A couple of weeks ago, we announced our big financial goal for 2019 (and beyond) in our very first ever Facebook live video. We thought about waiting until it was actually 2019 to dive in, but honestly once we made the decision, we couldn’t wait. We just wanted to get started instead of frittering away the last two months in the year.
You’ll see the progress we’ve already made when I share our monthly budget update next week, but I wanted to be sure I explained how we decided on our goal and some of the numbers behind it.
If you want to see the video, you can watch it below or find it on my Facebook page or YouTube channel, otherwise just keep reading!
Since finishing paying off six figures of student loan debt back in 2016, we haven’t had a big, challenging goal. Sure, we’ve continued to set goals and to budget diligently, but we haven’t had a goal that challenged us and really excited us.
This year, we had the goal to build our emergency fund up to $25,000 and to fully fund my IRA for both 2017 and 2018. That’s all good and we’re happy to have done it, but it wasn’t something that required us to work really hard or make great sacrifices. It wasn’t a goal so exciting or motivating that it kept us up late trying to figure out how we could reach it. Sure, it kept us moving in a good direction financially instead of going on a spending spree to celebrate debt freedom, but it wasn’t very exciting.
Getting out of debt? Now THAT was an exciting goal!
That’s the kind of goal that had us racking our brains for ways to save more money and make more money. That’s the kind of goal that made us happy to eat rice and beans regularly. That’s the kind of goal that united our family and brought us closer together as husband and wife.
Yes, a big goal like paying off debt was the kind of financial goal we were craving.
Well, it just so happens that we have $363,000 of debt. Sure, a mortgage may be the kind of debt people call “good,” but it’s still debt.
Now for the time frame. When we set our student loan debt payoff goal, the time frame was not based on the numbers. In fact, our goal was completely impossible based on the numbers when we set it. We’re doing that again with this goal. The time frame isn’t based on anything concrete, just a desire to get our mortgage paid off soon.
Our goal is to pay off our mortgage in 5 years (by Dec 2023)
We still owe roughly $360,000 on our home, and at 3.625% annual interest, we’ll pay nearly $40,000 of interest during that time as well, making a grand total of $400,000 over 5 years, or $80,000 a year!
As far as the numbers go to make this work, our current payment on our 15-year mortgage is $3,200 a month. That includes homeowner’s insurance, property tax, and private mortgage insurance. The actual amount owed is a little under $3,200, but we like nice round numbers so we’ve been kicking in a few extra dollars each month which knocks a month or two off the mortgage.
Only now we want to knock the last nine and a half years off the mortgage, which means we need to pay a lot of extra principal, just a little over $6,500 each month. So we need to find an additional $3,300 each month for the mortgage.
Why in the world would we set a crazy goal like this?
Here are a few of our reasons:
1– We’ll save money in interest.
When we finish at the end of at the end of 2023, we’ll have paid almost $40,000 in interest. If we kept the repayment schedule at 15 years, we’d be paying about $70,000 more in interest!
That’s like paying $1,150 a month for 5 years. If you think about it another way, we are earning $1,150 each month, for five years, by paying the entire mortgage during that time. What would you do to earn an extra $1,150 a month? Us? We’d pay our mortgage down faster.
And just a note on a longer loan… if we still had our 30-year mortgage we would have paid $245,000 more in interest.
2– It’s going to be awesome to not have a house payment!
Honestly, it’s no fun to pay $3,200 a month for our house. That’s a lot of money we could do other things with. We wouldn’t even stick it all into boring goals like retirement or college or replacing a failing deck on the house. We’d do some fun things with it, too!
If you were following along in 2016 when we finished paying off $144,000 of student loans, we celebrated by getting new bikes for the whole family, and new sleeping bags for the kids, and then we went on a lot of family bike rides and a lot of family campouts. So we’ll think of something fun to do five years from now when we finish paying off our house. We just don’t know what it will be.
3– We thought about some other goals, but we couldn’t get super excited about any of them.
It’s so important to be excited about your goal. If you’re not excited, you’re just not going to have the sticking power you need to do the tough things that make your goal a reality.
So, as an example, we looked at putting in a solar panel array to zero out our electricity bill each month. The bids on that came in around $22,000 and we wanted to pay cash, so we could have had a goal to pay cash for our solar panels. Then we would save over $3,000 a year in electricity costs, and that would be awesome and frugal. We thought about doing that, but for whatever reason, it didn’t really inspire us. That’s not to say we won’t do it sometime, but just not right now.
4– We wanted a stretch goal.
It was such an adventure to plan and work together and figure out how we were going to turn our $39,000 a year into paying off over $130,000 of student loans in three years (that’s how much it was when we set the goal). It wasn’t always fun during those three years to make the frugal decision. It often would have been more enjoyable to take a break and just spend some money on something else, or go home at a reasonable time instead of staying late to work on extra projects to increase our income. There were definitely days it was hard, but over the whole three years, it was awesome.
Having an impossible task to work on together was great for our marriage, for our family, and for our finances, though the financial win doesn’t seem quite as important as the marriage or family win. Looking at the complete package, it was learning to stretch, and to stretch together, that was really most valuable, it just happened to be a getting out of debt goal that helped us learn to do that.
Still I was a little hesitant to take on such a BIG goal.
While I remember the excitement and good things that came from busting our booties to pay off six figures of student loans in three years, I also remember that it’s HARD. There is a lot of sacrifice and work that goes into a big stretch goal. I get tired if I think too hard about it!
