Small Home, Big Investment

I have a secret to share about home ownership as an investment in real estate.

Its not about how much you pay and the return value on the sale that will make your investment smart.  You have no control over the changing markets.

Its about how fast you can buy yourself out from the bank's interest in your home.  This is what you can control.

Its about working toward owning outright.  No mortgage.  And don't move every 7 years.  Stay in that house, like its yours.  Because it is.

Be humble.  Be simple.  Be minimal.  

Smaller space to fill.  Smaller repair costs.  Smaller taxes.  Smaller payoff.  Smaller energy costs.  Smaller decorating costs.  Less cleaning.  Less organizing.  Less decluttering.  Less everything that you use every single day.  Less principal.  Less interest.  Fewest payments.  The savings are exponential when you reduce by even one extra room.

So don't buy property at your max qualifying amount.  Ever.  Don't ever max out your credit on buying a home. Ever.  Ever.  Ever.

Ever.

To Become Debt Free

"After 4 years of focus, we’re now completely debt free and thrilled about the future ahead of us.  Last month, we paid off the $195,000 mortgage on our dream home."  That's how this blog by jackie began.  Of course I read the whole thing.  The achievement is impressive and should be sought after by everyone.  The original is stacked with advertisements and the content is pretty fluffy.  So, I summarized the meat, and shaved out the paperwork piñata, numerous family photos of said piñata, and summarized the valued content.  This way you and your household can add your own creative flavor to make the intentional, determined, hard work of the project fun in your own way, lose the fences and live free and wild and out from under the oppressive thumb of wall street.

These are great financial tips they used to pay off  $195k in such a short time:

1. Know why.  

If you don't know why you want to become debt free from banks, you won't care how to become debt free from banks, because you won't be motivated to become debt free from banks.  Yes, I said that three times on purpose, and will again.  I work in the largest industry in the world, real estate, and I can promise you, banks down't want you to learn this stuff.  Everyone has different reasons they'd like to live debt free.   Your reasons are your own and you need to know them  for yourself.  Banks profit from your debt and they want to keep you there.  One more time, say it out loud "I want to become debt free from banks"  


2. Mortgage Payment Goal: 25% DTI

Loan originators, or mortgage brokers, will bring up something called your debt to income ratio.  The simple math to understand the basics of this is this: (projected mortgage payment plus any existing debt payments) divided by monthly income.  Now the bank requirements to qualify for the home loan is maximum approx 43%.  It fluctuates just like interest rates do based on current economy metrics.  After factoring in all other standard expenses of the average household, 43% in modest housing markets is an estimated paycheck to paycheck lifestyle.  But they don't down sell you the benefits of aiming for 30 or 25.  Instead, they will lend people right to the bank maximum time and time again without blinking because we'd all like the cuter, smarter house that costs more and they profit from our happiness with the product at the end of the rainbow.  This margin line is where foreclosures often come from.  Mortgage to the hilt > hardship > foreclosure > sorry Charlie, start over in 3 - 7 years.  Use a calculator and do your own math rather than trust the bank recommendations, okay?  They'll tell you you qualify for up to 325K, don't buy there, buy something more comfortable, more modest.  Veer yourself, your taste, your greed as far away south of that marginal DTI as possible.


3. 15-Year Fixed Rate Mortgage

If you and your lender can make this work on your income do it.  The interest savings are tremendous.  Right off the cuff, I want to say its over 40% of your principal in savings value, not to mention it automatically has you paying out in half the time.  180 payments instead of 360.  The monthly amount is a bit higher, so I suggest buying an even smaller house to make up for it.  You don't need all that extra space anyway, right?  Say it again, "debt free from banks"!


4. Live on 50% of Your Income

From the same model as mentioned above on monthly payments the bank model estimates recommended 43% for the home loan leaving 57% toward other costs, like energy, taxes, insurance, grocery, entertainment, etc.  Now shave 7% more out of this.  Some suggestions on where you might find these rogue dollars: 

• Dump your cable TV
• Shop smarter at the grocery
• Find free entertainment opportunities (libraries are an untapped resource)
• Forego coffee baristas
• Don't drink alcohol

5. Have a goal, create a plan, and commit to it!

This is just a functional facet of any important and challenging project.  We help people succeed with this kind of thing because it can be daunting.

