Running a marathon with no plan

Yesterday I commented on a popular financial blog about using a debt snowball to pay off debt. Another commenter said she would never use such "psychological aids" or some other derisive name, if she ever found herself in debt.

I commented back, saying she could call it whatever she wanted, but I’d call it what it is: a plan. And if you’re going to pay off debt, you either need a plan, or some phenomenal luck.

Just deciding to pay off debt without a plan is a lot like me deciding to run a marathon. A couple of people told me I’m pretty quick running short distances, so hey, I might be able to win, right?

Well, every time I’ve tried to run long distances, I took off and usually built up a pretty nice lead early on. But since I didn’t pace myself, not only did I fall behind, but usually I was struggling just to finish. What about winning? In my dreams, maybe.

And that’s why the debt snowball works. It sets a pace. Follow the plan, focus on just the next month rather than on the big numbers, and whether it takes you six months or seven years, you eventually write that final check. And then you’re debt free.

Sure, you can argue about which debt to pay first and all that, but it’s just details. Do it wrong, and you pay your debt off a month or two later than if you do it optimally. That’s not so bad. You still save thousands, whether you do it right or wrong.

My critic said she got out of debt by selling a condo she’d been renting out. That’s great for her. Unfortunately, five years ago I didn’t have a condo to sell. I still don’t. And neither do most people.

I could have waited for a windfall. But if I had, I would still be in debt.

How to become a millionaire in 10 years (safely)

I saw a blog post today called How to become a millionaire in 10 years. The majority of commenters dismissed it outright.

I don’t like that attitude. The plan makes some assumptions that aren’t always true. But having the plan is an important first step. What’s impossible now might not be impossible in a few years, so it makes sense to do what you can now.The plan, in brief, is this: Invest $996 a week, get a 12% return, and in 10 years, you’ve got a million bucks.

Let’s look at the first objection. It is optimistic. Unfortunately, the guy who floats that figure the most frequently is exaggerating. But you can come close by tweaking your strategy a bit. Twelve may be a bit optimistic, but it’s probably close enough. If you’re pessimistic, use a figure of 7% and adjust the rest of your math.

It may be tempting to try to do better. I suggest not. Average returns are all you need. Warren Buffett has said repeatedly that it’s better to spend your energy increasing your earning power rather than trying to outperform the market.

The second objection was that the numbers were just too unreasonable, so how do you become a millionaire in 20 years?

That’s easy. Save less. According to this handy calculator, $1,100 a month for 20 years at 12% more than does the trick.

Or you can save $2,000 a month for 15 years and pass the million mark.

So the math is sound. Let’s tackle that really big objection: How in tarnation do you come up with $996 a week to save? (And no, you don’t have to already be a millionaire in order to do it.)

The key is the same as paying off debt quickly. Don’t try to do it all at once. Take some baby steps. If the best you can do is half that, you still reach the goal in 15 years. Start by saving what you can, then ratchet it up when you can.

I set out to find a large number of common ways that people can save $996 per week (or more). Step one is the big kahuna, which will save most people a cool $24,000 a year right off the bat.

Step one: Pay off your cars and your mortgage. Between a house and two cars in the driveway, it’s safe to say most families are spending $2,000 a month. Some are spending a little more, others a little less. The trick here is the debt snowball. Look at your statements, pick the car you can pay off the soonest, then scrape together whatever extra cash you can and pay that much extra every month until you have that car paid off. Then take what you were paying on that car, and apply all that money to the other car. After that, apply all that money to the house.

Chances are very good that you can pay all of that off in less than seven years. The biggest reason why is because banks generally won’t loan you more money than you would be able to pay off in that timeframe. The reason for the subprime mortgage crisis was because banks started ignoring that rule and giving loans to pretty much anyone.

If you are a middle class family that manages to pay the bills somehow, some way every month, I’m reasonably confident in saying that you can pay off all your debt in seven years, then dump that car and mortgage money into an index fund and be a millionaire in another 20.

What about cars in the meantime? Drive the paid-off cars as long as you can, then replace them with the least expensive vehicles that are practical. Given a choice between driving a Lexus and looking like a millionaire, or driving a Toyota Corolla and being a millionaire, personally, I’d choose the latter.

So this gets you roughly halfway there. Let’s see if we can nickel and dime our way to the other half.

Step two: Live off one salary. If you’re married and your spouse works, try as much as possible to live off one salary and bank the other. This was the strategy my in-laws used to pay off their debts (rather than the debt snowball). If one of you brings home $26,000 a year or more after taxes, that gets you the other half immediately. Congratulations.

