Do.
“The personality is pretty stable throughout life – your interests and values change but your personality holds stable,” says Zichy, who was in private banking for 15 years. “Understanding what drives you, what gets you excited, is really key.”
In her book, Zichy offers a test based on the Myers-Briggs analysis, which teases out the ways you think and make decisions, and the working environment you prefer. Zichy says most people fall into one of four “color” categories: reds, who are competitive, adventure-oriented, good at improvising and crisis management; greens, creative, abstract thinkers who are empathetic and diplomatic; golds, goal-oriented, well-organized people who like procedure and structure; and blues, who enjoy theory, complexity, learning, and challenging the status quo.
Understanding your personality should come before a skills-assessment, agrees Travis Bradberry, president of TalentSmart, a San Diego consulting firm providing training and testing to 75 percent of the Fortune 500. “There is a strong link between self-awareness and job performance,” says Bradberry.
Bradberry, author of The Personality Code, conducted a six-year international study involving 500,000 participants. He tested for self-awareness, and cross-referenced those scores with job performance ratings. More than 80 percent of top performers scored high on the self-awareness test, while just 2 percent of poor performers did.
Self-aware people “understand their own tendencies, what motivates them, what situations and people make them want to get out of bed,” Bradberry says. People who are not self-aware “are not honest with themselves; they don’t realize they are deceiving themselves. They point their finger at the boss or co-workers or decisions up top” because they don’t recognize that the job or workplace clashes with their personalities.
How do you become more aware of your tendencies and preferences? “Look at the people you connect with and figure out what you like about them,” Bradberry suggests. “Maybe you love to golf with your friend Jim or you click with Sara at work or your brother-in-law. Maybe they’re all extroverts and free thinkers. Who you like to associate with says a lot about who you are and what’s going to motivate you.”
Next, identify your “joyful skills,” advises Andrea Kay, Ohio career consultant and author of Life’s a Bitch and Then You Change Careers. “People will say, ‘I’m good at planning, but I don’t like it,’” says Kay. “Joyful skills are the things that come naturally, that you enjoy doing and that others have rewarded you for.”
If your joyful skills aren’t readily apparent, start by listing what bugs you about your most recent job. “Saying ‘I never want to deal with clients again’ is another piece of data that helps you come up with vision of what you want,” Kay notes.
Zichy suggests reflecting on peak experiences at work, school, leisure, or volunteer activities. “Sit down and analyze what you were doing, who you were with, and why you were so high about what you were doing,” she says. “Find five or six of these stories and you’ll start to see a pattern.”
Even if you realize your heart lies elsewhere, it’s not necessarily a matter of throwing away your profession and starting from scratch, but “finding that bridge — taking what you know and spinning in new direction that will be more satisfying,” Zichy says.
She describes a successful partner in a Wall Street law firm who saw a therapist twice a week because she hated the brutal confrontations her job required. She went back to school for her master’s in social work and because a therapist – for lawyers. Another client, an investment banker passionate about making jewelry, runs his business on the weekends, and is managing his money so he can retire at 50 and do it full-time.
“View your past life as a tapestry with everything contributing to where getting now – if you remember that, you won’t get discouraged in the process,” she advises.
Meanwhile, if you are laid off, take time to process the event, says Kay. Give yourself the space to examine why it happened, and quickly determine how long you can go without a paycheck. After a layoff, “most people are driven by fear rather than facts,” she says. “If you’re operating out of fear, you’ll be panicked rather than prepared, and take the first thing that comes along. You’re not going to examine all the information that will tell you if the next job or company is right for you.”
Also take into account the cost of your lifestyle, and your willingness to change it, says Kay. For instance, you may love teaching, but “the market rewards certain industries more than others, and teachers are not rewarded greatly. If you need to make X, think about what industries value people who teach but also reward their skills and endeavor” such as corporate training.
Although recessions often prompt vocational soul-searching, “people should be doing it when the economy is good,” Kay argues. “This is the art of self direction, taking charge of your career — and not waiting until you get kicked in the butt.”