• You can read a summary about goal setting over time HERE or, 
• You can request more personal assistance HERE
• Let's say that phrase aloud again, "I want to become debt free from banks!"

6. Increase Your Income

Bust ass at work and win that promotion, or get that raise.  
Earn more commissions if you're not salaried
Get that O.T. if you're paid hourly. 
Side Hustle - there are many books written on this subject.  I personally know a guy who makes his entire living this way.  


7. Track Expenses

Budgeting works for some people, tracking expenses works for anyone.  Even those who categorize their budget can miss budget leaks in the little expenses that add up.  An unnoticeable $2 habit can easily become $50 per month.  Watch every penny, not because you're a miser, but because you want to be informed about your own usage.


If you can do all of these, you should have created a healthy financial position that not only keeps you in the black, but also builds a substantial kitty.  If you're smart, which I know you are, you leave a significant enough portion in there for rainy day expenses, and you've also figured out that you can make **interest free, penalty free, principal only** payments toward your mortgage.  Repeat that.  "Interest free, Penalty free, Principal only Payments."  This is how Jackie really reduced the 30 year made 15 year plan into just under 4 years.  Interest is compounded monthly.  These interest free, penalty free, principal only payments, reduce the total amount you owe, as well as remove time from the end of the loan.  Her household succeeded at all 7 of the above tips.  Maybe you can only do one.  Maybe more.  Maybe all.  Whatever the capabilities are in your household, the sooner you can act, the more impact you'll have in race to become debt free from banks!     

Catalyst of Doing

One of our readers, and if I may boast a little, truly great friend, has been engaging us and acting upon her desires to clean up, and simplify her life.  She reached a moment of clarity over a skin care product. Before I share, there is something you should know about our friend Christine.  She is an early bird.  She wakes up when its dark, has a commute that most people would cringe at to get to her job in the city, and usually has time to crank out a household chore or two, as well as hitting the gym before the day is upon us.  So while most of us are hustling just to make time to enjoy our morning tea, or coffee, know that she is out there making her life better on small step at a time.  The thing is, our truest epiphanies don't come from clever writings by our favorite blogger, or even books with brilliant authors, not even from time tested musings of ancient philosophers.  They come from the little actions we force ourselves to turn into habits, which is what our coaching focuses on.  That is where our real breakthroughs emerge.  

Doing is the catalyst for change.  Christine writes this about one of hers this way:

I’ve spent the morning pondering and justifying.

I’m part of an ongoing discussion/quest about downsizing, minimalism, reducing my personal consumerism.

So, this morning, as I’m getting ready and purging the mess that is my make up cabinet/drawer…my mind was wandering.

I threw out a moisturizer I absolutely hated.

I’d been keeping it and FORCING myself to use it, because that’s the responsible thing to do, right?

Wasteful to throw the product out, I’ll need to replace it with SOMETHING else…so just suck it up sister.

Nope, I chucked it….and instantly heaved a sigh of relief, even with incurring the cost of replacement.

It did raise a few thoughts for me though.

So often, I think, decluttering focuses on “stuff”, the unuseful mythical monster that steals our spaces and our time dealing with it.

In my head, that’s always been objects, like that ugly lamp or the figurines….or your momma’s rock/tree bark collection , etc., etc., etc..

But what about what we’ve labeled as useful, practical, etc.?

It’s not just about purging the excess….it’s about purging what is no longer useful /wanted/needed.

It’s not just about clearing your physical space, but also your mental one.

Sometimes the catalyst is a huge life event, break up, loss, mid life crisis and sometimes it’s just a slow realization that you need to change your environment.

CS respond that for her: "hanging onto skincare can carry over into holding onto a lot of things I didn't want, didn't use, and that took up a lot of place-space and head space.  As for the emotional stuff... when I finally internalized "there is no closure" it was life changing.  I wasn't always going to get that last goodbye."

Tell us about the time you made a breakthrough