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Why An Emergency Fund Is A Must-Have

March 1, 2019 By Thinking of Someday

Emergencies tend to happen when we least expect them. After all, isn’t that part of what makes something an emergency? However, only 40% of Americans can cover an unexpected $1000 expense with money they have saved. Given this, you would think that having even a small emergency fund would be a must-have. Most people know they should have something in savings, but they might not truly realize what it is and the importance of having one.

What’s An Emergency Fund?

An emergency fund is money that is set aside in a savings account to cover unexpected expenses. Unexpected expenses could include things like:

  • major unexpected car repairs
  • an ER visit
  • emergency dental work
  • appliance repair or replacement
  • job loss

An emergency fund is not to be confused with a sinking fund, which is money that you set aside for expenses that you know are coming up, for example, minor car repairs. You don’t want to get in the habit of pulling money from your emergency fund for expenses that you should be saving up for anyways. Why? Because when an emergency occurs you run the risk of not having enough money to cover the emergency.

There are two different types of emergency funds that we have utilized:

  1. Mini Emergency Fund
  2. 6+ Months Emergency Fund

Mini Emergency Fund

We had a mini emergency fund when we were getting out of debt. The point of the mini emergency fund is so you don’t risk accruing more debt by using a credit card or taking out a loan when something unexpected happens.

How much should a mini emergency fund be? At least $1000. We started with $1000, but it didn’t seem like enough, and we didn’t want to have to pause getting out of debt to build up our emergency fund again if we had to use it. So we upped it to between $1500 and $2000. Another option if you do prefer to only have $1000 while getting out of debt is to cash flow any emergencies that come up so that you don’t have to touch your emergency fund and replace it.

6+ Months Emergency Fund

The point of this emergency fund is to save 3 to 6+ months worth of expenses. Why? Just in case something happens like job loss or an extended absence from work that may result in limited or no income.

After we paid off all our debt except for our house, we started to work on saving up our 3 to 6+ months emergency fund. At first, we were fine with saving only 3 months of expenses because the process seemed to be taking forever. However, once we reached that goal we figured we might as well save up for 6 months of expenses. And plus, 3 months worth of expenses didn’t seem like enough if one of us were to lose our job.

We had that amount until recently when after having our second child I (Kim) felt like we should have more money saved. You know… just in case. I wanted to have a year’s worth of expenses saved up, but that task seemed daunting at the time to Omar and even me. So my compromise was to take the money we saved for our master bathroom remodel and transfer it to our emergency fund. This put us at having 9 months worth of expenses saved up… And having to start all over with saving for the bathroom. #AdultingWin I suppose?

What Expenses To Include For The 6 Months Emergency Fund?

Everyone’s expenses may differ some, especially depending on what expenses you choose to include. Here’s what we included in ours to give you an idea…

  • mortgage
  • taxes / insurance
  • alarm system
  • electric / gas / water (estimated $100 for each although our water bill is only $20-$30 per month and the electric and gas bills are opposite of each other depending on the season)
  • cell phone
  • internet
  • groceries
  • gas for both cars
  • car insurance

We then took the total and multiplied it by 6 to get the amount that should be in our 6 months emergency fund.

Where Should An Emergency Fund Be Kept?

Your emergency fund should be kept in a savings account. You should have easy access to the account, but not so easy that you might be tempted to use it for something that’s not an emergency.

We kept our mini emergency fund in our joint savings account.

For a while, we had our 6 months emergency fund in our joint checking account too. But once we decided to refinance to a 15-year mortgage, we chose to go with our credit union as our lender. I wanted to move the money to a different bank because it felt like the old saying of “too many eggs in one basket.” So we moved the money to a money market account at another credit union. This way we would still have easy access to it if the need arose.

However, after some time Omar realized that the interest we were gaining on our emergency fund wasn’t much at all, and he wanted more. The point isn’t to gain interest per se, but if the money is going to be sitting there, then why not? After some research, we decided to move it to Ally, which is an online bank with interest checking and savings accounts. Currently, their rate is 2.20%. It does take a couple of days for the money to transfer. So a good thing to do is keep $2000 or so in your regular savings account just in case you need the money ASAP.

How To Build Up An Emergency Fund

Start with your budget. If you’re not doing a budget, then you need to start. Doing a budget can help you figure out how much money you can save for your mini emergency fund or your 6+ months emergency fund. If you need help getting started with doing a budget, click here.

