how to use the savings most efficiently?

I have been thinking; I am in a saving mode for 11 months now (wow – it is hard to think that I have been working on my budget and on limiting my expenses and saving for such a long time…), and I am doing alright.

My primary concern that prompted me to start with the budget last year was the home ownership and the home maintenance funds that may be required on a constant basis. Since I have an old house, I am single and the only bread winner, and I got hit with a huge (around $8,000) repair bill right after I bought my home, I was left with a chequing account below $0 and lots of anxiety and uncertainty for the future. I was scared. I found that the only way  that could get me out of this situation was to either sell my home right away or to limit my expenses. The second option was the one that I chose.

It was a hurdle and I failed many times, but eventually I started to take better control of my finances. I guess I am in a state where my purchases and expenses have gradually decreased and surprisingly I am more content with what I have. My chequing account is also on the positive side now, I guess, since last December. I am very happy with these, though I am also cautious that anytime extra expenses can happen. So I should keep saving and make smart choices.

While I am still closely watching my chequing account (I have one big payment coming up next month, which if I am not careful enough, can derail my account again), I have been constantly accumulating my emergency fund (TFSA account). It is not maximized yet, but I have a good sum of funds in this account that I can use for emergency or home repair purposes. I thought this morning that perhaps I can stop contributing to it in the new year and direct the funds to my mortgage.

Mortgage is my only debt right now (other than sporadic and month credit card balance that I pay to the fullest every month). I am quite motivated to reduce it as much as I can. I was planing to increase it by $100 in September, only because I am getting a little salary increase then. That would decrease my mortgage principal by around $7,800 in 3 years (the end of the mortgage term). Now I am thinking that perhaps starting new year, I can stop my TFSA contributions and start putting these money into my mortgage. That would decrease my mortgage by an extra $19,000 till the end of the term. Total reduction in the mortgage principal thus would be $26,800 in about 3 years.

That is a pretty amazing number, don’t you think?

One thing I can not be sure is if I increase my regular payments at the new year whether I can reduce it say, a year later, to the original amount. I am thinking about this just in case our salaries get chopped up by the economy or something like that. I must clarify this with my bank sometime soon.

My other alternative is to of course, keep contributing to the TFSA and then making extra, lump sum payments to my mortgage by withdrawing money from it. This gives me the flexibility because I do not need to adjust my regular mortgage payments and I can make extra payments anytime and in any amount I wish.

I cannot decide which one is better for me. My psychology loves the ease and convenience of the first option (i.e. increasing the regular mortgage payments once and then dealing with no additional paperwork). But it also loves being in control of my funds and thus making lump-sum payments, even though that means I must pay a visit to my bank each time and making a transfer order of funds from my TFSA account to mortgage.

What are your opinions?