Deadline (Payoff Step #1)

The way I see it, there were five steps that we had to take in order to reach the point of payoff.

Wait, what? Are you lost? Catch up HERE.

Everybody ready? Yes? Good! On we go!

Step #1: We had to set an end date for our goal. From the day we closed on our house back in February of 2001, we had glibly decried that we were going to pay it off early. Over time, we threw an extra $25 at the loan now and then, but our actions and decisions about how to spend money showed that we were never serious about getting the thing paid off.

A few years ago, I read that an easy way to pay off your mortgage early was to round the monthly amount up to the next hundred, putting the difference towards the principle. In other words, if your house payment was $765, you would send in $800. It's nice in theory, and if that's all you can manage - it will help, but it's not going to get you to the point of paying it off 18 years early - as we did.

Tips For Home Buyers - Budget & Buffer: One of the few wise moves that we made when we were house-hunting was to set a top-end number that was below what the bank said we could afford. Peter had just taken a new job, but we also knew that in a few years, he'd be quitting that job and we'd be moving overseas on support as missionaries. Because of that, we only looked at houses in a certain price range knowing that, long-term, we could not afford to go higher. We had a sizable down-payment, and could have gotten a larger loan, but we had a strong aversion to being house poor. In the end, we found an older home with good bones in a great location, under our self-imposed top price. What's the takeaway? Just because you can afford more, doesn't mean you should.

The fact of the matter is, we didn't start making the hard decisions that would help us pay off the mortgage until last April, when we picked a payoff date of December 31, 2012. With a solid goal in front of us, we got serious about saving...and saying no to our wants. Until we gave ourselves a deadline, we just played around with our money.

Knowing that December was going to come whether we were ready or not, gave us focus. Sharing our goals with the people around us (and online) provided accountability. If we didn't pay it off when we said we would, we would have to tell everyone that we had failed. Pride can be useful as a motivator.

At the same time, we didn't randomly pick a date and say, "That's when we'll be done" - we spent time looking at our income, our outgoing expenses, what we could cut, and how we could bring in more revenue. Once we had trimmed our monthly expenses, we had a specific amount that we could save each week which would allow us to reach a  payoff point by the end of the year. I set up automatic transfers from our checking to a savings account each week so the money would be "out of sight, out of mind".

Why a Savings Account and Not Directly to the Mortgage? I'm a "safety first" kind of person, and I wanted easy access to the money in case something happened (an accident, loss of job, etc.). Additionally, we have a separate savings account that holds our "Rainy Day Fund", containing 3 months of living expenses in case of an emergency. Our future goal is to bump that up to 6 months, and eventually, a years worth of expenses. Why? Rainy Days happen to everyone.

So what happened as a result of setting a deadline? We paid off our mortgage six weeks ahead of schedule. When I got a better paying job during the summer and Peter started working more overtime, we sunk the unexpected "extra" in the mortgage, instead of frittering it away. On November 19, 2012 - we walked out of the bank as homeowners. 

Next week: Defining "Need"