Remember the feeling of those significant milestones in your life?
That time you moved away from home.
That day you said, “I do.”
That moment when your kids finally grew out of diapers.
That big job promotion or beginning a new career.
All of these and many more have occurred in my life and in our household. The one we experienced recently surely ranks in the top ten in matters of earthly importance.
We’ve Paid Off Our Mortgage!
Goodbye Bank of America. It’s been…uh, “nice” knowing ya. Hello Baby Step 7!
This event actually occurred in February. I walked into our local BOA and received the deer in the headlights look upon mentioning I wanted to pay off our mortgage. They appeared happy for me but I knew better. What was really running through their minds was “Rats…lost another one.”
They thought worse than that when learning I also wanted to close all my accounts. The only reason we opened a checking account there was because they purchased our mortgage from Countrywide years ago. It made it simpler to pay down our mortgage as we could transfer money to BOA from our main bank at PNC.
Uncharted Financial Waters
It’s taken me several months simply to wrap my arms around the concept that we are entirely debt free. No more loan payments…to anyone! It almost seems too good to be true. When you’ve accounted for something for 15+ years, it seems odd when you don’t have to anymore.
Maybe in a small way this is what it feels like to send a kid off to college. Or to retire. Is there such a thing as empty mortgage syndrome? Our monthly budget feels lost without it.
So what happens now that we’ve paid off our mortgage and that huge expense is gone from our budget? Where is all that extra money going?
The temptation is to hold the throttle wide open on the budget and rapidly increase spending. More clothes…more entertainment…more food options…more everything. After all, we’ve been so focused on freeing ourselves from this debt. Time to live a little, right?
Uh, yes…maybe just a little. Not the answer you were expecting? Well, we do have several things we’ve been considering with the extra room in the budget.
We are going to upgrade my cell phone to an unlimited data plan. No more counting the megabytes used each month.
We are getting cable TV again. (That “gasp” you heard was all the personal finance bloggers. 🙂 )
We might get a gym membership.
Those three things will account for less than $150/month in additional expenditures. That’s not nearly the amount we were spending on our mortgage. So we are not going crazy here. Our disciplined habits will not allow it.
So where is the rest going?
For now, we will be ramping up our savings efforts to purchase a new vehicle with cash. We’ve been setting money aside for several years already, as we saw our four kids would be quickly outgrowing our minivan. Hopefully, that purchase takes place within the year.
Beyond that, we are just excited about entering the most awesome stage of money management.
Baby Step 7
For those unfamiliar with the Baby Step 7 terminology, it’s the final stage of Dave Ramsey’s money management system. He teaches that individuals should progress through these seven steps on their way towards financial freedom:
Baby Step 1: $1,000 in an emergency fund
Baby Step 2: Pay off all debt (except the house)
Baby Step 3: Build a savings fund of 3-6 months of expenses
Baby Step 4: Invest 15% of yearly income into retirement accounts
Baby Step 5: Save for the kid’s college
Baby Step 6: Pay off the mortgage debt
Baby Step 7: Build wealth and give
Baby steps 1, 2 and 3 happen sequentially. A person should complete one before moving on to the next and before starting step #4.
Baby steps 4, 5, and 6 don’t work that way. Once a person can invest 15% of their income in step 4, they begin to save for the kid’s college with whatever else they can squeeze out of the budget. Then, if more money becomes available, they put that additional money towards the mortgage. So the idea is that eventually steps 4, 5 and 6 are all happening at the same time.
At some point, which is what we’ve reached, Baby Step 6 is completed. So all the money that was going towards the mortgage is now funneled elsewhere – into retirement, kid’s college and other investments – all with the expressed purpose to build as much wealth as possible and give a bunch away.
Should You Pay Off Your Mortgage Early?
You probably guessed by reading this that we paid off our mortgage ahead of schedule. That’s a hot topic in the personal finance world with solid arguments to be made on both sides.
As I’ve talked about recently, there is no absolute truth in this area. There is no consensus on right or wrong. It’s a highly personal decision based on how the individual assesses their circumstance.
We had our reasons and for that you’ll have to wait for my Wednesday post. Several of those reasons may surprise you.
How close are you to paying off your mortgage? Will you pay it off early? Do you even think in today’s transient culture a mortgage is worth paying off? When your budget experiences some breathing room due to a boost in income or the knocking out of a big debt, how do you handle it?
Next Post: 4 Reasons Why We Paid Off Our Mortgage Early
Prior Post: Wrestling Against Something Twice Your Size