Set your goal. Decide how much money you’re going to aim to save per month (or per paycheck). No matter how big or small the amount, start somewhere. Saving for your emergency fund is an emergency.

Re-evaluate as needed. Once you start saving, it may go slower or quicker than you expected. After a couple of weeks or months, re-evaluate your budget and your goal to see if there’s any room for improvement. Is there anything you can eliminate from your budget to make the process go faster? Is there any extra money coming in that can be used to make this happen even faster?

Our Experience With Having An Emergency Fund

“Small Scale”: Cars Break

When Kim and I were dating in college she had a late 90’s Honda Accord. It was a great car. It got her to work and to school reliably… for the most part. Just like every other car it required maintenance. I remember several times when Kim would take her car to the mechanic for an oil change and they would tell her she needs something else. Or that time her check engine light came on and she had to get her O2 sensors replaced. Sometimes when one of these events took place she would call me crying asking me how she was going to pay for this. Like most college students she made just enough to squeak by and have a little bit of fun.

I had a decent job working at UPS part-time while going to school full-time and made decent money for a college student that lived at home. I gave her a hand with these costs when I could. These repairs maybe cost $450 dollars at most. Thinking back it amazes me that those events, emotionally, were emergencies! Now we save for car repairs as we know they will be approaching.

“Big Scale”: A HVAC Can Break Too

Holy Crap…our HVAC went out and it was 35 degrees outside. Actually, it was about 35 degrees inside too. This happened towards the end of 2016 just as we were getting ready for our kitchen remodel. Seven years ago this would have been an EMERGENCY. I mean, it still was, but just follow me for a minute. The usual question would be going through my mind, “How are we going to pay for this?” However, this wasn’t a grade A emergency. It was downgraded to an inconvenience. A huge inconvenience, but an inconvenience nonetheless. Why? Because we had our emergency fund.

However, we were faced with a tough decision. Do we go ahead with our kitchen remodel that we’ve been waiting for and saving for and use our emergency fund to cover the HVAC??? Or do we hold off on the kitchen remodel and use the money for our new HVAC system??? Talk about when “adulting” can truly suck.

What did we choose to do? In this case, we chose to not touch our emergency fund and use the money for the kitchen remodel instead. Why? Because we didn’t want to have to pay ourselves back. The bright side of this situation is that we were able to get the HVAC and still get the countertops for the kitchen a month later. Yep, it was a little annoying that we couldn’t get our appliances right away but with our ability to budget and Kim working extra shifts, we were able to replace that $4500 in a few months. I can’t tell you how awesome it is to be in this position and not shed a tear or break a sweat back then (actually it was too cold to sweat lol).

More Money, Smaller Problems?

The thing that we realized is that when you have money, particularly an emergency fund, emergencies don’t cause as much panic. You can look at the situation and make a sound decision. The worst time to make a decision is when you are under intense pressure because it’s more difficult to weigh the cons. This is how people get scammed depending on the situation.

When an emergency comes and you know you can handle it you can focus on doing just that – handling it. Being a grown-up is tough. Sometimes emergencies have the ability to rock you to the core. An example that I’ve discussed before is that a month before Kim was due with our first son, I became very sick. For a while, the doctors didn’t know what was wrong with me and eventually, they thought it was cancer (Lymphoma).

There we were with a newborn, hospital bills for Kim and the baby, and ER and doctors’ bills for me. Talk about being scared and sad beyond belief. You can read more about the story here if you like. Ultimately, it ended up not being Lymphoma although I was still sick for a while.

The one thing we weren’t too worried about at the time was money because we had our 6 months emergency fund and we had life insurance policies for both of us. This allowed us to have one less thing to worry about.

Given a similar situation or medical emergency, having an emergency fund and your finances in order can help allow you to fully focus on your treatment and getting better instead of worrying about your bills AND trying to get better.

Final Thoughts

Emergencies are going to happen. We all know this. Having an emergency fund can make dealing with those emergencies so much easier. It allows you to make clear-headed decisions instead of panicking and doing something that will hurt you in the long run.

Do you have an emergency fund? How has it helped you deal with an emergency? Have you had an emergency and not had an emergency fund? How did the situation work out?

