Whether you’ve recently purchased a home or have been paying your mortgage for years, learning how to do pay it off sooner rather than later will save you thousands of dollars in the long run. The average American pays nearly $6,000 a year on their mortgage interest alone.
Unfortunately, most people don’t have the know-how or discipline to change the tides. With the right guidance and plan, however, anything is possible. For those who are committed to paying down their mortgage as quickly as possible, I’ve created a budgeting checklist to help you in the right direction.
Keep reading for everything you need to know.
Understand Your Finances
Before you can do anything with your budgeting checklist, you need to intimately understand your finances. How much money do you make? Where does all your money go each month?
Start by creating a spreadsheet consisting of:
- Your household revenue — every dollar that comes into your bank account each month
- Your debts (total debt and monthly payments) — mortgage, car loans, credit cards, personal loans, school loans, etc.
- Your bills — concurrent monthly payments for things like utilities, phone services, internet, subscriptions, memberships, insurance, etc.
- Your fluctuating expenses — gas, groceries, shopping, dining out, travel, etc.
Once you have everything documented, calculate how much money you have remaining each month after all your expenses. Nearly 80 percent of Americans live paycheck to paycheck, so don’t feel terrible if you haven’t much left. I am going to help you change that.
Figure Out Where You Can Cut Costs
Now that you have an objective and complete look at where all your money goes each month, you can start cutting out unnecessary expenditures. It will take some discipline and sacrifice, but concentrating on your goals can help keep you focused. Wouldn’t it be nice to have your mortgage paid off in the next 10 years?
Depending on how determined you are and how drastic of measures you’re willing to take, this could save you hundreds or thousands of dollars a month.
Here are some of our top suggestions for ways to cut back on your monthly expenses:
- Cancel gym memberships
- Cancel mystery box subscriptions
- Cut out unnecessary shopping
- Limit dining out
- Don’t drink coffee shop coffee
- Cut down on expensive habits like beauty salons, tattoos, massages, etc.
Pay Down or Consolidate Your Debt
You may find better success with your budgeting checklist if you first pay off your other debts.
With the money you save by cutting out excess expenses from step two, you can focus on paying down your other debts to maximize your cash flow. With each new debt paid off, you have extra money left over at the end of the month that can go into your mortgage.
However, it may be more appropriate to consolidate your debts. Consider taking out a consolidation loan to consume all of your debts into a single loan payment and interest rate. This will likely be a smaller monthly payment as well as a significant reduction in interest fees.
Implement a Budget
To make the most of your budgeting checklist, you have to actually create (and stick to) a budget. For most people, staying on track with paying off your mortgage means keeping tabs on yourself.
Making a strict budget with the best personal finance software is key to paying your mortgage off as soon as possible. You can be as extreme or lenient as you want, depending on your lifestyle and what you’re willing to commit to.
Give yourself an allowance with your remaining money at the end of the month for groceries, shopping, dining out, etc.
Make Extra Payments
Instead of paying your full mortgage amount once a month, pay half of your mortgage every two weeks. While you won’t notice a difference in your bank account, paying every two weeks will result in an extra full payment once a year (52 weeks in a year). This will make a significant difference in terms of the principal and interest amounts.
Alternatively, you can set aside money and try to make an extra full payment once a quarter (every three months). This will result in four extra payments a year. You can also make separate payments toward the principal amount only, rather than going towards both the principal amount and the interest.
For those looking to take drastic measures (by choice or by necessity), consider downsizing your life a bit. You can downsize to a smaller house with a more affordable mortgage.
Alternatively, you can downsize to an older, less expensive car. Most people live at or above their means, leading to self-sustaining debt. By living below your means, you can pay things off easier, eventually enjoying a debt-free life.
Refinance for a Shorter Term Loan
For some homeowners, a budgeting checklist will only get accomplished if there is a strong sense of accountability. For example, just because they can afford an extra $500 a month to put towards a mortgage, it doesn’t mean they will.
However, if you were to refinance your mortgage to a 15-year loan, instead of a 30-year loan, making smaller payments won’t be an option. However, this tactic also comes with the drawback of mandatory high mortgage payments, which could be detrimental if you don’t have your finances in order. This is why it’s important to use a refinance mortgage calculator and make sure all the numbers are in your favor.
Consider Renting Out Extra Space
Finally, you may be able to implement an alternative strategy for your budgeting checklist. You should consider bringing on a roommate to rent any extra rooms you have. I recommend offering the room to people you know and trust such as friends and family members.
This solution can help others save money on their living expenses while helping you throw extra cash into your mortgage. Even an extra $300 or $400 a month can help cut years off your total mortgage term.
Looking for More Advice on How to Create a Budgeting Checklist?
If you’re looking for financial help in your life, I can help. I work one-on-one with people through internet conferencing and will even answer your personal financing question for free.
Check out more or my articles or contact me today with any questions.