If step two is impractical or impossible, or doesn’t quite get you there, here are some smaller steps to get you there.

Step three: Put your raises and windfalls towards savings, rather than lifestyle changes. Someone I know was talking just yesterday about a job opportunity that paid a cool $30,000 more than he makes currently. “Lifestyle change!” he said excitedly.

Personally, I’ve never been able to make that kind of a jump, although I’ve made a couple of much smaller jumps since 2006.

Unfortunately it’s often difficult to get much of a raise from a current employer–the money comes when you change jobs. If you’re able to, say, move to a new employer and get a raise of around 10 percent, that takes care of a few of your 52 weeks. Do that every 2-3 years, and you can work your way towards the goal.

This strategy can take care of about four weeks.

Step four: Bank your tax refund. If you get a tax refund every year, instead of using that money to buy something, put it towards the goal.

In most cases, I would think the tax refund takes care of anywhere from 1-3 weeks.

Brown-bag your lunch. Early in my career, I ate out pretty much every day. My day started with a cup of coffee and a doughnut in the cafeteria ($2), and on a good day, lunch cost another $5. Eventually I realized these habits were costing me almost $1,400 a year. Brown-bagging isn’t free, but I figure brown-bagging every day costs less than $400 a year.

That’s another week, or possibly two.

Cut the cable and phone. My local cable provider charges up to $70 per month for some of its packages. Basic cable costs $40, which is still outrageous. If you can live without cable altogether, you can get anywhere from half a week to 3/4 of a week right there. If not, cut back as much as possible.

So how do you live without cable? My wife and I rent movies from Red Box about once a week. It costs a dollar. Other than that, we watch over the air TV. Sometimes there’s nothing on, but when I visit people who have cable, a lot of times there’s nothing on at their house either. The DTV changeover means there’ll be more local channels–many PBS stations are broadcasting on several frequencies, and DTV stations have a range of about 120 miles, so there’s a decent chance you’ll be able to pick up stations from nearby cities that you couldn’t get before.

So try it. If you can’t live without it, cut back as much as you can.

The same goes for your phone line. Are you paying for Call Notes? Cancel it and get an answering machine. Call waiting? Cancel it unless you can’t live without it, but in this day and age when everyone has cell phones and e-mail, I’ll bet you can. Call forwarding? Cut. If you buy everything Southwestern Bell tries to sell you, you can easily pay $50 or more per month for your phone line. When I ordered phone service, I asked for just a dial tone, and repeated the request every time they tried to upsell me. I pay just a shade over $20 a month for my dialtone. I can receive all the calls I want for free, and make all the local calls I want for free too.

By cutting back on cable and phone, most people should be able to save another $996 a year.

Take a long, hard look at the cell phone. Do you have two cell phones with $99 ulimited talk plans? Do you really need two?

Cricket offers an unlimited talk plan for $35 a month. But you may be able to save even more by cutting down the number of cell phones you have, or just getting pay as you go phones for emergency use and sharing phones as much as possible.

And keep in mind that a landline lets you make all the local calls you want. Ditching the land line and going all cellular may be trendy, but it’s not always economical.

My wife and I have one cell phone with a plan that costs us $30 a month, plus a pay-as-you-go phone that we refill as needed, for $25 a pop. It ends up costing us $10 a month, on average.

I can see how someone could potentially save another week’s worth by getting stingy with the cell phones. Maybe more.

Save on your utilities. Buying a programmable thermostat and setting it to not work as much at night and to minimize heating/cooling during the hours when we’re not home saved us a bundle. To the tune of $100 a month.

Weatherproofing the house helps too. Put film on the windows during the winter, and put weatherstripping on all the doors. I also went into my basement, where the utilities come into the house, and found a number of holes for wires that are much larger than they need to be. I filled those in with putty to keep the elements out.

If you really want to be a stingy Scottish miser, invest a few hundred dollars in a whole-house fan. These fans can replace all the air in your house in a matter of minutes. So in the morning when it’s coolest, you can open some doors and windows, run the fan for a few minutes, then shut off the fan, close the house back up, and give your air conditioner a big head start.

Also, for some reason society says we should keep our houses at 70 degrees in the summer and 80 degrees in the winter. Why? We keep ours at about 75 during the summer and between 70 and 75 in the winter. Once you get used to it, it’s comfortable. The savings aren’t exactly peanuts.

