Tag Archives: debt free

Earning 25 Percent On My Previous Mortgage Payment

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Occasionally I write about being totally debt free (no mortgage, car loans or credit card debt), but I had one problem with being debt free that took me a while to solve, and that was “What do I do with the extra infusion of cash each month”?  Such an increase of cash by paying off my mortgage was like getting a second job on the side!  In fact paying off my mortgage has cut my annual expense by more than 25%!

Back to my problem!  Obviously I don’t want to incur lifestyle creep since I worked so hard to pay off the mortgage early.  To spend more just to increase my lifestyle would have meant that I basically sacrificed for nothing because I really wouldn’t be getting ahead!  But what to do that extra money?  I didn’t want to put it in a savings account that would earn less than 1%…

Here’s What I Did!

It turned out that my employer offers an ESPP (employee stock purchase plan) that enables me to get a 15% discount on the purchase price of my employer’s stock.    Obviously, 15% beats less than 1%, but it gets even better so that option is a winner if I cash out the stock immediately after it get’s in my account.  But in addition to the 15%, I’ve been putting the money into a (what I consider) safe dividend stock and making over 10% there too.  So that effectively give me a return of over 25% for that each year of participating in the ESPP.

Next Step:

Why not use the money for future real estate investments?  Believe it or not, but often I experiment with working on the best financial strategy until I get the best mix, much like I did with the combination of ESPP and dividend investing.

Bests,

MR

Debt Free… Now What? Real Estate

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I’ve been Debt Free since the beginning of February 2010!

I became Debt-Free in the article called “I Am Debt Free, My Mortgage Countdown #1 – Equilibrium“.  In the article, I revealed the technique I used to become Debt Free in 10 years and how I felt. It was truly an exciting moment in my life. But now life has stagnated from a financial perspective, I feel kind of lost without the instant feedback in my monthly debt levels.

Oh sure, I’m investing in a 401k and my regular brokerage account, but the accumulation of money is slow going and not as exciting as paying down my debt monthly.  Yes, I’m accumulating money, but at the same time, I find that I’m almost bored by the process since the cashflow from my earned income is so low.

So I’m considering going back into debt to increase my cashflow. It’s not consumer debt though, it’ll be debt used to buy assets to speed up my progress on becoming wealthy.  I hope to use debt for the two opportunities below:

  1. Own real estate
  2. Start and invest in small businesses.

Colonial Home

Some may find it odd that I’ve never had credit card debt that lasted more than a month and I paid my cars and house off early, but now I’m contemplating going into debt to buy real estate.  You might think that I’m even a bit off-kilter, and perhaps I am?  But I still want to try to own real estate, for the following reasons:

  • Find out what it’s like
  • Help renters in a positive way
  • Try to make some money off of it
  • Diversify my assets, but having both investments and real estate
  • Increase my wealth
  • Develop verbal people skills to become more proficient in the process.

So over the next few months or years, I’m going to look and call around trying to find a great deal on properties that I won’t lose on.

We’ll see…

Don

Mortgage Free versus Paying For 30 Years

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Today I’m going to talk about why I believe paying off your home mortgage early makes more sense for us middle folks (and probably the upper folks too) instead of investing all of your extra money into the stock market.

From some financial advisors, we hear advise such as paying off your mortgage is a bad financial decision if not down right stupid.

But unless you are a robot, I don’t believe this is true!

Let’s looks at the argument for not paying off your house early.  The typical argument goes that if you take the extra amount that you would pay on your house and invest it, you’ll end up rich some day!

The problem with that argument for the majority of us is twofold:

  1. That extra money that you were (in theory) to invest somehow gets spent  in a moment of weakness or financial strain during your life. 
  2. The standard deduction is so high that sooner rather than later the itemized deduction for a mortgage is not worth it after 5 or so years (Unless you have a $300,000+ house)

Another problem is what if the market tanks like it did in 2008?  Investment returns aren’t guaranteed, but the lack of a house payment is forever (at least until you upgrade to a larger house…)!

Financial strain happens, and that is why it’s wise to have an emergency fund during this process.  While I didn’t have a dedicated emergency fund per se, I had money in diversified portfolio (including fixed income) that I could hit if such a need came to surface.

Since I am mortgage free, and no longer have a mortgage, saving is much easier for me now (after a period of adjustment).

-MR

Financial Planning Isn’t Really A One Size Fits All Model

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There isn’t a “One Size Fits All” model for financial planning.

 

Credit Cards

I love credit cards, no wait, I love reward credit cards!  But this is my one exception where I deviate from the norm with respect to my friends and their spending habits.

I have a few friends that have gone bankrupt (in 1 case a few times) and so I will never say “I love credit cards” to them.  I don’t want them to think that it’s okay to spend so easily.  We have to know our limitations and weaknesses.

However, for me, credit cards are a wonderful discount on my purchases.  Sometimes, I use the reward points to splurge and buy a nice gift that I would have had to spend money on.

Mortgage Pre-Payment

I took a path that I know isn’t considered the best for most, but it was the best for me.  You see, I pre-paid and them totally paid off my mortgage early.  I know that from a mathematical perspective it makes more sense to put that extra money in investments.  But I couldn’t stand the debt hanging over my head, and I doubt I would have consistently put the extra money into investments, thus defeating the plan.

I very proud of my accomplishment with my house, and if I had to do it all over, I’m pretty sure I would have done it exactly the same.  I especially like that fact that the money that I don’t have to pay anymore is like getting a 2nd job in many ways, especially with respect to cash flow!

While mathematically it makes sense to put the extra money into investments, missing in the formula is the human element.  The equation is mathematical but the human element takes away some of the straight math properties and adds emotion and impulse buying elements.  Shoot, I consider myself good with money, and even I sometimes have problems controlling my spending, especially when it some to my kids!

Investments

I tend to invest in stocks, but most of my money is in the mutual funds that are included within my 401(k) plan at work. 

In my stock dividend “Lunch Experiment“, I run a high beta investment portfolio.  This isn’t advisable and I’m only running such a portfolio because the money was money that I would have spent.  I don’t advise anyone to follow such a risky portfolio, but it’s still fun to play with!

Conclusion

So what I’m really trying to convey is that there isn’t a single generic “one size fits all” type of model to follow when it comes to financial planning or advice.  Perhaps start with one of the three financial advisors and then customize it after you find one that mostly fits your goals.  Personally, I’ve always liked David Bach with just a slight hint of Robert Kiyosaki.

-MR

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