FYI - I'm updating the title of my initial post as we pay down our debt, so the pay down number in the title does not match the pay down number in this post.

I am excited about this opportunity to post about my fiscal fitness goal.

Late last year (2006) I started researching new cars. Background - I drive a paid off 1999 car and my husband drives a paid off 1997 truck. We live in southern Florida (I swear its the new car capital of the world, where else does one see new Lotus, Bentley, Rolls Royce cars mixed in with the more ordinary BMW, Mercedes Benz, Lexus, Hummers, etc.) and we are both professionals and both of us receive ribbing from our co-workers about our cars. Late last year, one of my peers upgraded from a leased VW to a leased Audi and left me as the remaining old car hold out. As I researched new cars, I also researched how to avoid a new car payment and I came across Dave Ramsey's web site and read Total Money Makeover. After finishing TMM, my husband and I (we were married in Oct. of 2006) totaled up how much unsecured debt we had accumulated (wedding costs, grad school, credit card debt, etc.) and decided that before we accumulated any further debt (i.e. the new car) we needed to pay off our unsecured debt, figure out where our money was going, create a budget, etc.

So, our number 1 goal for 2007 was to pay off our unsecured debt. We started the year with 8 debts (6 credit cards, 1 student loan and 1 other loan) and a grand total of $55,537 in unsecured debt. Step 1 of goal 1 was to identify and total up our debt (see above). Step 2 was to fund an emergency fund (see Dave Ramsey) which was easy to do since we already had a couple thousand sitting in general savings. Step 3 of goal number 1 was to cease adding any new debt to our existing debt. We cut up all our credit cards and we have not added any new debt. As of today, April 29th, we have paid off $20,878 in debt and 5 of our 8 debts. We followed the Dave Ramsey snow ball method and started with our smallest debts and paid off 5 of the 6 credit cards. As of today, we have the other loan, 1 credit card and our biggest debt $26,423 in grad school loans remaining to be paid.

Goal number 2 - We deviated from the Dave Ramsey method as we both continue to fully fund our 401ks ($15,500 each in 2007). We both felt strongly that we needed to continue to fund our retirement because we are both 35 and did not want to forgo a year of savings.

Goal number 3 - is to fully fund our emergency fund which will be larger than most because we own 4 investment properties and I would like to have at least 3 months of mortgage payments, tax and insurance escrow payments in savings for all 4 properties.

So post number 1 details all the progress we have made paying down our debt. Post number 2 is going to focus on the issue that continues to cause us trouble - our budget. Everyone I know uses (and says they love) Quicken, so we went out and got ourselves a copy of Quicken. First I downloaded all the account info. into Quicken and then had to delete it all b/c I wanted to start tracking our expenses and budget as of 1/1/07. Second, I tried to download all the account info. into Quicken as of 1/1/07 and that did not work either - ugh! Third, I spent a number of late nights entering data into Quicken manually and a number of other late nights tweaking the manually entered data. Finally, about a month ago I figured we had enough data in Quicken for Quicken to generate a budget. So did Quicken give us a budget to work from, no, no, no! Big sigh. We have four mortgages to pay each month, 4 real estate tax bills, 8 real estate insurance bills, etc. and Quicken pumped out some kind of budget as if we had 1 home and not 5. So, I started to create my own budget on Quicken but ended up stuck when I could not add mortgage categories for my non-primary home mortgages.

We have a rough budget set up that I use to pay out all regular bills, mortgages, utilities, insurance, real estate escrow payments, savings, etc. What we don't have, and what I was hoping Quicken would provide, is a budget that directs us to spend x amount on groceries, eating out, clothes, Home Depot, etc.

Any thoughts or guidance on how to make Quicken work for us would be appreciated.

The first thing I thought of with the Quicken (and this isn't ideal of course,) would be to put all of your mortgage, insurance, property tax, house related payments in as one lump sum. So if you have four mortgages, you'd add them together and put them in as one mortgage, and count all four payments as one big payment. That would at least enable you to make a budget figuring that you're going to spend X amount of money on your "mortgage" and related payments.

I'll try playing with my own Quicken and see if I can come up with anything else. This is something that I should know as well, since I want to buy another house within the next two or three years and I use Quicken for all my stuff now.

Sam, congratulations on the progress you've made in just 4 months. It's always amazing what can be accomplished once we plan out the steps we need to take. I wish I could help you with Quicken since I use it for everything. I've never tried to set up more than one mortgage though, so I don't know why it's giving you problems.

Good luck with the car decision. It can be difficult to resist the temptation to keep up with the Joneses. I can see it possibly being necessary if appearances will affect your reputation/perceived value to your employer. Other than that the sense of security of being debt-free or on your way to an early retirement will likely outweigh the ribbing received for driving an older vehicle. Once in a while I look at my peers and see them in much larger houses with two vehicles, taking big vacations every year and wonder if I'm missing something. But then I realize they have 25 year amortizations on their mortgages and are completely stressed tying to keep up with the payments, the vehicles are leased and they will never actually own them and will be making car payments indefinitely, and the vacations were paid for with credit cards on which they make the minimum monthly payment. Then I realize, I'm not the one who's missing something.

