Transition Year

Provided nothing major happens, sometime in the middle of this year, my wife and I will have achieved the first of our major financial goals – paying off the mortgage on our house. Our intention is to pay off the full balance by the end of the 5-year term in May, but that is dependent on our savings level the next few months, and we may end up finishing off the debt in the middle of the summer.

This portion of our financial plan will probably be the easiest to complete. To me, it’s the most risk-free portion of our entire 15-year Early Retirement goal. There were no decisions to be made, monitoring to be done, or money to be moved around. Our mortgage just needed to have a persistent payment made against it and we were getting closer to our goal. The next 10 or 11 years will require much more “work” on our part in order to reach our goal , rather than just throwing money at the large amount of debt we took on in our decision to own a house.

Being completely debt free will give my wife and I a psychological boost – not owing anyone for anything we do is a bit of a relief. When this last debt is paid off, our “real” cash flow will increase significantly.

If at any point we decide that we would prefer to change careers to something not as lucrative, or work part-time, it will be much easier to do this, with fewer “fixed” bills owing at the end of every month. Not that we exactly feel encumbered by our current lifestyle, but the knowledge of added freedom will help our peace of mind.

For me, I realize I will become much more interested in investing – partially out of necessity (due to increased funds available to do so) but also because I can actively invest over the rest of my life. I am currently aware that there are other places I could be putting my money towards – I have just been avoiding it to date. This part year will be a bit of a learning curve for me I think – learning an investor’s mindset, tolerating risk, and being involved in the market. I can read tons of books about investing, but (as I’ve learned through sports betting) without anything to lose, it’s difficult to judge how I will react to a significant swing in the market in the short and long term.

I’m glad I went about my plan the way I did – I think having $0 in debt will bring me (an individual who is not comfortable owing money) much more peace of mind than the alternative of taking longer to pay off my house and concurrently investing in the market.

Have you made this kind of transition in the past? Was it a significant change in mindset?

4 thoughts on “Transition Year”

  1. To answer your closing questions – Yes and Yes.

    I remember whan I paid off my mortgage in 1998. I was in my peak earnings years, still working full-time. Before that, one biweekly paycheck was not quite covering my monthly expenses. But after that, not only was one paycheck covering my monthly expenses, I had some money left over from it to invest along with the other biweekly paycheck. And remember this was 1998 when the bull market of the late 1990s was in full force for a few years.

    This was also a key step on the way to my ER. By lowering my monthly expenses I knew I could switch to working part-time without straining my budget. And I did just that in 2001, ending my 16-years of working full-time. On an after-tax basis, all I did was to reduce my super-high savings rate back to its previously pretty-high rate prior to 1998.

    As for my interest in investing, I already a big interest in it. I just had more money to invest than I did before, as both parts of paychecks were now being used to invest.

    The peace of mind was nice, too, after receiving the original stock certificate for my co-op (equivalent to a deed). I now owned my apartment outright.

  2. Dave, not sure if you have done your own net worth post, but where does your portfolio stand? We have been fortunate in that our mortgage has always been manageable (never over $1000 monthly), so we have been able to slay the mortgage while building a 7 figure portfolio. You can’t go wrong getting rid of the mortgage – though with mortgage rates as low as they have been, and with markets performing great over the past few years, you may have been better served investing a bit more than you may have…but this is nitpicking, you seem to be on track.

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