Photo: Chimney Rock, located in Western Nebraska. Photo taken in June of 2011.
Over a year ago, I wrote the fourth article in this series. I have been avoiding the fifth step, because there have been lots of other articles to write and I wanted to experience what it felt like to pay off the house early. I haven't reached this point yet, but we have done a lot in over a year. We have paid down over $25,000 in principal on our house and we are working towards paying off our house early.
The fifth step of financial independence is:
Pay off the House Early.
There are two very different opinions about whether to become debt free on your house or not. Some people would suggest holding onto the mortgage as long as possible and pay down it down slowly. They would suggest this, because the interest rates are so low on mortgages. Instead, they tell you to invest rather than paying off your house early.
There is some validity to their statements. You can earn more in investments than by paying off your house early. So, why do I consider paying off the house part of financial independence? Reaching financial independence essentially requires you to be debt free. Your savings have to be making enough to pay all of your monthly expenses and having a mortgage requires an added expense each month. By holding this expense around for 30 years, then you are holding yourself back from the freedom of no debt payments.
You are holding yourself back from living the life that you want. Some people live for "Thank God it's Friday!" These people dread the workweek and live for the weekends. They don't look into the future. They live from paycheck to paycheck. I want to be debt free and financially free, so I don't have to live for the weekend.
I want my wife to be able to stay home with our kids. By paying off our house, then we won't need my wife's income. We could live off of my income.
The goals that you set for your family will dictate your decisions.
Does it bother you to have debt hanging around for 30 years?
What do you want out of this life?
Do you mind paying a monthly payment for 30 years?
Do you want something more?
Only you can answer those questions. Only you can decide what is right, but I believe that paying off the house early is one of greatest ways to free up your money. You could invest a monthly mortgage payment and you would be wealthy. You could travel using cash and not worry about having to pay that mortgage payment. You could live the life you want. You could quit your job and start a brand new career. Without debt, anything is possible.
As for my family, we will continue to make extra principal payments in anticipation for the freedom that comes with becoming debt free. We will continue to make extra payments, because I don't want to be a burden for my family if something happens to me. My family will need money when I am gone. Financial security is one of the best things that I can give to my wife and my kids.
One thing to remember while working on this step, don't skip investing. You need to continue to invest monthly. Paying off the house early will take years and you can't miss out on the opportunity to save for retirement while paying off your house. To read more on this topic, then you can read my articles titled, "The Benefits of Extra Mortgage Payments" and "One Year into Our Mortgage: How's it Going?"