Using fans can help keep the air moving, making those temperatures more tolerable.

Squeezing the utilities ought to take care of another week or two.

Go out less. I know some people who easily spend $100 a week going out on Friday nights. Rent a movie from Redbox, have a couple of drinks at home, and save the difference, which is five weeks’ worth.

Cut the Starbucks habit. Do you start off your day with the stereotypical $5 cup of coffee at Starbucks? That’s $1,050 right there. Bank $996 to cut off another week, and you have $54 left to buy a coffee maker (if you don’t have one) and a year’s worth of reasonably good coffee.

Cut the bottled water habit. If you drink three bottles of water a day, that’s commendable because it’s healthy, but you’ve also fallen for the biggest scam in recent memory. Cut the bottled water, buy a water filter, and bank a thousand bucks.

Cut back on expensive hobbies. I’d rather not think about what I used to spend on my Lionel train habit. I know some people spend five figures a year on theirs. I was never that bad, but at its peak I know I was spending more than $1,000 a year on it. I’ve cut back, and the last two or three years I’ve probably spent a couple hundred.

I think it’s safe to say that most households have at least one or two expensive hobbies that could be cut back and still be enjoyable. Buy less and try enjoying what you have. Or buy used instead of new.

Or perhaps they could (gulp) be eliminated, for the time being at least.

Call this one another week’s worth.

Use the library. I know someone who is a voracious reader, which is admirable. She reads a couple of books a week, easily. That’s admirable, but the problem is she buys all these books at retail. A book collector might perk up and call it an investment, but there’s very little collectible interest in Nicholas Sparks and Nora Roberts. She buys the books, reads them once, and then they sit on the shelf until she gives them to someone.

She probably could save $1,000 a year by using the library instead.

Eat out less. Eating out once a week at $20 a pop easily works out to $1,000 a year. Cut that back, whether it’s by eating somewhere less expensive or just eating out one less time, and you’ve got another week’s worth of $996.

Use public transportation to go to work. The average person commutes about 20 miles a workday. That’s $2,436 a year if you go by the IRS standard mileage rates, which factors in depreciation and maintenance on top of gas. The savings wouldn’t quite get me a full two weeks’ worth due to the cost of a monthly pass, but it would get me close. Call it two weeks.

Buy used and generic when possible. I’ve read that the poor are less likely to buy generic than the wealthy, out of fear of being ripped off. The fear is usually unfounded. Generics usually are made in the same factory right alongside one of their brand name competitors, and the only difference is the label that gets put on in the end.

But let’s talk used. Last week my wife and I bought my son about $80 worth of toys, but we paid $4 for them. They came from a church rummage sale. They were a bit dirty, but we ran them through the dishwasher to clean and sanitize them (they’re plastic). The swing was missing the strap to strap him in, but we replaced it with a belt from a thrift store, which cost another dollar. It fits perfectly.

At the same rummage sale, I bought myself a button-down shirt for a dollar. It looked new. I remember paying $20-$25 in a store for something comparable.

I bought the shoes I’m wearing right now at an estate sale. They didn’t look like they’d ever been worn, and I checked the fit before I bought them. I’ve been wearing them for more than a year now. I paid $3 for them. They would have cost me $50 in a store.

Most people buy a new computer every three or four years. I buy off-lease business computers every three or four years instead. They’re better built so they’re less likely to break (I’ve never had one break on me), and a $100 business PC that’s a few years old will be about as fast as a new computer that costs about $500. So I figure this practice saves me about $400 every three or four years.

I once saw someone in line ahead of me at a department store try to drop a thousand dollars on new clothes. He had several nice shirts, some nice pants, socks, some nice ties. I was pretty impressed with his haul. The problem was he tried to buy them on credit, and was denied. My work clothes mostly come from secondhand sources. They don’t look as nice as what that guy had, but what good does it do to look nice if you can’t pay your bills?

I figure it’s pretty easy to save a thousand or two a year by buying generic and used stuff.

Be careful with the flex-spend account. Back when I was single, I was annoyed because every year HR made us attend a meeting trying to coerce us into signing up for a Flexible Spending Account (also known as a cafeteria plan). These plans made no sense for me whatsoever. Some years my medical expenses were $100. Some years they were $200. Other years they were $20. So if I put $1,000 in, as they tried to convince me to do, I would have been wasting a lot of money. Being in the 14% tax bracket, at best I stood to save $28 if I had a $200 year. But if I put in $200, then I might turn around and have a $20 year and waste $180.

