Saturday, August 1, 2015

Countdown to FI



10...9...8...7...6...Financial Independence!!!!!!!!!


FI is fast approaching. The "Countdown" has begun.  That's the day when I can and will officially declare myself "Financially Independent".  What does that term mean to you?  It's certainly better than "retirement". Why?  Because retirement often evokes a picture of someone in his 60's or 70's lazing about, playing golf or bridge all day long.  For many, it can even create a negative image of someone who has no real purpose in life, drifting along in a life raft of leisure (Wait a minute!  What's wrong with that?) 

While "Financial Independence" tends to simply say that you no longer have to earn a living.  You're no longer trading hours for dollars.  You've already earned it.  You now get to pursue  whatever work, passion, hobby or [insert productive activity here] you darn well desire.  Full-time, part-time, what is time for that matter? Heck (pardon my language), do whatever you wanna do!  You're the master of your time.  Unlike many people's vision of retirement, you've not punched your last timecard and now ride off into the sunset.  No!  You are just getting started, but now YOU call the shots.  YOU decide how you'll spend your time without a job or a boss's interference, (unless you so choose).   That's the flipside of our reason for having undertaken the goal to pay off our last three rental property mortgages.  The other reason was to relieve ourselves of ALL, that's 100% all debt.  What steps are we taking to live on our rental income?

New budget - Categories with amounts.

We have refined our budget to include all the little incidental expenditures that can bust a budget. Clothing, Property Taxes, Home Insurance, Home and Auto Maintenance to name a few. Beginning this month, we are attempting to live on the amount of income we anticipate from our rentals.  How much is that?  Approximately $2,323.00 per month or $27,876 per year.  That's the conservative figure.  It already takes into consideration the cost of Taxes, Maintenance, Insurance, Vacancies and professional property management.  This number could even improve by several hundred dollars a month if we decide to rent our personal residence and live in our 31' RV.  Decisions, decisions... 

It gets even better because we haven't even considered the passive income we'll be receiving from our Commercial Janitorial Company until we decide what to do with it.  Right now that additional income is fairly significant.  We'll likely convert that money to dividend growth equities and further add to our passive income with another income producing stream. 

Minimalism a.k.a. "Simplification"

What else will we be doing during the remaining nine months counting down to FI?  I'm taking a real interest in the Minimalist way of life.  No, I'm not talking about extreme minimalism where you own 100 items or less.  But I am talking about really simplifying and culling out those things that take up space.  Everything we own has a price attached.  You either have to clean it, maintain it, insure it, protect it, think about it or at least make room for it.  All those items big and small add up to a lot of clutter, mental and otherwise.  I want to minimize those things and add to my new-found sensation of freedom.  I want to have more time and energy to devote to things that are important to me, the things that have the most meaning for me.  Minimalism sounds like a worthwhile path to pursue during this countdown to FI.

Practice and refine for the next nine months

Nine months.  Wow!  It could possibly even be sooner than that.  Either way, this will be a lifestyle transition.  It's a big deal.  Like all other worthwhile endeavors, why not prepare and practice living my future right now in the present. I will have to show more self control with my spending habits than before.  Up to now, I've been able to buy anything and everything I wanted.  That's certainly not realistic when living on a fixed income.   


Jan 1, 2013 (Beginning Bal).                                            August 1st, 2015                                Amount Paid Off
==========================================================================
House #1 - $70,908                                         House #1 - $39,824                      $31.084
House #2 - $57,619                                         House #2 - $ 0                              $57,619
House #3 - $49,123                                         House #3 - $ 0                              $49,123
-----------------------------                                    -----------------------------               -----------------------------
Total:       $177,650                                                          $39,834                     $137,816 (-77.57%)

This month I was throwing money at this balance like a man on fire.  Every time I had available monies, they barely had time to register in the checking account before they were quickly transferred.  I made seven separate additional principal payments totaling $9,307.39.  Add to that amount the additional principal portion of  my August payment totaling $415.56 and you see a total reduction to the balance of  $9,722.95.  That's just stinking awesome!  The ability to apply monies that previously went toward mortgage payments is really helping the snowball efforts here. 

One way to highlight that is to look at the Principal/Interest ratio just a few short months ago:  May's principal & interest payment broke down to $340.24 principal/$213.64 interest.  Whereas with the snowballing of payments in May, June and July totaling $20,807.39 the August principal/interest ratio was $415.56 principal/$138.33 interest.  That's $75.32 more towards principal and less in interest every month (before compounding) going forward!  In short, if you divide the saved interest x 12 months then divide by the total principal invested, you arrive at your loan APY (Annual Percentage Yield) interest rate as the rate of return or just over 4.125% APR (Annual Percentage Rate).  Link to APY vs. APR

Compounding debt payoff is almost as exciting and fulfilling as compounding interest income.  The effect on net worth is the same, just different sides of the ledger except that often your trading a lower ROI (Return on Investment) since your trading a lower reward for removing market risks.  And while that's a calculated trade-off for most who chose to pay off a mortgage over investing those monies, I can't wait to reverse the two sides of the ledger.  ;-)

The countdown has entered the final stage...






