My definition of financial freedom definitely involves outright home ownership, which means no mortgage. If you are on the typical 30 year path, just consider yourself captive – chained to the bank. With drive and focus, it is not just a pipe dream to own your house outright. It is an essential stop on the journey along the Green Money Stream to financial freedom. In this post I’ll talk about the desire to get the biggest house money can buy. In subsequent posts, I’ll give specific tips to paying that mortgage off once you have it and we’ll look at some numbers to back it all up.
The plan starts by assessing your needs. There is a great deal of pressure in our society to “keep up with the Joneses” and I find this pressure to increase as we have children since we want them to be accepted by their peers and to feel confident. Unfortunately, we are usually just reinforcing the idea that self confidence should come from material items. So it becomes important to be honest with ourselves about what we need. Here are some questions to ask:
- Do I really need two living rooms? So many homes have both a “family” room or den, and a formal living room. Remember that you will feel compelled to furnish all the space in your home, so you will be buying twice the amount of living room furniture. In this light, the extra living room is pretty expensive.
- Does a couple with one or two children really need a 3100 square foot home with 4 bedrooms? Again, this goes back to basic needs. One or two “spare” bedrooms will need to be furnished, otherwise why would you have them?
- What will be the costs to heat and cool 2500 square feet of space? Most people really only use maybe 1000 square feet of space on a regular basis. But we still generally heat and cool all the space in our homes, which further adds to the cost of that extra space.
- Is the home close to where you work? If you are commuting to work every day, shaving miles off of the distance will help reduce costs. If you move 10 miles closer to work, you could save over $50 a month just in gas*. The savings will be even greater if you bike to work.
If you are in a house that is bigger than your family really needs, can you consider downsizing? Since housing costs are the biggest budget item for most people, looking at your housing situation from a different perspective can result in significant savings. And remember, the savings do not simply come from a lower mortgage payment but are compounded by lowering other expenses, such as:
- commuting costs,
- homeowners insurance,
- property/school taxes,
- heat and utility bills,
- furniture and other house “filler” costs (if downsizing, you could sell excess to realize more savings)
The key is really that keeping your overall loan amount to something manageable, will put you way ahead of the game when it comes to actually paying that thing off.
In my next post, I’ll talk about specific tips to pay down your mortgage and finally we’ll crunch some numbers to illustrate the potential savings.
*this is assuming you average 30 miles per gallon and gas is $3.80 a gallon.