Now I’m married and my wife is diabetic. In this case it’s a no-brainer. We sat down and figured out how often she goes to the doctor, and what she spends on supplies in a given month. Her expenses are predictable, and high enough to make it worth doing. Between her expenses and having a son, I put the maximum in, since babies are always needing various FSA-eligible things, and they go to the doctor on a regularly scheduled basis.

If you’re in the 28% tax bracket and you put $3,000 into an FSA, being able to use pre-tax dollars for those medical expenses saves you about $840 a year. Not quite a week’s worth, but close. You can probably scrape up the other $156.

But if your medical expenses are always really low, you can save a bundle by not putting anything in such a plan. Employers love these plans because people frequently don’t track them very well, and anything left in the kitty at the end of the year goes to the company. It’s a great way to steal from your employees, frankly, and that’s why HR departments push them so hard. If you don’t need one, don’t put the money in, and pay yourself instead.

I think it’s safe to chalk up judicious use (or non-use) of an FSA as another week’s worth.

Be careful with AFLAC. AFLAC is a similar thing. My employer’s HR loves to push AFLAC on us. “I have three kids. I know I’m going to make at least one trip to the ER every year, and that pays for my AFLAC,” the pitch goes.

Think it through. I have a peculiar talent for injuring myself with sharp objects. But I’ve found that my best bet is to go to urgent care when it happens and put it on my FSA. Urgent care always gets to me faster than the overburdened ER, and it costs half as much. I did the math, and AFLAC just didn’t make sense. One trip to the ER didn’t cover a full year’s worth of AFLAC.

Maybe when my son gets older and starts playing sports and stuff, AFLAC will make sense. I’ll revisit it then. But do the math yourself, rather than just taking HR’s pitch. They’re salespeople. Their job isn’t to help you, their job is to make the company money by taking back as much of your salary as possible.

Making the right decision on AFLAC isn’t going to save you a full week’s worth, but it can make up for a shortfall.

Get a side gig. I’ve come up with more than 26 week’s worth of common ways to save $996, but not all of them will necessarily apply to everyone. Having a side gig is a good way to make up the shortfall. I can tell you to mow lawns or fix bicycles or make quilts, but I’d rather let you find something more ideal, since the best thing for you to do probably isn’t the best thing for me. Here’s a series of questions to ask yourself to help you find a side gig.

What do you enjoy?
Is there some service that you can provide at a better value than your potential competitors, whether it’s because you’re cheaper, or because your work is higher quality?
Is there some product that has resale value that you know how to find and then resell some way, after making any necessary repairs?

Basically, you need to find a product or a service that you already know well and enjoy that allows you to add value to it. Don’t quit your job to do it; do it on weekends or evenings with the goal of making a bit. If you can make $50 a week, that works out to $2,500 a year. That’s a reasonable early goal, then build it up from there. Some side gigs grow into full-time jobs but others don’t. Your chances of succeeding are much better if you don’t try to rely on it as a full-time job.

Start small, then let it grow (hopefully) to fill whatever number of $996 shortfalls you have in a year. And as you gain skill and experience, it could potentially grow beyond that, either allowing you to reduce some cutbacks, or achieve the ultimate goal more quickly.

So there you have it. Not everything in this list applies to everybody. But I would say the majority of these things do apply to anyone who can call themselves upper middle class. Such a family can take this list, find 52 things, and join the ranks of the wealthy in a decade or two, if they’re willing to let savings take priority over keeping up appearances.

But I also suspect that pretty much anyone who owns a home and two vehicles can probably take this list and find lots of things they can cut. They might not be able to find a full $996 a week for all 52 weeks of the year. So it will take them longer, but it’s possible. Making some sacrifices now in order to have financial independence later is worth it.

The most important thing is to put everything on the table. The year 2005 was my turning point. I lost my job, and it seemed like everyone who needed IT people couldn’t afford them. Stretching the pennies was necessary for us to stay afloat when I was in between jobs. Eventually I found one. The cutbacks that allowed us to make ends meet while my best source of income was doing odd computer jobs also allowed us to pay off our house early after I regained steady employment.

With the house out of the way, financial independence certainly is my next goal. I’m not sure that this formula is precisely what I want to follow in order to get there. But it’s important not to dismiss such formulas immediately just because they seem difficult or nearly impossible.

The key to success, financial or otherwise, is to take difficult problems and find solutions, rather than dismissing them immediately as impossible. One strategy is to break the problem down. This problem conveniently breaks down into 52 smaller problems. I’ll admit I had to sit and think a very long time to come up with 52 smaller answers.