Tuesday, July 7, 2015

Update - July, 2015 - You can do it!



"The man who begins to say it can't be done is often interrupted by somebody else doing it." -Elbert Hubbard

 
Excuses, excuses!  I am often appalled when after reading an encouraging personal debt payoff story submitted by someone who has patiently sacrificed the pleasures of today for a better life tomorrow, the reader responses are littered with the skeptics who spend energy and digital ink condemning the contributor as a liar or exaggerator because in their minds it couldn't be done.  Then there are others who simply must justify themselves and their inability to accomplish something similar because they just don't have it as good as the author.  They may feel better about their lack of success, but in the end they've been interrupted by the man (or woman) who did it.
 
I've been in the debt payoff mode for several years now and I can tell you from personal experience that it's NOT easy.  To be successful you must constantly swim against the current of self-indulgent consumerism promoted by the commercial system whose economic life depends on your living beyond your means.  You fight boredom as the same basic incremental payments seem to ever so slowly whittle away at the mountain of debt month after month for years on end.  You wrestle with discouragement when unforeseen bills such as medical expenses or house and car maintenance costs eat away at your debt repayment efforts.  The list is endless and any one or all the above becomes the fodder of excuse-makers.
 
If that has been your experience, take heart!  You can become the one who by your bold, patient persistence interrupts the naysayers.  Don't let their defeatist attitudes and excuse-making become a source of discouragement.  I've said it before, but the secret to success lies in visualization.  You must be able to see yourself living your new debt-free life.  You've got to imagine the feeling of satisfaction, having reached your goals.  Feel the freedom.  See the better life.  Meditate on the positives.  I find writing this blog helps me.  I frequently go back and read what I've written and I'm amazed at how encouraging that can be.  Associate with like-minded people who are working hard to liberate themselves from the bonds of debt.  Read their stories and rejoice in their accomplishments with the full expectation that your day will come.  If they can do it, so can you!

Jan 1, 2013 (Beginning Bal).                                              July 1st, 2015                                Amount Paid Off
==========================================================================
House #1 - $70,908                                         House #1 - $49,547                      $21,361
House #2 - $57,619                                         House #2 - $ 0                              $57,619
House #3 - $49,123                                         House #3 - $ 0                              $49,123
-----------------------------                                    -----------------------------               -----------------------------
Total:       $177,650                                                          $49,547                     $128,103 (-72.10%)

Well, as you can see, we've paid off $128,103.  That has certainly not been easy.  What could I have done with $128k over the past two and a half years?  Plenty!  New cars, trucks, home remodel, gadgets galore, tons of travel.  We could have become drunk on consumerism without the hangover of debt.  But at times when I'm feeling weak or bored, I just go back and read more on debt-free living and imagine what life will be like by this time next year when I can fully enjoy the fruits of my labors and call an official end to this forty-two month rental property payoff marathon.
 
The battle will have been worth the sacrifices.  I can see that clearly.  Can you see it in your case?  Let me know how things are going in your debt-payoff adventures.  What issues are you battling?  How close are you and what "future reality" helps you carry on in your efforts? 

Tuesday, May 5, 2015

Update - May, 2015

It's all downhill from here.


Long term goals are not easy to accomplish, especially when you are sacrificing to achieve them.  If you love working-out or running, then reaching goals just sort of happens without any real effort because you love what your doing.  This idea fits in nicely with the saying: "Love what you do and you'll never work a day in your life".  However, reaching a long-term goal involving real sacrifice like, for example,  dieting to lose weight or, dare I say, paying off consumer debts like credit cards or mortgages is certainly a different beast.  It's easy to tire out along the way or get bored over the span of several years as you trudge along ever so slowly reaching your goal.  I know, it happened to me over the past several months since paying off rental property number two in December.  I wanted more excitement, a break from the self-sacrifice we'd been exercising over the previous twenty-four months of mortgage debt pay down.  So, what have we been doing the past four months?

Investing in the stock market


It's no secret to anyone reading this blog that I enjoy buying dividend growth companies.  During the last swoon in oil prices we bought Exxon, Shell, Conoco, Kinder Morgan, BP and BHP Billiton.
We made about a thousand dollars dabbling.  It was fun and I liked the choices over the long term, but despite our success in picking some good stocks at the right time, I just couldn't get past the guaranteed return of mortgage paydown vs. the risk of being in the equities market.  More than that, the real advantage of paying off a rental property is that not only do you get the automatic return of your interest rate savings (4.125% in this case), but you get that plus principal as cash flow, a sort of  "dividend" that comes right to your bank account month after month after month.  In this case involving the third and final rental property the amount of cash flow we'll receive in approximately one more year would look like this:

          Balance on mortgage: $63,149.10
          Principal & Interest:   $553.88 monthly or $6,646.56 annually.

How much would we have to invest in dividend paying stock in order to receive a yearly dividend income of $6,646.56?  Obviously the answer depends on the yields with which you fill your income-producing portfolio.  I'll err on the high side and use the average of the stocks we had purchased above.  After all, energy companies offer some of the richest yields available:
     
Average energy portfolio yield:  4.67%
Amount of investment dollars required to produce $6,646.56 @ 4.67% yield:  $142,324.63


What does it all mean? 


