A Top-10 Day In Your Life

Sending off that last mortgage check

Yesterday, I sent off the last mortgage check I’ll ever have to pay. There are a handful of days in your life that signify momentous events. The birth of a child is one, marriage is another. Paying off your house might not be in the top three, but it’s certainly in the top ten.

Few things in life are guaranteed. The value of money will fluctuate as will the stock market. If you can trade worthless pieces of paper for a brick and mortar structure that provides you shelter from the elements, you won’t regret it. There is tremendous security in knowing you’ll always have a place to sleep.

For anyone looking to get on a path to financial freedom, purchasing a home is perhaps your best course of action. Rent is an inevitable cost. If you can transform your rent expense into equity, you are already two steps ahead of the game. The earlier you get on the right path, the sooner you can reap the rewards.

An uncertain market fluctuates.

Like many Americans, I’ve been concerned with what I perceive to be Trump’s mismanagement of the economy. Throughout the last four years, the stock market has been prone to massive fluctuations. It can drop to half its value and then rebound in a week. Although this volatility is great for rich people who want to see a quick profit, it’s nausea-inducing for individuals who have actually worked for their money.

A normal president has a few controls at his disposal that he can use to make sure the economy maintains a path of sustainable growth. Trump, however, has opened all these controls up to full throttle to create the illusion of a thriving economy. The consequence of this is that when COVID hit, he had no recourse to prop up the failing system.

As a result, I decided back in 2016 that the safest way for me to invest extra money would be to pay off my mortgage. I reasoned that if my house was paid for, I’d be in a better situation to manage a complete economic collapse.

Take deliberate action.

I admit that there have been temptations in the last year to throw money in the market instead of the house. I debated purchasing Amazon after the Christmas crash of 2018. The price dropped to around $1,500 per share and has since rebounded to above $3,000.

Recognizing that you missed an opportunity to double your money can sting, but that sort of thing happens all the time in investing. Hindsight is 20/20, and you shouldn’t let a missed opportunity derail you from a well-reasoned and prudent strategy. Keep in mind that when you’re looking back, you’re more inclined to recognize the opportunities you missed than the pitfalls you avoided.

Amazon surged largely because more people are ordering from home as a consequence of the pandemic, and that was impossible to predict. Also, I wasn’t liquid enough in 2018 to purchase very many shares of Amazon, so investing extra cash in the house was a more practical approach.

Purchase a house you can afford.

By far the biggest mistake that people make when they are looking for a house is that they listen to their banker’s assessment of what they can afford. People need to understand that when it comes to all things financial, the bank is your enemy.

The bank is a business after all. Their purpose is to make money. They make money off of the interest you pay.

The bigger the loan the bank can get you to sign off on, the more the bank stands to make over time. Bankers assess your financial situation and plug it into a formula to determine the maximum amount of money they can lend you. But you don’t need to leverage yourself to that extent. If you take a smaller loan, you’ll have the financial flexibility to do something like buy shares of Amazon when you see an opportunity.

Look for opportunities.

I purchased my home back in 2009 and paid only $69,000. At the time, there was a stimulus program that offered a 10% rebate to anyone purchasing a first house. Although this offer has since expired, there are often programs at both the state and federal level that can be very beneficial to home buyers.

The thing to remember about the United States is that virtually every government program is designed to benefit the wealthy. Although I believe that we need to change that tendency, in the meantime the best course of action is take advantage of these programs. Even if you are not wealthy, you need to mimic the actions of wealthy people in order to achieve financial freedom.

It’s stunning when you compare how hard it is to earn $100 to how many benefits there can be to taking out a loan for $100,000. The government wants people to buy houses. It’s a stable business, it’s beneficial to the banks, and it helps the economy. Therefore, there are government programs and tax breaks that seem almost unfair in the context of working for a living.

A fixer-upper has benefits.

I live in a rural area, but even here you can’t get a great house for $69,000. My house was split into a duplex. The previous owners had been renting the first floor to a retired woman, and I was content to have her stay on as long as she wanted. With her rent payment, I only had to find another $150 a month to pay the mortgage.

The financial flexibility of having a renter allowed me the cash freedom to renovate the house. My renter stayed with us for 9 years and then left on her own accord due to health reasons.

Fixing up the first floor was a massive renovation, that has proved to be extremely worthwhile. When I tore up her nasty carpet, I found a beautiful hardwood floor. Renovating a floor is expensive if you hire somebody to do it, but if you do it yourself it’s as easy as renting a sander from the hardware store and buying a couple of gallons of polyurethane.

Give YouTube University a try.

I admit that I’m not an especially handy guy, however, we live in an era where advanced education is available for free. Sure, you aren’t going to graduate from YouTube university with a degree, but you’ll have the knowledge to get the job done and you won’t have any debt. That’s a win.

There are a stunning number of do-it-yourself tutorials available online. When you purchase a house, particularly an old house, you have to prepare for repair work. For the last ten years, my motto has been, “It doesn’t have to be perfect, it just needs to be better than it was.”

My home was built about a decade after the end of the Civil War. If you go into the basement, there’s a complete history of electric wiring going back to the innovations of Nikola Tesla. The fact is, no matter how poorly I do a job, I can’t help but make my house better no matter what I do.

Stay the course.

The hardest part about committing to a prudent financial path is that sometimes it seems like you are struggling more than people who are being reckless with their money. I admit that there were times throughout the years when my wife got frustrated when she looked at some of the luxuries her co-workers and friends enjoyed. But you have to take the good with the bad.

Her moment of realization came when one of the people she worked with commented on how she was always struggling with money. People drive a $50,000 car and have a $300,000 home and they can’t figure out why they never have any free cash. When you make the choice not to be cash strapped, there are manageable trade-offs in comfort, but you have less anxiety. Evaluate your expenses and cut out the ones you can live without.

Remember it’s a small piece in a larger puzzle.

The unfortunate reality of the United States is that the price of health care is a ticking time bomb that could go off at any moment and wipe you out financially. That issue can’t be corrected until we make massive changes to our political philosophy, and it shouldn’t prevent you from following good practices in other areas of your life.

For the time being, it feels good to have paid off a house. I’ve long said that the difference between wealthy people and poor people is that poor people pay interest and wealthy people earn interest. When it comes to my house, at least, I’m no longer paying interest.

No matter what happens in life, you’re going to need a place to live. Don’t fight your needs, make them work for you. A house is an investment you can touch which is unlikely to completely lose its value the way a stock can. Purchasing a house is one of the best ways to take control of your life.