Thursday, February 3, 2011

What I could have done better

Hindsight is 20/20. I didn't really become interested in current events, investing or prepping until after I bought my house. When I was young and in the army I took my bonus and put it in a mutual fund. Then within 6 months I lost $1000 in it. That put a very bad taste in my mouth toward the stock market and I steered away from investing for a long time. I tried to follow the mantra that if I can't pay cash then I can't afford it. The fact that I had no credit made it easy not to bother applying for it. This went on for years. Eventually I wound up with a good job, in a cheap apartment and a good sized bank account. Then I met my wife.

While we were dating she received a good chunk of cash from an inheritance so we decided to buy a house. This, of course, was at the top of the real estate market. We put our 20% down and got a payment that we could easily afford. We still have the house and we still love it. We're still living well within our means. We bought the house with the intention to live in it forever. It's big enough that I don't see us growing out of it unless we have a 3 or 4 more kids which will not happen. It's small enough that we're not going to feel like it's "too much house" when we get older. It's in a great neighborhood. If we decided to sell it tomorrow we'd probably lose a little but we wouldn't be upside down. So what did I do wrong? I got a mortgage.

We could have bought a small condo or townhouse outright or even just taken out a small mortgage. Of course, the idea of an HOA always turned me off. I was also sick of moving. Still, though, we could have lived in a place like that debt free for just a few years and then either rented it out or sold it when we could afford something bigger. At the time I couldn't have imagined spending 10s of thousands of dollars to live in a place equivalent to my apartment just to save a grand or so a month. Now I'd love to have that opportunity.

So what the hell am I rambling on about? Having that big mortgage hanging over your head really changes your perspective on debt. While it's more than I can hope to pay off "quickly" it's also manageable. As long as I can keep making that payment then no one will bother me. If I can pay a little more then it will shave a few years off of how long I have to pay. With a concerted effort I could probably pay it off before my kid gets old enough to start worrying about money but it would involve some major sacrifices that I highly doubt the wife would be onboard with. If business continues as usual then right about the time I start thinking about retirement it'll be paid off. The world will be completely different by then.

So before I go ranting about things like investing in the stock market, managing credit cards and things as simple as using storage food before the world ends (future posts maybe?) I wanted to put my personal situation into context. What works for me won't work for everyone. I base my financial decisions on my personal situation. Keep that in mind whenever you're reading any of my posts. I'm no expert on anything. I just know enough about the important stuff to feel qualified to weigh in. If I mention something that you think is completely off then I encourage you to call me out. You might just have a point that makes me reconsider my whole take on the situation.


Mayberry said...

Then the shit hits the fan, you can't afford the mortgage, you hang on by your fingernails, pouring everything into a pile of brick and lumber while everything else suffers, and finally figure out it's just not worth it. Me, circa 2005. To me, a mortgage is nothing more than a noose around the neck. You never know what life will throw at you. I am free of the mortgage now, and there's no place I'd rather be... "Home ownership" is overrated. LAND ownership, however, is something to strive for....

Anonymous said...

I think your head is in the right place, but you're course of action could use some tuning.

The mortgage isn't a mistake, but taking forever to pay it off is.

First, you and your wife need to get on the same page. You need to get her onboard with making some sacrifices now, so that you can win later.

I actually recommend Dave Ramsey, not because his financial advice is so good, but because he's a great motivational speaker. If anyone can get your wife on board with getting the house paid off, it's him. Sign up for his Financial Peace University (FPU) class. If you are religious, check your church. If not, check online.

Second, before you worry about the mortgage, get a hbig chunk of cash. You can make 10 extra payments, but then if you miss just one or two, you can be evicted. It's seems wrong, it seems like the 10 you made should count as credit, but it doesn't. So instead, keep at least 6 of those extra mortgage payments as cash. If something happens, you can stay current. After that, then you can pay down the house as quickly as possible.

Get it done, life without a mortgage is everything you can hope for - so much extra money. And it's a perfectly safe return. No risk like in the stock market.

The extra cash of having no mortgage will make a huge difference in your life, it will enable so many things. If you can get it down while your children are still young, you will be able to provide them with so much more, like meaningful vacations they will remember forever. Quality time when it matters most.

Sacrifice now and win later. Research the "Marshmallow experiment"

The Urban Survivalist said...

Mayberry, I don't consider it a noose around my neck. I have alternative plans if I get into a situation where I'm really struggling. If I get into trouble and it doesn't look like I'll be able to keep the place then I won't be doing everything I can just to hang on for a couple of extra months. While I never take anything for granted and things could definitely change in the future I'm in a pretty recession/inflation proof job and I'm very good at it.

Anon, you make great points. I'll have to introduce her to Dave Ramsey. I've had several talks with her and she knows that it's a good idea but then when it comes time to act she'd rather go out to dinner or get that new jacket. I'm guilty of some of that myself so I can't throw stones.

irishdutchuncle said...

if you both love the place, and the payments are affordable on one income, you've hit a home run on your first "at bat". (i'm jealous) it's one of the things i've always wanted, but never done.

i wanted it thirty years ago... i might have had it paid for by now.

i'm no better off for having rented. renting in a decent neighborhood (ruined me) doesn't leave much for the savings account. if you don't buy your own shelter, you may find yourself resenting your landlord. (i have) i think the world of Mayberry, but i don't agree with him on this.

the older i get the less happy i am with what i pay for shelter. i can't stay where i am, on what my pension would be, if i was retired (involuntarily) today. so i hang onto my job by my fingernails.

a house is shelter. it's not an investment. ownership allows you to live more by your own rules, than those of the landlord or HOA. ownership gives you somewhat more control over your cost of shelter, than if you rent.

The Urban Survivalist said...

I agree Irish. I made a point to move into a good neighborhood with no HOA. I couldn't have really gotten into anything cheaper without being saddled with an HOA which I couldn't possibly live with. To be honest I couldn't rent a house for much less than my mortgage costs me, either. I could get into a much cheaper apartment but I'd rather not raise my kid in that type of environment if I can avoid it. At least this way I'll have the house paid off by the time I retire if everything goes according to plan.

Anonymous said...

Hey if you've got a recession/inflation proof job and you're good at it then you're in about as good a position as you can be in. if the S really does HTF no one can really say what will happen to your mortgage or your job. It may be that occupancy ends up trumping all other concerns. However, if we have another stagflation decade like the 70's with on average 8% (official) inflation rate for ten years, at the same time as asset depreciation (in real terms), then having a big mortgage and still being able to pay the monthly payments will enable you to get a ton of free equity when your DEBT DEPRECIATES in real value. Or if "business as usual" continues you're still good. You have to think of your home as an investment if it's one of your assets. Betting on the stock market is a gamble on a lot of variables that you can't control. Betting on inflation while you own your house is a pretty safe one considering the state of things. Debt can be a good hedge. Plus there are all kinds of other good personal reasons for home-owning. And re: paying down early... if that's your thing and that helps you sleep better at night, good for you. But, if you cut short the term of your mortgage then you cut short your inflation-enforced debt value depreciation (and personal wealth appreciation). I know this is somewhat counterintuitive and goes against a lot of the standard views out there. But, it may be worth a thought. Obviously it's better to have to pay nothing for shelter than something, but if for now you have to pay something, holding the debt of a mortgage could be a good inflation hedge, particularly if your job is recession/inflation proof.

Some Guy said...

I am intentionally not paying down my mortgage aggressively due to inflation - rather, I am investing that cash in areas that appreciate as a direct counter to cash due to inflation. In other words, as we watch the $US go down the shitter, my other investments rise in direct proportion, and I'll be able to pay off my (affordable) mortgage with cash.