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Filed Under: Personal + Finance Tagged With: emergency fund

See what’s happening on Instagram…

thinkingofsomeday

As of 1/8/2022, it’s been one year since we beca As of 1/8/2022, it’s been one year since we became mortgage free. What better way to celebrate than a date night in our paid off home?! 😏
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So how does it feel?
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Financially, we invested the most money we've ever invested. We also increased our lifestyle a bit as well to keep a healthy balance.
 ⠀⠀⠀⠀⠀⠀⠀⠀⠀
Kim’s Perspective: 
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It’s been great. For the longest it felt surreal and unbelievable that we actually did it. I never really worried about paying off the mortgage because I knew that worst case scenario, it would be paid off in 15 years, which would’ve been when we were 45 (and that’s not a bad age at all). However, it’s been nice to know that it’s not something that Omar is stressing over anymore. And since it was one of his biggest dreams/goals, it’s nice knowing that I was able to support him 100% of the way in making this happen for us and our family. I’m glad this is something he wanted to pursue and that I was actually on board with it. What I’ve enjoyed most about it is being able to spend more money (of course 😆) because a lot of things were put on hold while we focused on the payoff. So now I feel like I’m at that point where I can make our house more of a home for us. It literally feels like we’re in a new space (mentally and physically) and we’re loving it.
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Omar’s Perspective:
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This past year has probably been the best year I've had in life. I've been the least stressed I've ever been, but took on the most responsibility at work I've ever taken on which lead to a promotion and an increase in income. This boggles my mind as more responsibility at work usually means more stress. I feel like I’ve been able to focus on other areas of my life more (my health/weight as well as making more of an effort to maintain my relationships with friends/family). Most importantly, I realize the strength of my marriage.  With the state of dating/relationships these days, I realize I won the lottery with Kim.  She's an amazing wife and mother. We've always had a good relationship but we're stronger than ever.  We started from the bottom now we're here (in my Drake voice). 🎶 #thislifeafterdebt
After taking some time to think about what we want After taking some time to think about what we wanted to focus on for this year, we decided that our word for the year is health.
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Overall we both want to continue making healthier choices when it comes to eating. And we both want to focus on exercising more than we have in the past and be way more consistent with it.
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At the end of the day, what’s money, financial freedom/independence and wealth if you’re not healthy? And we definitely have high blood pressure, diabetes, etc that run in our families. We have kids to live for and that’s what we plan to do to the best of our ability!
This is what our financial goals ended up looking This is what our financial goals ended up looking like for this year. We’re pretty pleased with the outcome and the fact that we still enjoyed ourselves throughout the year and even made some pretty big purchases (like that whole couch saga I shared in my stories 😆). We’re looking forward to seeing what the next year holds! #thislifeafterdebt
We didn’t officially choose a word for 2021, but We didn’t officially choose a word for 2021, but if we had to say a word that was our word for this year it would be “intentional” by far.
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At the end of 2020 and beginning of 2021 we were very intentional about pulling money from an inherited IRA so that our tax bill wouldn’t be ridiculous like it would have been if we pulled a lump sum at one time. We then used the money to help pay off our mortgage 8 days into 2021.
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What we were even more  intentional about was our plan for what we were going to do with our mortgage payment once we didn’t have a mortgage anymore. We didn’t want to frivolously spend that money. So we actually came up with our plan a couple months before making our final payment. But literally after that payment on January 8, 2020, our new mortgage-free budget was in full effect! So yea, “intentional” is definitely a good word to sum up 2021 for us. #thislifeafterdebt
Some of the things we automate are:
