In the series Naked With Cash, seven Consumerism Commentary readers share their financial progress on a monthly basis. They are joined by Certified Financial Planners who provide feedback on their journey. Read this introduction to learn more about the series.
Anne and Matt are twenty-seven years old, living in the Midwest, with two children. Read their bio here for background about their financial situation. Anne and Matt are on Team Neal, with Certified Financial Planner Neal Frankle. Review their October update for last month’s progress.
Their goals are to strike a balance between putting aside money for the future and enjoying the present and to save enough for retirement. Keep reading to see their net worth report, comments about the report and their progress, and thoughts from Neal Frankle. This month’s special topic is debt reduction.
Anne’s comments and analysis
This month, we’re talking about debt reduction. Right now, our debt is our mortgage as we pay off our credit card in full each month, and have for years. At this stage, we aren’t overly concerned with paying off our mortgage as fast as possible. We have about 14 years left and the interest rate is under 3%, so right now our priority has been investing for retirement and college and shorter-term things.
In the coming years, we may start putting extra toward the house but Matt and I aren’t sure that’s the right move for us. Perhaps it’s because the balance is still high and it will take us several years to pay off if we wanted to be aggressive, I’m not sure. It’ll be paid off before our kids are in college. It just seems like there are better things we can do with the money.
Perhaps we can put a small amount of our monthly surplus toward the mortgage and the rest invested somehow.
Early in our marriage, we had plenty of consumer debt and we buckled down and paid that crap off as soon as we could. At worst, it was in the low $20,000s and we paid it off on a $40,000 income. It didn’t take that long because we kept our expenses really low and just got hyper aggressive with it. I’m so glad we did.
We will do what we can to stay out of consumer debt for our future — that’s why we’re saving for our next vehicle ahead of time, for instance.
Feedback from Neal Frankle, CFP
I agree with your approach towards both the mortgage. With rates below 3%, why pay off that debt?
I like the idea of investing and strongly suggest you automate this process. I read The Wealthy Barber several years ago and it really had a huge impact on me personally and professionally. The book makes the argument that the best way to really build wealth is to save and invest BEFORE you have a chance to spend the money.
Once I read that the light bulb went on and I recommend this process with all my clients. Let’s say you figure you can save $500 a month. Start off by instructing your brokerage company to automatically take $400 out of your account at the start of every month. (You start out somewhat below the amount you think you can handle just to make sure you can execute this without too much stress.) Do that for about 3 months and your confidence and excitement will build. Before you know it, you’ll be racing to bump up that savings and it will snowball very quickly.
Feedback from Luke Landes
Anne, you and Matt are making impressive progress. You’re on track to triple your retirement account balance this year thanks to the acceleration over the last few months with the Simple IRA. Your approach to debt, once you got started, has always been healthy.
The idea of putting off the acceleration of debt payoff aside, in favor of investing, has been a controversial topic, but only because there’s a vocal minority who like to put debt payoff ahead of all other priorities. But it’s all about making the best decisions for your family, and what will have the best long-term prospect for your finances. That is clearly continuing to pay off your low-rate mortgage while focusing your free cash flow on other things that can provide a much more significant return.
Published or updated December 23, 2013. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.