I just have one more thing to say. Please try. I’m currently reading a financial book written in 1975 that said the average U.S. household headed by someone aged 24-34 had $2,500 in savings. In today’s dollars, that’s a shade over $10,000. Today, the average household has zero savings and around $10,000 in credit card debt, on top of car payments and rent or a mortgage. That has a lot to do with why our economy is such a wreck right now. We can’t buy any more stuff because we’re paying too much in interest.

It’s not too late for one or two generations to rise from these ashes and buy our country back. So let’s do it.

Paid in full.

This week, my wife and I drove to the bank and signed some papers initiating a wire transfer to our mortgage company.

Yesterday, I had the satisfaction of logging into the mortgage company’s web site, clicking on my account, and seeing the words “paid in full.”

I moved into this house in October 2002. Five years and eight months later, I own it outright. Between the house and our cars, my wife and I have paid off nearly $180,000 in debt in those five-plus years.We aren’t completely debt-free yet. We still have some student loans from my wife’s college education.

Some would argue we should have paid those before the house. I opted against it because one of the loans has a very low interest rate (lower than the house), and because the payments are small. If I walk into work tomorrow and find out I no longer have a job (that very thing happened to me not once but twice in 2005), I can easily make those student loan payments. Scraping together enough for a mortgage payment is harder.

But I’ve gotten ahead of myself. Here’s how we did it.

The debt snowball
The trick is to make your minimum payments on all debts, but pick one debt to pay off first. Then scrape together some extra money to pay it off sooner.

In my case, I started with my car. The payment was about $300. I tried to pay at least $600 on it. Sometimes I paid $900. When I got my tax refund, I paid a whole lot more than that.

By mid-2005, I owned the car outright.

By then I was also married, so we turned our attention to my wife’s car. Her payment was also about $300. So we paid $300 plus $600, the amount I’d been paying on the other car. I had a better job that summer, and we had my wife’s income too, so it wasn’t all that long before I realized we had enough surplus piled up in the bank to pay that off too. So we did.

And that left the house. The mortgage payment was around $1,000. So we paid $1,900. When we started making more money, we increased that. In recent months, I’ve been paying $3,000 on the house since I now make quite a bit more than I made in 2005.

Last month, I noticed we were very close to having enough in the bank to pay the house off while still leaving a comfortable emergency fund. I called the mortgage company to find out exactly how much we’d need to do it, and to get payoff instructions. I figured out that every month we didn’t pay the house off was costing us more than $200. So scraping was worth it.

Finding extra money
I’ve always been a tightwad (just ask my family), but in my late 20s I fell into some bad habits. I didn’t rack up debt, but I definitely wasted more money on conveniences than I needed to. I saved a lot of money the last five years or so by packing a lunch and bringing my own coffee and breakfast to work.

Do the math. I used to spend $2 on coffee and breakfast, plus $5-$6 for lunch. Call it $8/day. Figure 240 working days a year, and that’s $1,920.

I figure I whittled my daily food bill down to about $3 per day, so I saved $1,200 per year. That’s $4,800 over the course of four years. That alone allowed me to pay the house off at least nine months early.

Don’t let other people spend your money
But this is the big one. Everyone has their own ideas what kind of car you should drive, what home improvements you should be making, and other status things that really don’t matter that much.

I drive a 2002 Honda Civic with more than 100,000 miles on it. I know some people look down on that. But the car is still in nice shape, still runs like new, and has never needed anything more than routine maintenance. Plus it consistently gets 35 MPG.

If I had traded that car in after driving it for three years like the marketers say you’re supposed to, it would have slowed down the house payoff by six months. Had we done the same with my wife’s car, we could make it a year.

Frankly I’d rather have the house. In fact, if I could turn back the clock to 2003, I wouldn’t buy the same Civic I bought then. I would have been better off buying an older one that I could pay off more quickly. I could have saved an extra $4,000 or even $6,000, and we would have had everything finished a couple of months sooner.

So what about the cars now? Well, what about them? Remember, I was used to paying $3,000 a month on the house, and that obligation is gone. A year from now, there’ll be enough cash piled up in the bank to buy two cars outright if necessary. Not that I expect to need that, since Civics are famous for going 200,000 miles and beyond. The last time I went to the dealer, they told me someone had traded in a Civic with 500,000 miles on it.