⠀⠀⠀⠀⠀⠀⠀⠀⠀
Our Budget:
⠀⠀⠀⠀⠀⠀⠀⠀⠀
For the longest we use to type everything we were going to spend or save into our budget template. It wasn’t super time consuming but it wasn’t efficient when it came to our regular bills/expenses. Then one day we decided to prefill the template and copy and paste it month to month for our regular bills/expenses. All we have to do is add anything else we spend.
⠀⠀⠀⠀⠀⠀⠀⠀⠀
Savings / Investing:
⠀⠀⠀⠀⠀⠀⠀⠀⠀
Most of our savings/investing and even our gas and spending money our automated transfers. It beats having to go in and make multiple transfers to our personal accounts and our sinking funds. The 529 accounts for the kids and the Roth IRAs are automatically transferred. But for the brokerage account we have to manually transfer the money because it’s never the same amount each paycheck.
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Bill Pay:
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I’ve never been a fan of bill pay because I don’t like companies having that type of access to my money. 🥴 And whenever they mess up and charge you too much, they’ll try to just credit your account instead of putting the money back in your bank account. 🙄 However, I’m a tad bit more trusting these days. Lol. Our home alarm had no option but to be auto drafted. Since the amount wasn’t much and is always the same price, I agreed. And the only other bill auto drafted is our cell phone bill after many many years (gasp! haha). Some of the other bills are paid via online bill pay via our banking account. #thisfinancialconfession
⠀⠀⠀⠀⠀⠀⠀⠀⠀
Doing all of this has been a game changer and time saver. Are you team automate or team manual?
It’s been a minute since I’ve made a charcuter It’s been a minute since I’ve made a charcuterie board. So I figured Christmas brunch was the perfect time. And plus, that meant less time in the kitchen for me with cooking because I knew I was going to be cooking dinner today. #piecesofsomeday
Merry Christmas! And 2 pictures because it’s gua Merry Christmas! And 2 pictures because it’s guaranteed that someone isn’t going to be looking. 😆 #christmas2021 #piecesofsomeday
We purchased our house for $168.5k (after the down We purchased our house for $168.5k (after the down payment). We refinanced at $165k.
⠀⠀⠀⠀⠀⠀⠀⠀⠀
If we took 30 years to pay it off, our total would’ve been $293k.
⠀⠀⠀⠀⠀⠀⠀⠀⠀
If we paid the 30-year mortgage like a 15, then it would’ve been $225k.
⠀⠀⠀⠀⠀⠀⠀⠀⠀
After we refinanced to a 15-year, if we took 15 years to pay it off, then our total would’ve been $205k.
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Instead, we paid off our mortgage in a little over 7.5 years.
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We ended up paying a total of $200k with interest.
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Paying $200k for this home with how it looked when we purchased it sounded a lot better than having to pay a total of $293k if we end up being here for 30 years! This was yet another factor that helped us decide to pay it off early. #thislifeafterdebt
Part of the reason we decided to refinance and eve Part of the reason we decided to refinance and even pay our house off early is because of the amount of money we were paying in interest on our mortgage. So of course, several months after we paid off the mortgage I began to wonder just how much did we really pay in interest. So I asked Omar if there was a way to figure it out. At first he was like, “Really Kim?” 😳 And of course I was like, “Ummm yea.” 😬 Lol.
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Jun 2013 is when we bought the house. So there wasn’t much interest paid then.
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2014 and 2015 is still when we had the 30-year mortgage. It’s also the years that we paid the most interest. We refinanced at the end of 2015.
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2016 is when we made our first payment with the 15-year mortgage. It’s crazy how the amount of interest decreased based off that alone.
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2019 is when we decided to pay off our mortgage early. It was supposed to take 6 years. But instead we used RSUs and sped it up tremendously.
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Jan 2021 is when we paid it off before our first payment would’ve been due. $27 was the last bit of interest we paid on our mortgage.
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Grand total: $35,102.
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If we had continue to just make regular payments on the 15-year mortgage, we would’ve paid a total of $56,279. A difference of $21,177. 🙌🏽 🙌🏽 #thislifeafterdebt
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Comments

