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?