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Optimal Living Daily. This

1:10

is Optimal Finance Daily, episode 2695. We're mortgage-free.

1:12

Our 10 steps to get a

1:18

$500,000 paid off house in 5 years. Part

1:20

1 by Andy Hill

1:23

of marriagekidsandmoney.com. And I'm

1:25

your host and personal finance enthusiast,

1:27

Diana Mariam. I have a

1:29

bit of a longer post today, so what I'll

1:31

do is split the article up, reading the

1:33

first part today and finishing it up tomorrow.

1:36

So with that, let's dive into Part 1

1:38

and start optimizing your life. We're

1:45

mortgage-free. Our 10 steps to get a $500,000 paid

1:47

off house in 5 years. Part 1 by Andy

1:53

Hill of marriagekidsandmoney.com. We

1:56

are the proud owners of a $500,000 paid off house. Five

2:01

years ago, we paid off the $195,000 mortgage on our dream

2:03

home. Since

2:07

then, the appreciation in the real estate market has

2:09

been good to us. After

2:11

years of focus and partnership with my

2:14

wife Nicole, we're mortgage-free and thrilled about

2:16

the future ahead of us. To

2:19

help our two young children remember

2:21

this family tree-changing moment in our

2:23

lives, we decided to celebrate with

2:25

them. Instead of just burning

2:27

the mortgage and tipping back a few glasses

2:29

of champagne, which we did too, we

2:32

came up with a few unique ideas of

2:34

our own, like running through a mortgage wall

2:37

and whacking a mortgage pinata. The

2:39

kids had a blast, and so did we. This

2:42

was a moment we wanted our kids to remember. It

2:44

was the day we decided that our family was

2:46

going to become debt-free for life. When

2:49

it's all packaged up into a happy family

2:51

story like that, paying off your mortgage sounds

2:53

pretty simple and easy. Well, it

2:55

was slightly more complicated than that. We

2:58

were intentional, determined, and ready to do

3:00

something incredible for our family. To

3:03

break it down, I've outlined the 10 steps we

3:05

took to become a mortgage-free family in less than

3:07

five years. Number

3:09

one, start with a why. When

3:12

I'm about to complete any difficult challenge, I

3:14

always try to think about the why before

3:16

the how. Why do I want to

3:18

do this? That way, I

3:20

can always refer back to my why throughout

3:23

the difficult process to keep me motivated. So

3:26

for me, my why for becoming mortgage-free

3:28

was about reducing the stress that comes

3:30

with having a big loan and only

3:32

one source of income. I

3:34

constantly felt pressure at work to not mess up

3:36

because if I did, we could lose our house.

3:39

With two little kids at home, I went into

3:41

Papa Bear protection mode. Given

3:43

that I'm a personal finance nerd, this was the best

3:45

way I could protect them. That

3:48

was my why. If you're considering something

3:50

big like this, I'd recommend starting with a

3:52

why as well. Number

3:54

two, 15-year fixed-rate

3:56

mortgage. We got

3:58

a 15-year mortgage when we... bought our new home.

4:01

This made our monthly payments higher overall

4:04

versus a 30-year mortgage, but

4:06

more as the payment was going to the principal each

4:08

month. By choosing a

4:10

15-year, we were also forcing ourselves to

4:12

make larger principal payments. With

4:14

a 30-year mortgage, we could decide to pay

4:17

more or pay less principal depending on the month.