(Adapted from my Yahoo!Finance column)
- Is Your Personality Hindering Your Paycheck?
- Structuring Your Resume to Close a Gap
- Don’t Cling to a Job You Hate for the Money
- Location, career, kids and compromise
- Would You Want the Woes of the Super Rich?
Julia Scott, who blogs at BargainBabe.com, will be providing some of her best insider deals to moneyandhappiness.com on a regular basis. Julia’s a girl with an eye for a bargain — and this week her focus is on Valentines Day freebies:
Free ice cream – On Valentine’s Day from 3-6 p.m., Marble Slab Creamery will be giving away free ice cream. Yum!
Free Valentine’s Day crafts – Here are five easy and free Valentine’s Day crafts, including a heart with wings that Julia is going to make for her sweetie!
Free taco - Get a free crunchy taco with this Taco Bell coupon, borne out of the Taco Bell lawsuit about beef.
Free DVD rentals – Here’s one nice Valentine’s Day freebie. Send a card through Redbox and get a free movie rental coupon!
Free Krispy Kreme - Buy a dozen Valentine’s-theme donuts and get 12 cards that have coupons for free donuts, coffee, or hot chocolate. Ends Feb. 14, 2011. Look for heart-shaped donuts with sprinkles, a chocolate iced donut with sprinkles, or a chocolate iced heart with red drizzle. At participating U.S. and Canadian stores.
Thanks Julia! Elsewhere, my Yahoo!Finance column this week looks at a new study showing people spend and consume when they’re feeling socially isolated, excluded or rejected. So watch your wallet if you’re feeling down on Valentines Day. (Take advantage of Julia’s freebies instead!) And over at my blog on RealSimple.com, a post on how the CARD Act might make it difficult for stay-at-home parents to get access to credit cards. As a general rule, married couples should keep individual credit cards in their own names; in the event of a divorce, if both names are on the account, both people are responsible. New rules proposed around the CARD Act would basically force couples to co-mingle their credit. See the post for more.
- This Week’s Freebies from the Bargain Babe
- Check Your Receipts for Errors
- File Taxes for Free & Other Bargains
- Declaring Your Financial Independence
- Asking for “Grace Days” on a Credit Payment
My previous post (and most recent Yahoo!Finance column) examined character traits and behaviors that make people rich. I included research showing that people who ranked high for conscientiousness and emotional stability had higher lifetime earnings. Now comes intriguing new research that finds young children’s self-control skills — such as conscientiousness, self-discipline and perseverance — predict their health, wealth and criminal history later in life regardless of IQ or social background.
That’s according to latest findings out of the University of Otago’s Dunedin Multidisciplinary Study, a long-range study of 1,000 New Zealanders born in Dunedin between 1972 and 1973. The research was published this week in the Proceedings of the National Academy of Science. Researchers followed the children during the first decade of their lives. They were assessed by teachers, parents, observers and the participants themselves on a range of measures including “low frustration tolerance, lacks persistence in reaching goals, difficulty sticking with a task, overactive, acts before thinking, has difficulty waiting turn, restless, not conscientious.”
Even after accounting for differences in social status and IQ, children as young as three who scored lower on measures of self-control were more likely than children with higher self-control to have the following outcomes as 32-year-old adults:
* Difficulty with financial planning (including savings habits, home ownership, investments, retirement plans)
* Difficulty with credit and money management (including bankruptcy, missed payments, credit card problems, living from paycheck to paycheck)
* Physical health problems (including poorer lung function, sexually transmitted infections, obesity, high blood pressure, bad cholesterol, dental disease)
* Substance dependence (including tobacco, alcohol, marijuana, and harder drugs)
* Rearing a child in a single-parent household
* A criminal record
On the bright side, self-control can be taught, the researchers said, especially if parents start young. “…children whose self-control increased with age tended to have better adult outcomes than initially predicted, showing that self-control can change and with desirable results,” said co-author Terrie Moffitt of Duke University and King’s College London in a press release. For ideas to improve self-control in kids, see this column.