  1. Katricw says

    March 2, 2019 at 8:47 am

    Love this post!!! Thank you for your dedication on posting bimonthly and giving back by using what I like to say “each one teach one” ( I can’t remember where I found that abbreviated quote LOL). I am super proud of you both and looking forward to chatting with you more.

    • Kim says

      March 2, 2019 at 5:16 pm

      Lol. Thanks for your support Katrice! Posting bi-weekly seems to be the sweet spot with our schedule.

  2. Kris says

    March 4, 2019 at 5:29 pm

    When I first got out of debt, one the first things I wanted to build was an emergency account. I realized how important it was to have that extra cushion when I was in-between jobs in my early 20s. I only had about $500 in my account when I quit part time job during college and had close to $5K in credit card debt. Luckily my parents helped me out until I found another job but an emergency fund is vital for your finances.
    Currently I keep my emergency fund in a high yield savings accounts. Just let it sit there, collect some interest and if we need some funds at an emergency situation, we know where to get it.

    • Kim says

      March 7, 2019 at 1:57 pm

      Yep Kris. You’re absolutely right! And it’s nice that you realized that early on in adulthood.

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A married couple making someday a reality all while balancing family + finances + avoiding debt. Find out more about us, here.

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See what’s happening on Instagram

thinkingofsomeday

As of 1/8/2022, it’s been one year since we beca As of 1/8/2022, it’s been one year since we became mortgage free. What better way to celebrate than a date night in our paid off home?! 😏
⠀⠀⠀⠀⠀⠀⠀⠀⠀
So how does it feel?
⠀⠀⠀⠀⠀⠀⠀⠀⠀
Financially, we invested the most money we've ever invested. We also increased our lifestyle a bit as well to keep a healthy balance.
 ⠀⠀⠀⠀⠀⠀⠀⠀⠀
Kim’s Perspective: 
⠀⠀⠀⠀⠀⠀⠀⠀⠀
It’s been great. For the longest it felt surreal and unbelievable that we actually did it. I never really worried about paying off the mortgage because I knew that worst case scenario, it would be paid off in 15 years, which would’ve been when we were 45 (and that’s not a bad age at all). However, it’s been nice to know that it’s not something that Omar is stressing over anymore. And since it was one of his biggest dreams/goals, it’s nice knowing that I was able to support him 100% of the way in making this happen for us and our family. I’m glad this is something he wanted to pursue and that I was actually on board with it. What I’ve enjoyed most about it is being able to spend more money (of course 😆) because a lot of things were put on hold while we focused on the payoff. So now I feel like I’m at that point where I can make our house more of a home for us. It literally feels like we’re in a new space (mentally and physically) and we’re loving it.
⠀⠀⠀⠀⠀⠀⠀⠀⠀
Omar’s Perspective:
⠀⠀⠀⠀⠀⠀⠀⠀⠀
This past year has probably been the best year I've had in life. I've been the least stressed I've ever been, but took on the most responsibility at work I've ever taken on which lead to a promotion and an increase in income. This boggles my mind as more responsibility at work usually means more stress. I feel like I’ve been able to focus on other areas of my life more (my health/weight as well as making more of an effort to maintain my relationships with friends/family). Most importantly, I realize the strength of my marriage.  With the state of dating/relationships these days, I realize I won the lottery with Kim.  She's an amazing wife and mother. We've always had a good relationship but we're stronger than ever.  We started from the bottom now we're here (in my Drake voice). 🎶 #thislifeafterdebt
After taking some time to think about what we want After taking some time to think about what we wanted to focus on for this year, we decided that our word for the year is health.
⠀⠀⠀⠀⠀⠀⠀⠀⠀
Overall we both want to continue making healthier choices when it comes to eating. And we both want to focus on exercising more than we have in the past and be way more consistent with it.
⠀⠀⠀⠀⠀⠀⠀⠀⠀
At the end of the day, what’s money, financial freedom/independence and wealth if you’re not healthy? And we definitely have high blood pressure, diabetes, etc that run in our families. We have kids to live for and that’s what we plan to do to the best of our ability!
This is what our financial goals ended up looking This is what our financial goals ended up looking like for this year. We’re pretty pleased with the outcome and the fact that we still enjoyed ourselves throughout the year and even made some pretty big purchases (like that whole couch saga I shared in my stories 😆). We’re looking forward to seeing what the next year holds! #thislifeafterdebt
We didn’t officially choose a word for 2021, but We didn’t officially choose a word for 2021, but if we had to say a word that was our word for this year it would be “intentional” by far.
⠀⠀⠀⠀⠀⠀⠀⠀⠀
At the end of 2020 and beginning of 2021 we were very intentional about pulling money from an inherited IRA so that our tax bill wouldn’t be ridiculous like it would have been if we pulled a lump sum at one time. We then used the money to help pay off our mortgage 8 days into 2021.
