We paid off our house in 48 months, our Secret?
Our goal was to pay off our mortgage in 5 years. Specifically before 2018 ended. Once we accomplished that goal we wondered, “did we just join the FIRE movement on accident”?
First, what is the FIRE movement? It stands for Financial Independence Retire Early. Wait, I have NO intention of retiring early. That was never in the cards. I have owned my company for 8 years and have been planning on working for as long as my mind is still sharp. I’m hoping that I still get to do business appraisals when I’m in my seventies.
So, Financial Independence? I don’t know, I guess, maybe? We are certainly Debt Free, but there is no way that we have put away enough assets to even contemplate retirement for another 20 years, which is when we would hit the early retirement age for social security.
Retirement Early? No, no and NO! I think this is something that the FIRE promoters really have wrong. First, what are you going to do with all your free time when you “retire”? Since the launch of my first company, there hasn’t been one week where I had to put in full time hours. Why is that? I have never had a boss or some draconian rule that says that I need to be in my office from 8-5. When I have work, I do it. When I don’t have any work, I tried to figure out how to get more or I just RELAX. That’s why I know I can continue my business until I’m an old man. My job brings me zero stress, and I’m convinced that is the key to both happiness and long life. You have to love what you do for a living and it helps if you get to be your own boss/control your own destiny.
The only work related or financial stress that we have had since the Great Recession was self-imposed. We set a goal on 1/1/18 to pay off our mortgage in 5 years. Yeah you read that part right, but maybe our mortgage was only like $5,000? Well, we put 20% down on a $342,000 house in October of 2014. We didn’t make any extra payments, on a 30-year mortgage, until the day we decided to pay it off. That means that we still had a balance of $256,667 to begin the year.
As a family, we have NEVER made more than $193,000 in a year, so why would we set such an impossible goal?
I know what you are thinking, did we win the lottery? No
Did we get a major inheritance? No
Did we sell off some other assets? Yep, we sold our rental house after we decided that we just weren’t cut out to be landlords. This house was purchased after the end of the world, 2009, as a foreclosure. So, we were bound to have some equity in the house. Plus, when we lived there, we put in extra payments to principle as we wanted to pay that house off in 10 years rather than the 30-year fixed mortgage that we had on it. With a little bit of luck and some extra dedication to paying down that mortgage we were able to walk away with a check for $144,489 at the closing table. We then applied that to the house we are living in. That left us with a balance of $112,178, still an impossible goal for one year.
Do we live extremely frugally, as is preached by the FIRE promoters? Surely, we have a written budget as someone like Dave Ramseywould suggest. Nope, we have a good understanding where the money goes and neither one of us is a super shopper or spender. We have always lived within our means, put money into our retirement accounts and kept a decent sized emergency fund. We cut no expenses this year, we properly funded our retirement, kids’ college savings, and yet somehow managed to meet our goal.
A common theme that I see when I read about or watch people discuss their FIRE situation is that they all seem to have a blog. Most of the stories go like this; we saved a million dollars and now spend our time travelling the world. You can read about it on our blog https://example.com. I’ll let you in on a secret, most of them aren’t retired. They are simply promoting their travel blog, or they are trying to sell you seminars on how you can live debt free and retire early. In my opinion, most of the time you read one of these stories they are completely full of it. They discovered that they could make more money blogging than working a regular job. What am I selling? Nothing, I guess you could buy a business appraisal if you are going to sell your business? Seriously, if you are reading this you probably work for someone rather than own a business, so I’m pretty confident that I’m not selling anything.
Keys to Our Success
I’m going to start with my Grandfather’s advice, because it is something that everyone can do. It is a mentality thing, and once you understand it you will save tons of money for the rest of your life. It needs to be updated a bit since, he was born in the 1920s. Perhaps the number should be $5,000 in the bank, the concept is that you always need to have an emergency fund. Once you clear certain minimums you find that you won’t have to pay little fees here and there. These fees add up, so it is key to make sure that you figure out how to get these savings.
Let’s start with bank fees. If you have a minimum of $1,500 in your checking account, you won’t have a monthly fee of $12. That’s a savings of $144 a year. All of us have been guilty of using an ATM that isn’t in the network, so you get hit with a fee from the ATM and from your bank. Let’s say that happens once a month for $5. You are out $60 in ATM fees in a year. Many of the online banks offer free access to any ATM in the US. How can they do that? They don’t have to stock, maintain or own any ATMs, so it is just a cost of doing business. The minimums that they require are likely higher than $1,500, but it is an easy way to save some money.
Did you know that you get 5-10% discounts at many insurance companies if you pay your auto insurance premiums upfront? You could save $100 or more per year by doing this.