4:19

We didn't want that option. We wanted it to

4:22

be gone fast. Last

4:24

but not least, our mortgage interest rate was

4:26

only 3% with a 15-year

4:28

mortgage versus a quoted 4% on a

4:30

30-year mortgage. We chose to

4:32

pay less to the bank and keep more for

4:35

ourselves. If we went full term, we

4:37

would have paid $92,752 more

4:41

in interest to the bank. No thank

4:43

you, Mr. Banker. Number

4:45

three, mortgage payment no more than 25%

4:48

of take-home pay. With

4:50

my first bachelor pad in 2004, I had a

4:52

mortgage that was about 60% of

4:55

my take-home pay. Let's just say I

4:57

didn't have a lot of money for important things

4:59

like, oh, you know, food. My

5:01

first house folly in my 20s is

5:03

a hyperbolic example for more financially educated

5:06

students, but it stuck with me when we were

5:08

looking at our next house. We

5:10

wanted to be in our dream house for

5:12

the next 30 years, so our payment, principal,

5:14

interest, taxes, and insurance, needed to

5:16

be comfortable. We made sure

5:18

that our monthly mortgage payments did not exceed 25% of

5:21

our take-home pay. This allowed

5:23

us to allocate the other 75%

5:26

to other areas of our life,

5:28

like household expenses, food, transportation, entertainment,

5:30

savings, and investing. In

5:33

this example, if your take-home pay is

5:35

$5,000 per month after taxes, your

5:37

mortgage payment shouldn't be more than $1,250. Obviously,

5:41

do what's best for you and your family, but

5:44

this is what worked for us. Number

5:46

four, commit and set a date. My

5:49

wife Nicole and I came to an agreement that we

5:52

dial back our lifestyle and pay off our mortgage in

5:54

less than five years. This would

5:56

require sacrifice on our part, but honestly, we

5:58

live in the most privileged country. country in the

6:00

world. How much sacrifice are we

6:02

really talking about here? 5.

6:05

Live on 50% of your income. At

6:08

the start of our marriage, we paid off $48,032 of consumer

6:13

debt. Since that time, we've consistently

6:15

lived on about 50% of our

6:17

income. There have been years when we've

6:19

spent more and years where we've saved more. On

6:22

average, we are a couple who saves around

6:24

half and spends around half. It

6:27

definitely helps when you have a six-figure household

6:29

income. During our mortgage payoff

6:31

process, we averaged around $170,000

6:34

per year for our household income. In

6:36

order to become mortgage-free in less than five

6:38

years, we knew we needed to continue this

6:41

50-50 path. We had prepared ourselves

6:43

for this reality, and it wasn't bad when

6:45

we were both employed. When Nicole

6:47

and I decided that she'd leave her job and

6:49

stay home with our two kids, the story changed

6:51

a bit. Five things

6:53

we did to trim our expenses further. We

6:57

decreased our grocery spending by a

6:59

third. I'll de-rock. Cut

7:01

the cord on cable. Embraced all

7:04

the free and inexpensive things to do

7:06

with kids. Think library time. Negotiated

7:09

our cable and cell phone bills. And

7:11

took advantage of higher deductible insurance plans.

7:15

Number six. Hear that on tomorrow's

7:17

episode. You

7:23

just listened to part one of the

7:25

post titled, We're Mortgage-Free, our 10 Steps

7:27

to Get a $500,000 Paid-Off House in

7:29

Five Years by Andy

7:31

Hill of marriagekidsandmoney.com. And

7:34

I'll be right back with my commentary. Looking

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9:27

There are many reasons why someone would choose to

9:29

pay off their mortgage or not. I

9:32

like that we've heard a number of different stories

9:34

here on Optimal Finance Daily of people

9:36

deciding to be mortgage-free, because it

9:39

allows me to continually check in with

9:41

myself on my decision to not pay off

9:43

my mortgage. Spoiler alert, I

9:45

still have no intention of paying off my mortgage

9:47

early. Many people find a lot

9:49

of peace of mind in owning their home outright, but

9:52

I find a lot more peace of mind in

9:54

owning more liquid assets. Paying off

9:56

my mortgage right now would mean that 30% of my net

9:59

worth would be stored. in this tangible asset.

10:02

If I found myself in a position where I

10:04

needed to access this money, I'd be forced to

10:06

sell my house or take out a home equity

10:08

line of credit. Also, HELOCs

10:10

usually have variable interest rates, which I learned

10:12

the hard way when I took on a

10:16

$15,000 HELOC to help with my down payment on my house.

10:19

Now, I paid it off in six months and

10:21

only spent about $200 on interest, but

10:23

the interest rate increased three times in

10:25

that six months. That being

10:27

said, I'm not interested in taking on any debt

10:29

that has a variable interest rate. I

10:32

like the idea of my primary residence holding only

10:34

about 10% of my net worth, so

10:37

I can invest most of my money

10:39

in income producing assets. And

10:41

so there may come a day when I put more

10:43

money into my house as my net worth grows. I'm

10:45

just not there yet. But

10:48

we're only halfway through the article now, so

10:50

be sure to come back tomorrow where we'll finish

10:52

up this post and where optimal life awaits.