Progress to Date

  • Original Loan Amount: $204,000.00
  • Balance at Beginning of 5-year Goal (1/1/08): $188,983.82 @ 6.00%
  • Balance at Refinance in February 2009: $148,000.00 @ 4.625%
  • Outstanding Balance: $0.00 (PAID IN FULL!!!)
  • Latest Payment Date: April 2011
  • Latest Additional Principal Amount: $17,623.22
  • Amount Ahead of Schedule (since refinance): $121,462
  • Time Ahead of Schedule (since refinance): 7 years 10 months
  • Interest Saved Last Month: $23,972.48
  • Total Interest Saved: $28,435.55 ($1,037.74 on original mortgage; $27,397.81 on current mortgage)
  • Months Remaining in 5-year Goal: 20
  • Average Monthly Principal Needed to Meet Goal: N/A (Goal achieved)
  • Progress List Explained

Sunday, June 19, 2011

Refocusing

We had a good system in place. We spent time up front to create a plan to kill our mortgage. After a few months, it started running on autopilot. We didn't have to give it much additional thought. And ultimately the debt withered and died. Our mortgage-killing plan can be stated in its most basic form thusly:

Step 1. Minimize expenses.
Step 2. Allocate all extra cash to mortgage prepayments.
Step 3. Repeat as needed until mortgage is dead.

Now that we've paid off our mortgage, there's a gap in the plan where step 2 used to be. What do we do with our extra cash flow each month?

I have to admit, after we saw the words "PAID IN FULL" appear on our online mortgage account, my wife and I slacked on step 1 during the month of May. I think we both needed a month to celebrate our accomplishment and not think too much about spending. But now that we're into our second month of mortgage-free living, I fear we will lose our commitment to minimizing our unnecessary spending if we don't refocus our efforts on new priorities.

Something else must fill the void left behind by debt reduction.

We need a new plan. But it won't just happen on its own. We have to make a conscious decision how to allocate our money going forward.

Here are a few of the things we'd like to do with our future "non-mortgage" payments:

Save and invest for current income (pre-retirement)
This is a long-term goal. I envision this as a debt-reduction snowball, only in reverse. An investment snowball? I am thinking of the classic personal finance book Your Money or Your Life when I ponder this goal. This will have to wait until we replenish our short-term "emergency" savings. I'm feeling the same impatience toward this saving/investing goal as I was toward the mortgage elimination goal. I have to remind myself that this goal is a marathon, not a sprint.

Make some improvements to our home
Now that we own 100% of our house, wouldn't it be nice to start to tackle some of the projects we deferred while we were paying off the mortgage debt? Potential projects on our list range from smaller cosmetic enhancements (paint and baseboards) to more elaborate undertakings like refinishing the basement or remodeling a bathroom.

Be more generous (gift-giving and charitable donations)
We cut back on charitable donations while we were paying down our debt. We'd like to get back into a habit of giving. And although we were not stingy with gift-giving during the project, we would now like to take advantage of our improved financial situation to give nicer gifts when appropriate.

Allow for more discretionary spending ("wants")
This category is a potential budget-killer. There are whole host of items and experiences that we're tempted to purchase now that our debt is gone. The key here is moderation: spreading these expenses out over time, and deciding which purchases will give us the most enjoyment/satisfaction/utility.

We can't accomplish all of the above at once. So far, we've been saving some of our extra cash, although we did give some gifts to our parents this spring, and the discretionary spending has been higher than usual. We need to sit down and create a budget (with actual dollar amounts or percentages) so we can keep track of these competing goals. I'm confident with a little work, we will put ourselves in a position to reap the rewards of our efforts in the future.

4 comments:

Laura|move to portugal said...

I like the term 'investment snowball'

I don't blame you both having a little breather in May...you probably needed it....now you get to move onto saving instead of mortgage slaying...much more fun! :)

Niki said...

I am glad you had some fun.

Your plan sounds great. I can't wait to watch you implement it.

salt lake mortgage said...

With some players in the market less visible than they were in the past, there will still be plenty of business to be done by lenders and brokers that cut their cloth accordingly.

High Yield Soldier said...

Just found your blog, good stuff. Congratulations on the mortgage pay off. I'll probably come back here for tips since Im about to buy my own home in a few months. I definetely want to pay it off early once I buy. Great blog.