Here is the real reason why having an emergency fund; true emergencies. Losing a job, getting in an accident, home repairs, etc. If you don’t always have that $1,000; how are you going to pay those bills? Probably, they have to go on a credit card, or a home equity loan and the debt cycle starts. Now you are paying up to 20% interest on that emergency for years.
The Trump tax cuts doubled the standard deduction, so we were no longer able to take advantage of writing off our mortgage. It was no longer a reason to carry a mortgage. More importantly, we wanted to have that feeling of being completely debt free. Here is the hidden reason though, we knew that if we increased our household income and climbed up the tax ladder it wasn’t going to be as punishing as it had been the year before. In 2017 it felt like we didn’t need to jump into a new tax bracket, let alone try to find a way to the top. The top rate was 39.2%, our government brought it down to 37%, giving people like us extra motivation to earn more money since we could now keep more of it. I’m not into politics, but I tend to vote for anyone who has plans to lower taxes.
Set a stretch goal, this goal needs to be something that you can discuss with friends and family. First step, you must write it down. We started with a piece of paper on our refrigerator that had our total principle balance on our house. Over time that evolved into a white board. It was a goal that we saw every day. When one of us wanted to buy something or go out for dinner the other one would point to the whiteboard and say, “oh so you don’t want to pay off the house”. That was code for we don’t need that, or we should stay in tonight. Many of our friends thought that we were crazy, but the ones that thought that we would succeed knew that we had an ace up our sleeves. We chose to increase our family income.
This is the real secret; our goal wouldn’t have been possible if we hadn’t made the decision to simply make more money. For the 10 years that we have been married our combined income has been in the six-figure range, but never more than $200,000.
My wife was miserable in her job at the front desk of a medical practice. I always told her that my income was enough and that if she didn’t like working, she could always quit. The problem was that I worked from home and we thought that we would kill each other if we were both at home all the time. One day, at the end of 2016, her car pulled up at around lunch time and she had a box of her stuff from work. I have been fired once in my life, so I knew exactly what had happened and I knew how she felt. I gave her a hug and said, “you were miserable at that job and only made like $25,000 a year, don’t worry about it.”
We didn’t need to replace the money, we needed to replace the time. She wasn’t going to be content being a “homemaker”. Serious question; do they have those any more, the world became pretty pc in the last decade? So, we started on a search to find her something to do. She immediately started to put her resume out and took some interviews but didn’t see the results she was looking for.
We weren’t thinking about replacing her income, we were fine. We just wanted to give her something to make her feel content. She simply wouldn’t sit back and watch me earn all our family income. She also had ZERO desire to help me do appraisals, so that was off the table.
Both of our children found their way to YouTube before they were 3, so she decided to try to see if we could make a go of earning money on that platform by making content for kids. The thought was simple, she would play with toys to keep the kids engaged and then she would teach them French. It was a noble goal, educate and entertain. The idea is valid, we just had no idea how to do it. Eventually, she gave up on it.
Rana has always been a professional bargain hunter, so she pivoted away from kids and started searching for deals and started a blog. But there was a pretty big problem. Between the two of us we had no idea how to build a website, neither one of us was a photographer, videographer, or SEO guru. Therefore, we had no realistic way for her to tell her story, or to get in front of an audience.
This is where our good old friend Mr. Google stepped in. Whether it is true or not, there are rumors that Google has a sandbox and they won’t let you out of it until a certain amount of time passes or you have content that is worthy of showing up in search. For the first 6-9 months her blog was nowhere to be found on Google, which meant that there was no traffic to the site and it felt like all her hard work had been fruitless. Fortunately for us, our horrible, out of focus, impossible to hear, content and videos were nowhere to be found. After about a year she started to figure out this whole blogging thing, her site saw some organic traffic, her photos were in focus, her videos edited to the point that a few people could actually watch them. Just like that, Google let her out of the sandbox and all of the sudden her site was a hit. Thousands of daily visitors and she stumbled on something that gave us the chance to fulfill our goal, money.
We had two paths to increasing our income. I could have taken on more clients, or she could figure out how to earn some money. I think we would have gotten to the same place if we would have started to pump up my business, however, getting her started on her own path was WAY better for our marriage. She no longer felt like I was doing all of the heavy lifting. Her success has forced me to start working harder on my business as I’m no longer the breadwinner.
Flashback to January of 2018, when we set our goal. My business had roughly the same income it always had, but her blog started to bring in a few thousand dollars a month in profit. We thought, if we can get an extra 3-4 maybe $5,000 a month in profit from her business, we could put that into the house and we could hope to cut our expenses and use income from my job to put a dent in the mortgage.
