Taking a Balanced Approach to Mortgage Payoff and Financial Independence

Over the past few weeks, I’ve come across conflicting information: paying off one’s mortgage early or investing the money one would have used to pay it off early.

Each side of the coin sits firmly in their belief, but they always go back to the choice being a personal choice. Personal finance is a personal matter of not only numbers logic, but emotions.

Don’t think personal finance is significantly emotional? Try and tell someone they shouldn’t have their $7 cup of Starbucks every morning because they could save $2,548 annually and invest that with a return of $36,832.45 after ten years… just for skipping a daily coffee habit. I made that mistake, and the response wasn’t pretty.

To Pay Off the Mortgage or Invest

I’ve been on the fence since declaring my desire to be mortgage free last year. I have lost sleep over it and dreamt about the feeling of complete and total debt freedom. It felt so great over the years to close student loan and car loan accounts never to reopen them again.

The mortgage is our only debt and our last hurrah; saying goodbye to financing any part of our lifestyle! We love our home and look forward to owning it outright, but at what cost does this emotional decision come?

This coming fall would’ve been the start of paying down the mortgage to remove the debt in 4 years or less. What concerns me is that we work in a field with a lot of uncertainty ahead. Paying down the debt is great, but leaves little room for error in other aspects of our lives. Also, we’d be losing out on market returns and long-term growth.

The Spark Ignites

As I sat on the fence, sipping lemonade on a sunny, cool February day, it dawned on me that we could use a balanced approach as one does with their investments. We’ll best tackle our passionate desire to be rid of debt, and my logical financial sense to not give up on growth and financial security in the meantime.

The balanced plan I’ve designed, based off of a positive job outlook, incorporates each side and doesn’t put us behind by many years on either goal. It looks more confident and brings us to financial independence sooner, ten years to be exact.

How We’ll Do it

We’ll tackle our mortgage debt removal via our side incomes, which I don’t incorporate into our regular budget. These side incomes fluctuate seasonally, so I don’t rely on them for any budgeting purpose. Instead, these additional earnings are additional savings that have helped us reach various goals over the years.

As we each can make extra income, this will be used to pay-off the mortgage. If we don’t make extra income one month, we’ll be okay, and the mortgage will keep on ticking.

Based on current projections we’ll pay off the mortgage in another seven years (instead of 4), at a total mortgage holding of 10 years down from a 30-year mortgage. Doesn’t sound so horrible, does it?

The other side of the coin will be to save and invest our primary incomes as much as possible while living well below our means. In other words, we’ll continue on our happy frugal path and maybe limit extra expenses along the way.

Using Sweat Equity

For example, we’d love to pay someone to come and dig out our gardens and clean-up our front yard that is overgrown with ivy, ground cover, and filled with horrendous piles of river rocks. Instead, we’ve scheduled in time each weekend this spring to use sweat equity and do it ourselves at a savings of $5,000 or more.

In the end, this plot of land in the front will then become a beloved mini farm for my pleasure, as it gets full sun all day. We’ll save money on food expenses, and I’ve done research on building raised beds and gardening with less water using buried clay pots. More to come, but when you stop over, pick some tomatoes on your way in, would you?

F.I. in 10 Years?

Currently, we can reach a 50% savings rate, including retirement contributions, by living uber frugally. Saving and investing this amount, we’ll achieve financial independence in a fresh ten years with average investment returns. That doesn’t mean we’ll retire, but we’ll have freedom to make choices of how we’d best like to spend our time or additional income. I’m still working out the details on what financial freedom would look like for us.

I was surprised to run the numbers and find out we don’t even need to be millionaires to be financially independent; in fact, it’s far less than that. We have kept our lifestyle inflation as low as possible as our salaries have ever so slowly ticked upwards. As of today, we only need around $20,000 annually to live (minus the mortgage). If we wanted to get lavish, we would probably be jubilant spending around $25,000 per year (and that includes high NJ property taxes) which would make us very fancy frugal people.

Squarely in the Middle

We are squarely in a middle-income bracket and most likely will not reach above that in our chosen career fields. I am very aware of the fact that we are fortunate enough to be able to make the frugal living choice versus being forced into these types of decisions. Alas, we’ve had it forced upon us in the past (i.e. $40 weekly food allowance). That alone, having the ability to choose how to spend, gives us a huge leap ahead.

They say that comparison is the thief of joy. While we are squarely in the middle, it’s hard to read of others reaching financial independence in their mid-thirties, where we sit nowhere near F.I.R.E currently. Those I read about are engineers or work in technology, where salaries grow swift and fast right out of school. I ponder that if we had the opportunity for a few years to live on double or triple our income, we’d be much closer to financial independence, or retirement.

I go back to thinking that it’s been less than a decade since we embraced the frugal mindset. In that time, we’ve been able to rid ourselves of hundreds of thousands of dollars in debt, pay off an underwater house, and grow into who we have become today: well-rounded, lifelong learners with plenty of skills to share with the world. For that, I am thankful, early retirement or not. Mortgage freedom or not.

Connecting with Other Frugal Minded People

It does become a struggle at times to relate to others who are not on the same path or of the same frugal mindset. Our friendships have changed over time, as we don’t connect easily with average spenders and we have yet to find local frugalites on the same uber frugal journey; though I know they’re out there!

It is apparent to me on a daily basis that our tribes exist far and wide across the world (thanks, internet!). All I have to do is mention early retirement, financial freedom, or mortgage freedom to someone in person and I get a quick, “Good luck with that!” response.

Then secretly, the naysayers who’ve mocked me publicly have come back to me for advice on getting their financial lives in order. Kudos to them for considering a different way of life than the average. If we could do it, so can you.

Realizing this, I may have to start seeking out regular locations where my fellow frugal momsters frequent.