JPeteQ - Thanks for the Quicken ideas. The only problem with lumping all mortgage payments into one sum is that I need to keep track of my investment property mortgages for tax purposes (same for insurance, real estate taxes, etc.). I'm wondering whether I could set up multiple budgets, one for household and others for the investment properties.

Kate - Thanks for the support. It is hard to resist "keeping up with the Joneses" and I will at some point have to take the plunge and get a new car (most likely a new used car). My husband and I try to remind ourselves that most of the fancy cars our friends are driving are leased and therefore our friends are most likely always going to have car payments. We like to think what we can accomplish with all that car payment money. Once we get our unsecured debt paid off, I will be working hard on saving up for a new used car that I can pay cash for.

As of May 1, we have paid off $22,056 in unsecured debt (39.7% of our total debt). [/i]

I am taking my first vacation of 2007 over Memorial Day weekend. This is also my first vacation on a budget (sorta). I've never paid much attention to how much I spend when I travel for pleasure since when I travel for pleasure I'm looking to maximize pleasure (fine food, wine, art, shows, etc.). Since my husband and I are trying hard to be more mindful of how and where our money is spent I've done the following for my upcoming trip. When booking my flight I tried hard to use miles (from Delta) and/or a free flight (from Southwest) neither worked as there were no reward seats available and my travel dates were set in stone. I ended up booking a flight with Southwest that was reasonable but no bargain (used my debit card, no credit card debt for me). For the hotel I used my Starwood rewards card and got an upgraded room at a W hotel (upscale) that I'm splitting with my girlfriend (this is a girl's trip, husband stays home). I again used my debit card to book the hotel room, card has not yet been charged. I've also been setting aside $100 each pay period (2 x a month, $200 a month) since I booked the trip and I've got about $600 in my vacation ING account and should have $800 by the time I travel. The $800 will cover my half of the room and leave me with $400 in spending money (my travel destination is know for its super dining and drinking) or $100 a day. I'm interested to see whether, when I'm on vacation, I can keep my spending to $100 a day.

As a person who lives by my Quicken I have to say that it took a while for me to get to the point where I track EVERYTHING in it. First I only put in my checking accounts. And then I added my credit card accounts a few months later. I actually changed a card once because I didn't like how the data imported and I'm paying off another card out of order because they recently changed the ability to download daily data and I can only do it once a month at statement time now. (Although now that buying a house forced me into a cash-only operation this doesn't matter to me as much.)

I then put in my retirement funds because it was too depressing to have only red accounts listed.

Lastly I added my assets becasue I was tired of seeing such a low net worth.

All this to say: It takes time to make Quicken your Overlord.

1 thing I can recommend is the Pocket Quicken for a PDA if you use one. I like the budget feature on there a lot better than the desktop version. Also since it is portable I can quickly check where I am before buying something.

One other Quicken tip: Their forums have saved me hours of headaches. Go there and post your problem and you'll have very very experienced Quicken users lend you a hand!

Cady, Thanks for the Quicken advice. How do I find these Quicken forums you mention, Google?

I do know Quicken is a process and there are lots of features that I really like. I like seeing how I spend my misc. money via the colorful charts and graphs, etc. I already had a good understanding of my regular bills (mortgages, escrow payments, utility bills, savings, etc. for our primary home and our investment home) but really had no idea where my unallocated money was going. See how much I spend on lunches, dining out, entertainment, clothes, charity, etc. has been very helpful.

As of today, we have paid off 40% of our unsecured debt - yeehaw! Paid off $22,256 and have $33,281 to go.

I'm super happy that we are 3 to 4 weeks ahead of schedule on our debt payment as I suspect that we will have some months in which we fall behind.

Congrats!! Wouldn't it be fun to make a pie chart for your fridge - every time you pay down a chunk, color in another piece of the pie?

A while back, J.D. asked me to write a post regarding mortgage escrow accounts and to detail how I avoid giving the bank interest free loans in the form of escrow payments. Standard caveats apply – I am not a tax, real estate, etc. professional. The information provided below is based on my own individual experience and may or may not be appropriate for your situation.

Introduction -

I bought my first home in 1999 (Florida). When I was closing on my first home in 1999, my Grandpa advised me to refuse to allow my bank/mortgage company (I will refer to either a bank or a mortgage company as “bank” for the remainder of this post) to escrow for my real estate tax and insurance payments. According to Grandpa, banks never used to escrow tax and insurance monies for people and he didn’t see the point of handing an interest free loan over to the bank. Never doubting the good advice of my Grandpa, I simply told my bank (at that time First Union, now known as Wachovia) that I wanted to make real estate tax and insurance payments on my own. Since I was paying 20% of the cost of the home up front and mortgaging the remaining 80%, the bank agreed. A key to getting your bank to forego escrow payments is the 20% down payment, more about this later.

Seven years later, my husband and I have four mortgages between us and I manage the escrow payments for three of those mortgages (which include three real estate tax bills, three hazard insurance policies, and three windstorm insurance policies). My husband owned a home before we got married and the bank (Citibank) collects escrow payments for that mortgage.