Paying off our mortgage requires A LOT more money than we paid on our student loans. Our income has grown, but our family and our financial obligations have grown too.
We don’t know how we’re going to do it. We don’t know where all the extra money will come from each month. But, we are going to give it our best.
Had we not set a crazy big goal to pay off law school debt I can assure you that we would still be paying it off now. The only way we were able to achieve what we did was because we set a big goal that we were excited about and focused like crazy on!
So here we go again! Time to SMASH DEBT!
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I’m so excited to see this! We had a plan to pay ours off in 6 years, but maybe I’ll see if my husband is game to stretch and do it in 5! I’ll be eagerly watching for updates!
That will be awesome Sheila. Get him on board and we can keep each other company. Stretch goals make for good exercise. Make sure you keep us updated too!
I love that you are making a goal that is challenging. It is like an adventure you will get to work on as a family. The reward of owning your home deft-free will be incredible. The video is charming and so friendly. It was fun to watch. I am cheering you on!
Thanks for the cheering! It’s remarkably encouraging to have so many friends supporting us. A big stretch goal is kind of an adventure, and our family loves adventure!
I just recently discovered your blog and am very inspired. My husband and I have always been savers, but it’s still good to set goals and stretch yourself. For 2019, we want to continue maxing out our IRAs and HSA. We also want to pay off our car loan. My husband got a year end bonus and we put a big chunk toward the loan. If we pay it off by next September, we’ll have paid it off in 2 years rather than 5! Once that is paid off, we’ll start saving up money for the next car we purchase; hopefully we won’t need another loan!
That’s great Stephanie! A year end bonus is a great way to knock out some debt without having to even work at it. Just the fact that you’re here and making good financial choices and goals is enough to make me confident that you’ll be done by next September. Think how great it will be to never have a car loan again!
I’m a little jealous of your HSA. I shouldn’t be, because we have great health coverage through work, but it does mean we don’t qualify for an HSA.
I love this goal! Very exciting. It will be great to read about it the coming years.
Thanks so much Sjoukje! We love that you still visit us after all these years! Thanks for your encouragement. We’ll ty to make it exciting to follow along. =)
I so wish my daughter had been able to see the advice you give years ago. They could have kept the house they’d started buying 🙁
You’ll achieve your goal. good luck to you.
Oh, that sounds like a sad story, Sally. I hope your daughter is doing better now. Thanks for your comment. We plan on working hard, but we’ll certainly take a little good luck too!
The 5-year mortgage goal is a good one! I ran a bunch of simulations (just using Personal Capital’s retirement planner) and paying off my mortgage in 5-8 years always gave the best results as opposed to having that money in bonds, or something else that doesn’t provide the same guaranteed rate of return.
Ooo that’s good to hear! Thanks for sharing Adam! 🙂
Awesome goal! You guys can do it! Think of how liberating that will be in 5 years 🙂
Paying of a primary residence mortgage is a plan we have (once we settle down). We plan on accruing a few single family residences over the next 5 years and then saving as much as possible for our “dream home”.
Some people say that your money is better off investing in the stock market instead of paying your home off early. It’s honestly a personal decision/opinion.
Yes! That liberation is what we’re going for, even if the return might possibly be better elsewhere. Being mortgage-free just as the first of our five kiddos enters high school will be so nice!
That’s fun that you’re going to use real estate to help you save up for your dream home!
I am so excited for you guys. I love giant, over-sized, seemingly impossible goals too. I have a $220,000 mortgage I am chipping away at. I love the motivation. I hope you have all the success in the world.
From the numbers you provided, it looks like $10 additional dollars each month will be going to pay principal vs being used to pay interest. That will add up fast, helping you to snowball that mortgage payoff.
Thanks for the encouragement Shawn! We do have about $17 extra each month that goes straight to principal with out normal rounded-up payment. We plan to make lots of additional payments on top of that to reach our goal!
I’m sorry but I personally don’t agree with your plan at all. Your main reason for paying off your mortgage in five years is to save on interest. That’s great but your interest rate is a measly 3.625 percent. By paying off your mortgage early, I’m assuming you are forgoing contributions to other investment type accounts. Consider the fact that you may be losing out on a higher return of your investment as compared to your 3.625 percent interest rate. Of course it comes down to how much risk you’re willing to accept but for me it’s a no brainer.
I figured some people would disgree and that’s totally fine! Saving on interest is just one of the reasons we decided to pay off our mortgage in a hurry.
We’re also really excited to not have a mortgage payment each month. Being mortgage-free just the first of our five kids goes to high school sounds pretty nice to us.
We will still max out my IRA while paying off the house. Mike has automatic retirement contributions of 11% with his work for the state.
But another huge reason is the excitement of it. Behavior economics is real. We would not be making the same kind of sacrifices and keep up the same momentum if we were just contributing to normal investments. Maybe some people would, and that is awesome, but we’re much more excited and motivated about being mortgage-free than just investing more.
Thank you for sharing a differing opinion! I’m sure you weren’t the only one disagreeing with our plan. 🙂
I am so excited to watch your journey towards home ownership.
With your track record I believe that you can achieve your goal earlier than you have planned.
Hi Anne! Thank you for your vote of confidence! That would be awesome!
Just wanted to pass on some support! We paid off our $435,000 mortgage in five years! Paying the whole thing off within the 5 year term was our goal and we hit it one month before the term ended in August of 2018. Having a huge goal was great for our marriage, we were incredibly focused and driven to succeed. 5 months later we are still so stoked we made our goal and dont regret it for a second. Good luck! You’ll crush it!