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Wednesday, March 29, 2017

Tunnel Vision

Posted by Dave on October 4, 2011

This is a guest post by Dave, who is also looking to retire no later than 45, but unlike Tim has no kids and doesn’t want any. Dave is from Ontario and is working towards his CGA certification.

I have financial tunnel vision.  My main goal right now is to pay off my mortgage as quickly as possible.  I’m not sure if this is the wisest way (I’m sure Nelson at Canadian Finance Blog would agree it isn’t wise) to run my finances, but to me, becoming debt free is important to my “core” financial plan.  That “core” plan is to be financially free as quickly as possible, owing money on my house is not helping me become financially free.

There are several reasons I am focusing solely on paying off my house:

I don’t like debt: I understand that I could leverage the record low interest rates and jump start my stock portfolio by attaining higher than the 3.59% in interest I am paying right now.  I just hate seeing the amount owing, and paying banks interest.  I have never been comfortable owing money, and having tens of thousands of dollars left on my mortgage balance does not let me sleep well at night.

Compounding over time doesn’t really make a difference to my financial plan: My investment plan is based on making all my retirement investments over a 10-year period (after my house is paid off).  The added 5 years would allow for some compounding, but if I left my house unpaid with an end-date 13 years from now (when I turn 45), I would need to use a considerable amount of my portfolio to pay that off.  To me, this seems like a trade-off.  I would rather have the entire debt paid off and just be done working when my investments have created enough cash-flow to live off of.

It seems like a safer bet to have my house paid off: If my wife and I have no mortgage payment, our approximately $25,000 per year budget could easily be supported by either one of us at a full-time job, or alternatively 2 part-time jobs (at basically minimum wage).  From a financial security standpoint the lower monthly costs also provide for significantly more flexibility.  The ability to change careers to basically anything I wanted to do without having to worry about money is very freeing.  A mortgage and higher monthly bills reduce this ability, and force me to continue working (which is not something I’m terribly interested in doing).

As a result of these reasons, I have one goal in mind.  When this goal is achieved (which should be in under 3 years from now), I will focus on saving and investing for retirement.  Having paid for my house, I would hope that I will never have to pay for a roof over my head (wherever I decide to live), I would just sell my current house and find one the same price or cheaper somewhere else.

Do you have tunnel-vision with your finances, or do you have a different method to get to your goal?

Comments

8 Responses to “Tunnel Vision”
  1. Tim says:

    Great post Dave. I am thinking exactly the same as you…despite what the financial advisors that are in my corner think. I am so close that I can taste it. I think that I can accomplish this by age 45, 46 at the latest. Then we are going to semi-retire to NS (3 yrs from now), build a sustainable home on the ocean and enjoy the rest of our lives. Lots of golf, trips and doing next to nothing is in the cards.
    I wish you all the best Dave!

  2. Bill says:

    I just turned 46, mortgage free and have reached my financial goals allowing me to retire whenever I wish. This was accomplished on a sub-$40,000 income and my wife staying at home with the kids. Every year we paid down the house and invested the max into RSPs while living modestly but certainly not in poverty. My oldest daughter is in university without any debt and has started a regular routine of savings and has started a TFSA.
    The only difference from my plans of 20 years ago is that with the burden of earning a paycheck off my back the idea of not working is less appealing than it was. I am now working 5 hours a day in a consulting position at a smaller firm with no commute which keeps me in the game and not feeling out of date in the rapidly changing tech sector. Another engineer I work with is 39 and in the same position so it’s not that rare a situation if you set goals in your 20’s and stick to them. Remember, it’s not what you earn it’s what you burn!!

  3. jon_snow says:

    Like you Dave, I (we) hate debt. The temptation to pay off the mortgage completely when the term is up in Apr. is very tempting. Yet, if stocks continue to get cheaper, there is also a desire to have ample cash reserves on hand to take advantage of this.

    I am likely to pay off half the mortgage, try to get a sub 3% rate (paying 5.7% now!), and still have lots of cash for investment opportunities.

    Nice to know that you think you can live off of 25k… thats the number I have come up with as well… we are DINKS as well. ;)

  4. Mark says:

    Great post. Everything you’ve said mirrors my philosophy. I’m 41 and hope to be done mortgage in the next 2 years. I can’t wait and it keeps me up knowing it’s there. I hope to save/invest like crazy for the 10 years after and will also have a generous DB pension to collect as well. it’s good to know that i’m not the only one that thinks have a mortgage is pure madness!

  5. Jacq says:

    No tunnel vision on the mortgage here, mine was tax reduction tunnel vision – hence my emphasis on timing of RRSP contributions to go crazy on them in high income years. It’s tremendously painful to have a mid 5 figure tax bill. Your scenario is different because of your pension I would guess.
    To be honest, I like still having my mortgage (and having accelerated payments), it forces me to make more money than I might otherwise decide to do.

  6. S says:

    Paying off my mortgage as soon as possible is my main goal as well. Every time someone says I could be getting a higher interest rate on investments I tell them that if you only look at the money then yes, investing is the better choice, but being debt free and not paying interest is worth much more to me than a few thousand dollars potential income.

  7. I am actually tempted to work on paying my mortgage up too. I find it stressful to have a debt on a home I live in. I actually think I should be owing on my rental units rather, which is not the case. Sometimes its just not about logic, just peace of mind.

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