⠀⠀⠀⠀⠀⠀⠀⠀⠀
What we were even more  intentional about was our plan for what we were going to do with our mortgage payment once we didn’t have a mortgage anymore. We didn’t want to frivolously spend that money. So we actually came up with our plan a couple months before making our final payment. But literally after that payment on January 8, 2020, our new mortgage-free budget was in full effect! So yea, “intentional” is definitely a good word to sum up 2021 for us. #thislifeafterdebt
Some of the things we automate are:
⠀⠀⠀⠀⠀⠀⠀⠀⠀
Our Budget:
⠀⠀⠀⠀⠀⠀⠀⠀⠀
For the longest we use to type everything we were going to spend or save into our budget template. It wasn’t super time consuming but it wasn’t efficient when it came to our regular bills/expenses. Then one day we decided to prefill the template and copy and paste it month to month for our regular bills/expenses. All we have to do is add anything else we spend.
⠀⠀⠀⠀⠀⠀⠀⠀⠀
Savings / Investing:
⠀⠀⠀⠀⠀⠀⠀⠀⠀
Most of our savings/investing and even our gas and spending money our automated transfers. It beats having to go in and make multiple transfers to our personal accounts and our sinking funds. The 529 accounts for the kids and the Roth IRAs are automatically transferred. But for the brokerage account we have to manually transfer the money because it’s never the same amount each paycheck.
⠀⠀⠀⠀⠀⠀⠀⠀⠀
Bill Pay:
⠀⠀⠀⠀⠀⠀⠀⠀⠀
I’ve never been a fan of bill pay because I don’t like companies having that type of access to my money. 🥴 And whenever they mess up and charge you too much, they’ll try to just credit your account instead of putting the money back in your bank account. 🙄 However, I’m a tad bit more trusting these days. Lol. Our home alarm had no option but to be auto drafted. Since the amount wasn’t much and is always the same price, I agreed. And the only other bill auto drafted is our cell phone bill after many many years (gasp! haha). Some of the other bills are paid via online bill pay via our banking account. #thisfinancialconfession
⠀⠀⠀⠀⠀⠀⠀⠀⠀
Doing all of this has been a game changer and time saver. Are you team automate or team manual?
It’s been a minute since I’ve made a charcuter It’s been a minute since I’ve made a charcuterie board. So I figured Christmas brunch was the perfect time. And plus, that meant less time in the kitchen for me with cooking because I knew I was going to be cooking dinner today. #piecesofsomeday
Merry Christmas! And 2 pictures because it’s gua Merry Christmas! And 2 pictures because it’s guaranteed that someone isn’t going to be looking. 😆 #christmas2021 #piecesofsomeday
We purchased our house for $168.5k (after the down We purchased our house for $168.5k (after the down payment). We refinanced at $165k.
⠀⠀⠀⠀⠀⠀⠀⠀⠀
If we took 30 years to pay it off, our total would’ve been $293k.
⠀⠀⠀⠀⠀⠀⠀⠀⠀
If we paid the 30-year mortgage like a 15, then it would’ve been $225k.
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After we refinanced to a 15-year, if we took 15 years to pay it off, then our total would’ve been $205k.
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Instead, we paid off our mortgage in a little over 7.5 years.
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We ended up paying a total of $200k with interest.
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Paying $200k for this home with how it looked when we purchased it sounded a lot better than having to pay a total of $293k if we end up being here for 30 years! This was yet another factor that helped us decide to pay it off early. #thislifeafterdebt
Part of the reason we decided to refinance and eve Part of the reason we decided to refinance and even pay our house off early is because of the amount of money we were paying in interest on our mortgage. So of course, several months after we paid off the mortgage I began to wonder just how much did we really pay in interest. So I asked Omar if there was a way to figure it out. At first he was like, “Really Kim?” 😳 And of course I was like, “Ummm yea.” 😬 Lol.
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Jun 2013 is when we bought the house. So there wasn’t much interest paid then.
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2014 and 2015 is still when we had the 30-year mortgage. It’s also the years that we paid the most interest. We refinanced at the end of 2015.
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2016 is when we made our first payment with the 15-year mortgage. It’s crazy how the amount of interest decreased based off that alone.
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2019 is when we decided to pay off our mortgage early. It was supposed to take 6 years. But instead we used RSUs and sped it up tremendously.
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Jan 2021 is when we paid it off before our first payment would’ve been due. $27 was the last bit of interest we paid on our mortgage.
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Grand total: $35,102.
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If we had continue to just make regular payments on the 15-year mortgage, we would’ve paid a total of $56,279. A difference of $21,177. 🙌🏽 🙌🏽 #thislifeafterdebt
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