I absolutely hated math in school. It was always my least-favorite subject and I jumped for joy when I realized I didn’t need a single math class to graduate with my Communications Degree. Perhaps I would have liked math more if we spent less time on algebra and more time applying math to real life situations involving money. With that help I think we could have avoided some common financial mistakes.
We’re coming up on our one year anniversary of buying our dream home. You may think that after achieving our goal of putting half down at closing that we’d be content, and ride out on that joy. I’m definitely still very proud of what we achieved, but all year we’ve been thinking about our next financial move.
My husband is driving a car that’s 11 years old and we’re hoping it will make it another 2. We are holding off on a fence for our backyard. Our sports court plans got downgraded to a driveway basketball hoop, and our (ok my) dreams of an in-ground pool are pushed off until… Well, maybe forever. Financially we are doing better than we have in our entire lives (and boy have we come a long way). But we are trying to maintain our mostly frugal lifestyle.
Why We Want to Pay off Our Home in 5 Years
Why? Because of this goal: Pay off home in 5 years. We still have financial goals and our biggest one being paying off our house early. Since we already put 51% down, and we plan to stay here for the long haul; and because we don’t have any other debt. This, along with saving for retirement, and the kids’ education are our main financial priorities. After we’ve set money aside for those two things we can look into what’s left for those other wants.
Last month the reality hit me when I got an enticing email about refinancing our home.
If you follow interest rates you may know that they dropped quite a bit recently. But after doing a lot of math comparing what it would cost us to start a new loan (processing fees and what not), to the savings in interest (with the amount of time we anticipate having left on our loan), it didn’t make sense to refinance.
That realization was huge for me. If this was really our goal, and we were going for it, a drastic interest rate reduction won’t make as much of a difference in the amount we pay overall. And of course we can always change our minds later if our situations change.
There’s a lot of moving parts when it comes to our financial goals. John Hancock offers financial strategies to help you figure this all out and help achieve your goals. Their website even offers great insights on financial planning and goal setting.
Sitting down to talk with my husband about our goal to pay off our house we’ve believe we’ve worked out our gameplan.
Here are 5 ways we are working to pay our mortgage off in 5 years
1. Crunch the numbers
This was the first thing we did, like with above with refinancing, we sat down to figure out how much we’d have to save a month or year to pay off our home within 5 years. Then breaking that down and applying that to extra payments.
2. Cut back on spending
We save, but we spend a lot too. We’ve been reevaluating our expenses and spending to see what areas we can cut back on. We’ve been eating out a lot less, we canceled Netflix and cable for a less expensive TV option. And instead of splurging on some wants we’re adding them to our wish-lists to pick from at holidays. Every little bit of savings helps.
3. Pretend we refinanced and make extra payments
Even though we didn’t go for the option of refinancing we are trying to pretend like we did and paying more into our mortgage principal. Since my income fluctuates we are paying those extra payments into a savings account to be applied to the principal of our home next month.
4. Not carry any other debt
Chances are we’ll need a new car before our home is paid off, but we don’t want to pay interest on a car when that money could be going towards our home. Same with credit card interest. We use credit cards for the rewards points but pay them off in full each month. With larger credit card limits it can be tempting to put extra wants on credit. Instead we save for those things first, and pay for it with cash.
5. Apply extra cash to the principal
Any money we make over what we are expecting, I’m setting aside to use towards paying our home down. We paid a little more towards our taxes last year and got a small refund. Instead of splurging on something fun, I’m applying that to savings towards our extra principal payments. Side hustle money? My husband’s overtime? Side gigs I book? Extra for the principal.
All of these things together will hopefully help us to reach our goal.
It can be hard trying to figure out what to do with what’s left of your funds after bills. But the sooner you have a goal and a path to figure out how to get there, the better. This is what we really want to teach our kids. It’s not all about how much you’re making, because the first good chunk of our marriage it wasn’t much at all. But even then, we managed to make goals, plans and save.
Thankfully there are resources out there like John Hancock financial advisors to help plan and figure everything from your savings, home buying, retirement, life insurance, college savings, or even travel goals.
A goal without a plan is just a wish. So get to dreaming, and make it happen!