- Failing to Plan Is Planning to Fail
- Unemployment Is Deadly, Especially for Men
- How to Double A Child’s Odds of Attending & Graduating College
- Everybody’s Working for the Weekend
- More Factors that Affect Wealth-Building
That headline, a quote from legendary basketball Coach John Wooden, is one of my favorite. Today’s Yahoo!Finance column looks at personality traits and behaviors that are closely correlated with accumulating wealth. Research has found one of the most significant factors is something called “propensity to plan.” Planners have higher levels of net worth and gross financial assets.
I interviewed John Ameriks, an economist at Vanguard and co-author of the research, about this trait. He said along with being conscientious, organized and thorough, people with the propensity to plan also tend to set a budget for their overall spending.
“It’s the opposite of the absent-minded consumers, the people who are not monitoring what they spend very closely,” said Ameriks. “In the economic models we could work out, simply by monitoring expenditures and paying attention to them you can get higher wealth accumulation.”
Although budgeting is essentially just mapping out where one’s income goes, the researchers suggest that people who budget see the activity as one that helps reduce their spending. “We hypothesize that households are sometimes spending at an excessively high rate given their actual preferences and resources,” the researchers write. “Those with a high propensity to plan both notice this pattern of over-spending relatively early, and find it relatively easy to correct. Those with a low such propensity notice problems later, and find them more difficult to correct. According to this vision, saving may be as much a matter of skill as of preference.”
Could it be that planners simply hold more stocks and therefore accumulate more wealth? The answer is no. On average stocks made up about 63 percent of financial assets in the research regression sample. Even those who reported low planning levels had 60 percent of their financial wealth in equities.
Another motivation that boosts wealth: the desire to leave an inheritance to family or charity. “The bequest motive has a significant positive impact on planning, and has a separate positive impact on wealth accumulation,” the researchers write. “Those with higher bequest motives accumulate more not only because of their greater concern with the size of their bequest, but also because the desire to leave a bequest induces higher planning.”
In the story I also talk about conscientiousness; Angela Lee Duckworth of the University of Pennsylvania and David Weir of the University of Michigan have found that this personality trait leads to higher lifetime earnings. Duckworth studies something she calls “grit” — a combination of courage, focus, the ability to delay gratification and persevere over the long-term — that leads to success. See my column on her work and check out her TED talk here on that topic.
What personality traits, habits or behaviors have helped you accumulate wealth (or hurt your efforts)? Comment here or email me at laura at laurarowley dot com.
- Why Budget Shoppers May Be More Likely to Overspend
- Self-Control in Kids Leads to Wealth, Health
- More best-kept financial planning secrets
- Stay Married, Get Rich
- How to Double A Child’s Odds of Attending & Graduating College
- Another Reason to Choose a State College
- How Does College Affect Salary Potential?
- Advice for the Homeowner Looking to Trade-Up
- Student Loans Are Not “Good” Debt
- Why It’s Harder to Make Ends Meet
The New York Times had a fascinating chart on the Economix blog yesterday showing income distribution in the U.S. Basically it suggests that for Americans below the 95th percentile of income, the income distribution is relatively flat. For instance, moving up from the 30th to the 35th percentile of income would require a raise of $4,000 (or about 17 percent).
However, once you pass the 95th percentile, the jumps in income are extreme. Someone who wants to rise from the 91st percentile to the 96th percentile would require an increase of $324,900 (or 171 percent). The writer suggests this is why so many rich people don’t feel rich — they are comparing themselves to the Jones’ — and falling much farther short of those aspirations than people below the 95th percentile who compared themselves to the neighbors.
I’m not sure if I agree. Would people at the top and bottom of the highest income bracket really live in the same neighborhood and have the opportunity to do relative comparisons? For instance, which of these four groups do you think would be most likely to live in the same neighborhood?
-the 99th percentile ($515,000)
-the 94th percentile ($190,000)
-the 70th percentile ($76,100)
-the 50th percentile ($44,400 in income)
I would guess the two in the middle are more likely to be neighbors, and thus more likely to make relative income comparisons than the two at the top. What’s your view?