As for home improvements, yes, now it’s time to do some. But why do them sooner? The boob tube tells you to do it to increase the value of the house. But why would I want to do that? So I can pay more taxes? Without me doing a thing, the paper value of this house has risen nearly $40,000 since I bought it, at least according to the county assessor. That means I paid $400 more in taxes in 2007 than I did in 2003.

Unless I was planning to move, there’d be no reason whatsoever to be concerned about property value.

On the other hand, at this point in the life of the mortgage, I was paying more than $200 per month in interest. Now that I’m not paying interest, that’s like getting $2,400 per year for free. That’s enough to finance a modest home improvement project.

But then again, if there’s something else my wife and I want that costs $2,400, we’re entirely free to go after that instead.

In what order should you pay off loans?
This is the paralyzing question for some people. Mathematically speaking, you should pay them off in order of interest. If you have a credit card balance at 19%, a car loan at 7%, a mortgage at 5%, and a student loan at 3%, then you should pay them off in that order.

I’m not enough of a math genius to run the figures, but paying them off in the worst-possible order (reverse order), generally only slows you down by a month or two.

We paid ours off somewhat less than optimally because the student loan is less paralyzing than the mortgage. The minimum payment on the student loans is about 1/5 what the mortgage payment was. When I was out of work, the mortgage was a bit of a struggle to make during a couple of those months, whereas the loans are comparable in size to a utility bill.

If nothing changes between now and then, we can have those loans wiped out in another year. If the economy tanks and I lose my job and my income drops to nearly zero, I can nurse those loans along almost indefinitely, since I have numerous options for making the $1,000 per month it would take to cover utilities, groceries, and those loans.

What about retirement?
Some people argue you should give retirement planning priority over your debts, while others say the reverse. My wife and I haven’t done much for our retirement since we got married in 2005. Frankly I can see the arguments both ways. But we’re still in our early 30s, and now we’re in position to contribute the legal limit into Roth IRAs from now until the government starts making us collect. There’s still time for both of us to pile up enough to retire.

The counter argument is that it’s foolish to invest when paying down debt gives you a guaranteed return. In this economy, given the choice between investing or paying down debt at 6 percent, what’s safer?

While there’s room for criticism if you go either way, either way is preferable to doing nothing. Unfortunately there are all too many people who have lots of debt and little or nothing saved for retirement.

Don’t refinance!
This is another big one. I refinanced in 2004. I got a lower interest rate, and I switched from a 30-year mortgage to 15. The interest rate dropped, but I got nailed for a $2,000 closing cost.

I saved $500 in interest the first year, but I didn’t have the loan long enough to recoup the closing costs.

If your mortgage is the last thing you’re going to pay off and if you can drop the rate, or if refinancing will allow you to consolidate some higher-interest debt, it might make sense to do it, but factor in that closing cost. If you can pay off the mortgage in less than five years, it makes more sense to just pay it off rather than go to the expense and hassle of refinancing.

In my case, if I hadn’t refinanced, I may have owned the house a month sooner.

What about the tax deduction?
Short answer: Forget about the tax deduction. The tax deductions for mortgages are more overrated than Derek Jeter.

Let’s say you’re in the 25 percent tax bracket. I’d have to ask my accountant if such an animal exists this year, but the numbers are convenient. If I’m in the 25 percent tax bracket and I paid $1,200 in interest this calendar year, then that means in return for me paying my bank $1,200, the government is giving me back $300.

Every other time you spend $1,200 and get $300 back, it’s called losing $900.

For the past five years, I’ve been paying a lot more in interest than I ever got back as a tax refund. Eliminating the mortgage won’t completely eliminate my tax refund, but it did eliminate that interest. In effect, by paying off the house, I gave myself a $1,200 raise this year.

So there’s no sense in keeping a mortgage solely for tax purposes. If you need tax deductions, take your tax return to a good accountant. The accountant’s fee is tax deductible, and the accountant will probably find you additional deductions you didn’t think of.

If you’re in a higher or lower tax bracket, it can make a little more or a little less sense, but you’re still trading dollars for small change in any case.

In conclusion?
There are any number of things we could have done differently. But the important thing is we now own our home and two cars outright. It’s possible that doing a few more things might have made it happen a month or two sooner. But if I’d done everything the traditional way, I wouldn’t own the house outright until age 58 (if I’d kept the original 30-year mortgage) or 44 (since I refinanced to a 15-year mortgage). Compared to 11 additional years of paying interest, what’s an extra month or two if I get a couple of details wrong?

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