251 | Should I Pay off the Mortgage on the Path to FI? | Brad Connects with Martin and Ayesha

Martin and Ayesha are both natural savers who have been great about living below their means but lacked a real plan. Their goals are to maximize investments for retirement and finding ways to utilize dividend funds. After stumbling across the ChooseFI podcast, they felt like their financial independence number and retirement seemed obtainable which has helped push them to commit and make even bigger changes. While Martin and Ayesha had a 20-25% savings rate before finding FI, Brad commended them on what a great job they were doing. He also stressed that FI is about living a better life and having the financial security to get you there, not what your savings rate is. Despite the inclination to save, Ayesha always resisted the thought of meticulousness and restrictive budgets. However, she found that she could get behind the idea of focusing on spending on what they truly valued, so they began using Personal Capital as a less obtrusive method of tracking their spending and gaining insight into their habits. Something that Martin and Ayesha place considerable value on are experiences, particularly travel, spending time with friends and family, and being healthy. Instead of getting together at restaurants and spending money on pricey meals out, they began hosting monthly potlucks. Ayesha has found the website Budget Bytes to be incredibly economical when it comes to low-cost recipes and efficient for discovering uses for the ingredients she already has in her refrigerator. It's helped to cut their grocery bill to around $600 per month for their family of 4. Due to quarantine restrictions, Ayesha was out of work for months, which she calls a blessing in disguise. During that free time, they were able to take a deep dive into their spending and immediately saved $500. It also allowed them to slow down and spend more time with family enjoying the outdoors, playing games, and eating all three meals together. Following the time off from work, Ayesha has realized that it does cause her some stress which made her want to buy things. It also strengthened her conviction to reduce her workload within 5 years to perhaps just one day a week so that she can find more joy in the moment. Although Martin enjoyed his two-hour daily commute, working from home during the pandemic has made him more aware of the importance of time. He now strives to make the most of his time and focus on using it in ways that bring him the most value. While their monthly expenses are not constant because life is lumpy, it runs around $3,500 but can go as high as $5,000 a month when home repairs are needed. Martin and Ayesha have a goal of reaching FI in seven years and are looking at exploring several different options to help get them there. With option one, they would withdraw money from an investment account to pay off the mortgage on their home. The money saved on the mortgage payment would then be invested for the next seven years. In option two, they would use their investment account to pay off half of the remaining mortgage and continue to make the monthly mortgage payments which result in a mortgage pay off in seven years. Their third option is to refinance their current mortgage which has 17 years left at 3.3% interest rate to a 15-year loan at 2.6%, but that refinance incurs $7,000 in fees. The payments would remain the same, but the home would be paid off two years earlier. Ayesha likes the idea of not having a mortgage but doesn't want to do it if the numbers don't make sense. However, Martin is okay with a lower net worth if it means they can get rid of their mortgage because he feels they would have more options. Brad admits this is an issue he and many others in the FI community struggle with. With such low-interest rates on mortgages, it's almost always a better option mathematically to keep the money invested, but it doesn't mean it's the right decision for everyone. The psychological aspect needs to be considered. If they would like to pay the mortgage off in seven years, the best thing they can do it to use an amortization calculator and see how much extra they will need to pay each month to have the mortgage paid off in seven years. Martin and Ayesha can then see how that payment fits into their current lifestyle. As a fourth option, Brad pointed out that they can drastically reduce their FI number if they were to pay off their mortgage. With a FI estimate of 1.25 million, using the 4% rule, they would have $4,000 per month. If the mortgage was paid off, they could reduce their monthly expenses by $1,600, and then their FI number is only $750,000. After living through the 2008 housing market crash and not having a plan, and then this most recent market downturn, Martin and Ayesha have realized they may not be as risk-tolerant as they used to believe. Brad suggested having an investor policy statement that they've written down to help them stay the course in times of uncertainty. The biggest takeaway is the being on the path to FI gives you options when you have the freedom and flexibility to create a plan that works to meet your goals and live a better life, even if it isn't always mathematically optimized. It's a common problem to be overwhelmed with all the information we consume about optimizing various aspects of our lives that we end up with analysis paralysis. It's important to remember that we're trying to live better lives. They don't have to perfect or 100% optimized. One final concern Martin and Ayesha have is funding their children's education. Brad admits it may be wishful thinking that the higher education system goes through some sort of dramatic change in the coming years, but he and Laura consider paying $50,000 a year for college to be unpalatable and have stopped putting money into their girls' 529 accounts. Instead, they have tried to normalize the conversation about money in their house and have discussed lower-cost options for college.

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