A couple of definitions so we all are on the same page as to the terms I’m throwing around.

Escrow account:
Once you close your purchase transaction, you may have an escrow account or impound account with your lender. This means the amount you pay each month includes an amount above what would be required if you were only paying your principal and interest. The extra money is held in your impound account (escrow account) for the payment of items like property taxes and homeowner’s insurance when they come due. The lender pays them with your money instead of you paying them yourself.

Escrow analysis:
Once each year your lender will perform an “escrow analysis” to make sure they are collecting the correct amount of money for the anticipated expenditures.

Escrow disbursements:
The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.

RESPA:
Real Estate Settlement Procedures Act (RESPA), law that governs collection and disbursement of escrow monies and governs.

So, first question to address is whether RESPA requires borrowers to maintain an escrow account? And the answer is NO. It is the bank’s decision as to whether the borrower must maintain an escrow account for the purpose of paying taxes, insurance, and other items. The HUD regulations only limit the maximum amount that a lender can require a borrower to maintain in an account.

The next question to ask (and the one asked by J.D.) is why are escrow accounts and escrow payments such a routine part of a mortgage. Or as J.D. asked, “why have I never heard that the escrow is optional?” The banks have made escrow payments a routine and automatic part of the mortgage process for two reasons. (1) The bank wants to make sure the real estate taxes are paid on time and the property is insured in order to protect its investment (your house). (2) Banks make a whole lot of money off escrow payments. The banks earn interest on your escrow dollars (and on all the millions or billions of other escrow accounts associated with mortgages). According to the HUD website, there is no federal law that requires lenders to pay interest on escrow account balances (some states do require interest to be paid on escrow account funds, but many do not). Bottom line, banks like escrow payments because they make a lot of money off the interest free loan you give to them every month.

So, now that you know that escrow payments are optional, how do you (1) avoid making escrow payments with a new mortgage or (2) cease making escrow payments on an existing mortgage. In my experience, if you are mortgaging 80% of the home’s purchase price and paying 20% upfront (your mortgage does not require private mortgage insurance or “PMI”) and you have good credit and a good relationship with your lender, simply tell them you plan to make your real estate tax and insurance payments yourself. I suspect that if you are paying PMI you will be required by your lender to escrow. However, why not explore the option of ceasing escrow payments when you cease paying PMI. Discuss the issue with your bank upfront and ask for any agreement to be memorialized on paper. Again, in my experience, I have signed a couple of extra forms during closing that the lender has provided that document that they are not collecting escrow monies and that I am responsible for making the tax and insurance payments and proving the payments were made. Once an escrow is set up as part of a mortgage, the lender is under no obligation to close the escrow account. As a result, its best not to enter into an agreement to escrow when you originally enter into the mortgage or memorialize an agreement with your lender at the beginning of the mortgage relationship (i.e., when you no longer pay PMI, the bank agrees to close the escrow account without fee or penalty). However, if you have a good relationship with your bank, good payment history and good credit, if you simply ask them to cease escrowing they are likely to do so (when they close the escrow account they send you a check for the amount collected but not paid out). Additionally, you can always threaten to refinance with another lending institution if they insist on continuing to escrow for you.

Potential problems that might occur when your bank collects your escrow monies and pays your real estate taxes and insurance premiums:

1) Many mortgages are sold to out of town banks and those out of town banks sometimes misdirect tax payments (i.e. they don’t have the exact address for your tax collector’s office).
2) Many large banks bunch tax bills together and send in one check for all real estate taxes due on mortgages they hold (i.e. Wachovia may hold 50,000 mortgages in my county, Wachovia sends in 1 – 10 checks to the local tax collector’s office for all 50,000 tax bills) and occasionally the money is not accurately allocated to the individual tax bills.
3) Banks generally base your escrow amount on last year’s tax bill and last year’s insurance bill. If there are issues specific to your local area that are likely to increase your tax or insurance bill (i.e. you live in Florida and your area has been hit by several hurricanes over the last couple of years and your insurance is going to double) your bank will not increase your escrow payment to cover that big increase. As a result, you end up with an escrow shortage and your escrow payments are tripled to cover the shortage, next year’s bill and to cover the 2 months of escrow payments cushion that most banks require.
4) Sometimes, opposite to the above example, banks overestimate an escrow payment increase and increase your escrow payment. If you continue to send in your regular mortgage payment plus your old escrow payment and you are not aware of the escrow increase, some banks put the entire amount (mortgage payment plus old escrow payment) into a suspense or unapplied account because the bank doesn’t treat the payment as paid in full. A couple months may go by (you think your paying your mortgage and escrow payments in full) and suddenly you are in preforeclosure status and you own the bank late fees, penalties, and expenses related to preforeclosure. Not sure if this is true, but I came across the following quote when doing my research for this post: “Servicing abuse in escrow accounts is the leading cause of premature and wrongful foreclosure.”
5) Lenders are not required to pay real estate taxes to take advantage of discounts (although many agree to do so). For example, if you pay your real estate taxes in November (due in March) you receive a 20% discount. The bank is not required to pay the real estate taxes early to take advantage of that discount.