Should I try to pay off my house early in a bad economy?

Date: Apr 30, 2009

Should I try to pay off my house early in a bad economy?

Dave@D2P · Posts: 20

Have you established an emergency savings account? If not, you should do so before pre-paying your mortgage.

Date: May 11, 2009

How much of an emergency savings account is sufficient? I have heard some people say it should equal 3 months of living expenses and others say it should equal 6 to 9 months. How do I know when I have saved enough?

Date: May 12, 2009

Anonymous wrote:

How much of an emergency savings account is sufficient? I have heard some people say it should equal 3 months of living expenses and others say it should equal 6 to 9 months. How do I know when I have saved enough?

In my opinion, 6 to 9 months is good. What I would do then after saving the 6 to 9 month amount is still have a set amount being saved because you can never be too sure.

Date: May 15, 2009

Should it be 6 to 9 months of savings based on my income or on my combined family income?

Date: May 20, 2009

I think it should be 6 months of combined income. Once you have saved enough to cover all your living expenses for 6 months you should be in pretty good shape. Then if one of you loses your job you aren't in such a bind because that money can see you through for more than just 6 months because you only lost 1 source of income. It is also important to remember that if one of you lose your job, take steps immediately to cut back on expenses, don't wait 6 months when the money starts to run out.

JackBlack · Posts: 7

The previous comment I believe is right on. You should save for the combined family income. Also cutting back on expensives is very important like the previous person mentioned. So many people find themselves in worst situations because they don't modify there spending habits. They spend as if nothing happened.

Date: May 25, 2009

Anonymous wrote:

How much of an emergency savings account is sufficient? I have heard some people say it should equal 3 months of living expenses and others say it should equal 6 to 9 months. How do I know when I have saved enough?

You will never know for sure when you have saved enough to cover all your potential risks. The key is to be prudent but not compulsive. 6 to 9 months of liquid savings is usually sufficient for most, but it is also important to invest in order to reduce risks. By accelerating your mortgage payoff you are in effect reducing the risk of foreclosure. So don't be overly compulsive about saving and never get around to investing which can produce bigger gains. Investing in your debts can be a good place to start.

the Debt Doctor · Posts: 46

Nice post Anonymous.

You are absolutely right, we should definitely build an emergency savings without being overly compulsive. Investing produces much better gains than savings and investing in your debts is the best place to start. Instead of hoping for returns in the stock market, investing in your debts can produce a return equal to, or even higher than the interest rate on the loan.

When you consider most credit card debt is in the 15% to 30% range that is a pretty good return. Few people in the stock market get anywhere near that return on their money. Even better, investing in your debts reduces your risks too. Every dollar you invest towards principle gets a guaranteed return equal to the interest rate.

If you want to see what return you will get by investing in your debt use the calculator in the resource section at:

http://www.prosperitypowerplan.com/calculators/debtinvest.html