Still the goal was outrageous. There was no way we were going to get the house paid off in a year. In January we paid an extra $3,000 in principle. Not bad right? I have an amortization spreadsheet, so I added that payment and deleted the 5 or so payments that we would have otherwise made 25 years from now. We now had our roadmap, point to the whiteboard and scratch off some months from our 30-year mortgage.
We sold our rental house, we had lived in it for 5 years and rented it out for 4. At closing we took the $145,000 and put it into the house and funded our retirement plans and our kids’ college funds. At that point we were way ahead of our mortgage. In 2014 each month our principle was paid down by like $450 and we were paying interest of around $1,000 a month. After pouring this money into our current house the interest we were paying monthly dropped to around $500 with the rest of our normal monthly payment going to principle. Now we could see the light, if we just made our monthly payments, we would have our house paid off in 10 years.
Then something magical happened, her blog traffic multiplied, and her income started to balloon. She was bringing in profit of $15,000-20,000, rivaling my profit on a good month. What a cool feeling, and you could see it in the way she would strut around. All of her year and a half of hard work, learning new skills etc., had started to pay off. At the end of April, we had a mortgage balance of $99,294. Still a crazy amount for our one-year goal. Could we really find a way to put an extra $12,000 a month into our mortgage to clear it by the end of 2018?
Her success continued, but my business hit the out of season mark. For whatever reason people tend not to sell their businesses in the summer so I typically have very little work in the summer. Her blog had some serious traction, so I started to help her out whenever possible, but make no mistake, it is HERS! Seriously, it doesn’t work without her. She could have hired someone with a better skill set to help her, but I had the time and we had a goal. Here are the additional payments we were able to make:
What an amazing dent we were able to put in our mortgage. Our balance was all the way down to $60,001. We had 4 months to pay $60,000 we could smell it, but no way we could get there. I mean we are talking about $15,000 a month.
Did you notice that I wrote this blog in November? I mean would I have written this BEFORE we managed to pay off our house by the end of 2018? Only if we beat our goal, right? YEP! Her business had an insane September. She had a profit of over $50,000 in that month. Yeah you read that right, her best month after 2 years of blogging beat my best month as a professional services business by nearly $20,000. Needless to say, in September and October we were able to come up with the $60,011. By the way my stupid bank charged me a $10 fee for record keeping or some BS. My grandfather’s rule about avoiding fees obviously didn’t apply here.
Me met our goals, we no longer have any financial stress. Does it mean that we just lay around all day? Or does it mean that we push ourselves harder? We don’t have a goal and we don’t have any drive to earn more money. Is it strange that my wife launched 2 new websites in October? It will take her at least until the end of the year to get them off the ground. Traffic surely won’t start going to either of them until Mr. Google decides that they don’t belong in the sandbox.
Both are really extensions of her main blog, but she really wanted to be able to keep different aspects separate. Rana’s native language is French, so she always wanted to have a domain in France rather than duplicating and confusing her audience. Her content is better, her videos are crisper, so she just doesn’t have to spend as much time editing them. We debate all the time, would she have had the same success if she started with a French website and then started one in the US a couple of years later?
My take is that she would have seen success in France much faster, but it still would have taken a year to just learn, SEO, photography, videography, editing, website design, etc.
So, did we join FIRE? No. Are we going to start selling seminars on how to retire early? No. We are simply going to work as hard as we want, as long as taxes stay low. I can guarantee you if there is a major tax hike our contribution to the US economy will drastically drop. I would start to turn down clients, and she would stop innovating and producing entertaining and informative videos. Before you rush out to start up your own business. I think it’s only fair that I explain that we had a few advantages that you might not have.
First, we already had a nice emergency fund. This meant that she didn’t have to get a “job”, and that we could afford to lose money while learning the skills that we knew that neither of us had. Which is an important point, her business lost more than $15,000 in the first year. Most people would probably pull the plug after throwing away that much money, but we viewed it as a complete learning experience.
Second, I have owned and managed a business for 8 years. This means I didn’t need to hire a lawyer to get Rana’s corporation started. I didn’t need to pay a bookkeeper to do monthly financial reports. I didn’t need to pay a cpa to do her corporate tax returns. I already knew how to do those things, we had some serious built in cost savings from lessons that I had already learned. We were able to start her business as lean as possible. Had we hired a lawyer to set up the entity, figure it would have been an additional $1,000 a year. A monthly bookkeeper and a corporate tax return each year, figure another $12,000. Make no mistake, if you don’t already have that skill set you need to add that to the budget side of the cost benefit analysis that you should do before starting your own business.