What does it feel like to live without a mortgage? I don’t know yet but We’ve dreamed of it. What we could do with $1,300 back from our mortgage interest and principal! How we could give and build a legacy for our children.
A good man leaves an inheritance to his children’s children,And the wealth of the sinner is stored up for the righteous.
—Proverbs 13:22 NASB
Full disclosure: Since I launched out in business on my own we went from Baby Step 4: saving for retirement and 5: saving for college back to Baby Step 3: save a 3-6 month emergency fund. In fact, it was a season of spending the emergency fund. That was 6 months ago and we’re not spending it any more. We have our sights on Baby Step 4, 5, and 6 but we need to regain Baby Step 3. That is our goal for 2017.
As soon as we achieve that we start with saving 15% for retirement, then saving for our 5 children’s college, and all the rest goes to the house. The average participant in financial peace university pays off all of their debt in 7 years. If that sounds unbelievable, remember it is an average so you might be around 10-15 years while there are others in the 1-7 year range. But, as you know listening to me and Dave, we aren’t all that interested in being average. Normal is BAD! Acceptable and standard isn’t part of God’s design, His plan. He only believes in excellence and perfection and He gave that in His son to offer the accepting grace.
If You Don’t Have a Mortgage, Don’t Get One!
We’re facilitating our first Financial Peace University class right now. Wednesday was our 5th class: “Buyer Beware” and it is a blast meeting with about 20 folks from about 13 families every week to discuss the principles of debt freedom. We’re halfway through and I have a tinge of sadness setting in that the end is near.
I have a couple, lets call them Jack and Jill, in the class. They are a God fearing and life planning couple attending Financial Peace University together before they are even married. They are living separately and obedient to God and have no debt! I asked Jack what he was doing in Financial Peace University (FPU). I don’t remember exactly what he said but it was something about doing it right and easier. Did you know that money is the main cause of divorce? Imagine this couple completing FPU and a pre-marital class at the church. They’re going to be unstoppable!
They’re already on Baby Step 3 but that is kind of on hold because they’re saving for their wedding. A wedding they’re planning with a honeymoon with NO DEBT. Right now they’re shopping for an apartment and struggling a little. I remember the point where my credit score came back as an error! After you quit using credit for 3-6 months you will have no credit score and the computer programmers at the credit bureaus didn’t account for that situation in their coding. That’s where Jack is now.
Last week he asked me how to go about getting an apartment for Jill and himself once their married. I told him, that’s easy. First, you need to find the right landlord. Then you explain to him that you have no debt and never have and therefore have no credit score and that you believe in God’s principles for handling money. You take along your most recent bank statement showing the balance of your emergency fund and explain/teach how the emergency fund works. You also show off your regular income deposits and bring along some utility bills. If that isn’t enough offer to pay another month or two in deposit for 6-12 months because you have the money.
That’s the way to go. Dave mockingly speaks about the no credit card skeptics who say to us, “How are you going to pay for ___?” to which he shouts aloud, “WITH MONEY!!!”
I went on with Jack and Jill and encouraged them to get the smallest, cheapest but safe apartment they could find and choose to make it work. Choose to be content there while choosing to save up for an entire home with NO MORTGAGE. They considered it for a week and actually discussed it with each other, “Should we do what Brian said?”, “What would it look like if we did what Brian said?” They haven’t committed yet but there is a chance!
I pray that they make that commitment. With that commitment they can skip the next section. There is nothing wrong with renting but just be smart and rent below your means. It is only a season while you save for your future. You’re only living this way for a while so you can live THAT way for the rest of your life.
Keep Doing What You’ve Been Doing To Pay Off the Mortgage
Once you get here to baby step 6 or really 4, maybe 5 if you have kids, and 6 all together. You have everything you need. You’ve been gazelle intense at getting out of and avoiding debt. You have established the behavior needed to do this. You only need to suffer a little while longer. DON’T GIVE UP! The end is in sight. Keep spending below your means, keep drinking coffee at home instead of that latte shop down the street. Keep going to the thrift shop and buying your jeans for $2.00. Keep buying a little fun now and then and never try to find happiness in having fun. Happiness is a choice and it can’t be bought but a little fun can be. Keep running from debt and avoiding the normal. Keep driving that old car.
This isn’t about math. It is about your behavior and you’ve learned to behave. You’ve developed self control. You have achieved a level of success with money just look at that account with $10,000 to $30,000 sitting it in ready to respond to your emergencies. How many people in the US can do that? Not very many: Huffington Post: Nearly Half Of Americans Have Less Than $500 In Savings: Survey. From this article, 41% don’t even have $1,000 let alone marking that $1,000 as an emergency fund.
You are doing this but you need to be ready for the test. This isn’t the debt snowball where you pay off a debt every once in a while. This takes some time and don’t give your blow/play money to your mortgage you still need to live a little while you keep your sights on complete debt freedom and how you will live then. You need to budget every month and every year. You must squeeze every dollar out of every category of your budget to put in the mortgage payment while continuing to save for retirement and college. When the emergency fund takes a hit you gotta take a break and fill it back up. Don’t forget what you’ve been doing to this point because it set the foundation for your success in paying off the mortgage.
Find a way to pay a little more on the mortgage every month. When you’re done you’ll be amazed at what you accomplished so soon!
No Mortgage, Now What?
If you’re like me, the first year or two of budgeting we found a bunch of items that we missed in the budget. Things that come up once or twice a year or even periodically. Some that we found were automobile registrations, Christmas (just kidding–but we always wanted more here for the kids), car insurance (pay every six months so they don’t hit you up with the added charge for monthly billing and save it up), school supplies, summer camps.
Now that you’ve paid off your mortgage or bought your home outright, you have a few new things to save up for and budget. Things that were tucked away in my monthly mortgage payment that fancy part they call escrow. Our name for escrow is a “sinking fund”. Sinking funds are critical for things like new roofs, furnaces, water heaters.
Here’s an example: say we need a new roof in 5-10 years that will cost $8,000. Yes, I know this isn’t normal thinking but it should be for you by this point. Lets do a bit of math $8,000 divided by 10 years is $800 per year. Then, $800 divided by 12 months is about $67.00 every month. So a sinking fund would be setting aside about $70 per month for that future roof. Then when that comes up it is a peaceful shopping and purchase experience instead of an “Oh my goodness where am I gonna come up with $8,000 today!”
These things shouldn’t be emergencies. Everyone knows about them. We go a step further and use sinking funds for our Costco membership, car insurance, and vacations. They can be used for anything and everything that isn’t a monthly expense like our quarterly garbage service bill.
As a free and clear home owner, you need to add sinking funds for annual homeowners insurance and (in Colorado) 2 property tax payments. If you’re coming straight from renting to home ownership it’s a good thing you have an emergency fund because when you move in something big is going to break but it’s time to start a sinking fund for specific things like roof, furnace, and water heater and another one for just general home maintenance. I’ve heard that good home care takes 5-10% of the home’s value each year to keep it in tip top shape. It’s worth keeping your home in tip top shape.
In the comments below, share your sinking fund ideas so we can all become better managers of our money and families.