     1.  It means that I would have to invest $79,175.53 more than what I currently owe on this last 
          rental property in order to generate the same return that I can get by just buckling down and
          paying off this last mortgage over the next twelve months.


     2.  If we opted for the dividend portfolio, we would have to accept the market risks and possible
          loss of capital.


     3.  It would take considerably longer to save and invest the additional $80k and reap the full
          dividend reward of $553.88 per month.

So, as you can see, it is worthwhile to re-evaluate what you want to accomplish and when.  In our case, we still want to remove this last vestige of debt and be 100% free.  We also want to get this additional income generated as soon as possible while avoiding the market risks inherent with an equities portfolio.  That day will come, but only after we've reduced or eliminated all other controllable risks to our personal financial profile.

Where are we in May, 2015?


Well, as I mentioned in my previous post and as a result of selling the aforementioned stocks, we were able to make a large principal payment totaling $11,000 this month bringing our balance to $50,809 from $62,149.  That's a wonderful chunk of equity and get's the snowball rolling downhill a lot faster.  I can't wait to see the effect on the interest saved next month and how much additional saved interest is added to that snowball.

We're back and we're as determined as ever to see this goal to its completion.  We have some medical issues looming and those costs will cut into our ability to make some larger payments, but on average we anticipate knocking this debt down by an additional $3k to $4k per month until paid off by this time next year.

Where are we in May, 2016?


Now that's a good question!  I see us claiming the glorious title of "Financially Independent".  We will begin to build our equities portfolio and do more travelling.  WooHooo!  Since our modest house is paid off, we don't have to spend any precious passive income to pay rent or mortgage anymore.  Outside of a modest amount to cover insurance and taxes plus a bit of maintenance, we keep the rest.  That means our housing costs are and will be less than $200.00 per month.  It won't take much to support our debt-free lifestyle and the additional $553.00 per month from paying off Rental House #3 will go a long ways towards supporting our Financially Independent lifestyle.  Looks like the Summer of 2016 will be an exciting one for us.  Let's reach those goals together, shall we?  

Thursday, April 30, 2015

Let's get this puppy paid off!

I've enjoyed my time off from blogging about my rental payoff efforts, but it's time to get this done!


Where do we stand now at the end of April, 2015?  Simple:  Two down, one to go.
I owe $62,149 on the last house.  After the last mortgage is gone, I will be 100% debt free with enough passive income (albeit modest) to consider myself financially independent.  That is where I saw myself when I started this trek in January, 2013. 


Over the last twenty eight months or so I've gone through many ups and downs and hit several bumps in the road.  The road to financial independence is rarely straight and smooth after all.  As a family, we have faced and overcome health issues, made major business decisions, travelled to Europe, volunteered our time toward excellent causes and fought the urge to just give it up and divert my attentions elsewhere.  Does any of that ring a chord with you?  Stuff happens, right?  Right!


On the other hand, after reevaluating how far we've come and where we want to be by this time next year, I've decided to roll the snowball down hill again.  We've saved some money and will apply that to next month's principal payment to really get this snowball rolling.  After that I don't really expect many large, lump-sum type payments over the next ten months or so (thanks to the new office building our company decided to build).  Just slow and steady with both eyes on the finish line.

So with all that said, let's get this puppy paid off!

I'll post again next week after the May payment has been made to update the numbers.

Tuesday, December 9, 2014

Accomplishment and Celebration

Two years later and two houses paid off!
The converging lines are the third rental and the total debt of the three together.
They now have become one and the same.

It has been accomplished.  Another one bites the dust.

Two years and two rental houses paid off.  That's what a plan, determination and time can achieve when these three ingredients come together.  Take away any one of those three basic ingredients and the debt reduction effort will either be at best, severely hampered, or, at worst, fail.

When I laid out this plan two years ago, it was a lofty one:  In true snowball fashion, the plan was to add $3,400 to my monthly mortgage payments (nearly every spare cent we had available) and pay off three rental houses in in 42 months.  The plan was carefully and thoughtfully laid out.  I had run the numbers using payoff calculators and had squeezed our household budget to make room for the fat monthly payments that would be required month after month, year after year to reach the goal.  Now, the second ingredient--Die-hard determination over a period of time--was necessary.  You well know that everyone starts off determined to achieve their goals, but maintaining that determination over a long period of time is where the rubber meets the pavement.  Debt reduction is a lot like running a marathon:  The starting gun sees 100% success rate while the finish line awaits those who were truly determined to finish even if they must cross that finish line limping and puking their guts out. 

Jan 1, 2013 (Beginning Bal)                             December, 2014              Amount Paid Off
==========================================================================
House #1 - $70,908                                         House #1 - $63,163                      $  7,745
House #2 - $57,619                                         House #2 - $ 0                              $57,619
House #3 - $49,123                                         House #3 - $ 0                              $49,123
-----------------------------                                    -----------------------------               -----------------------------
Total:       $177,650                                                          $63,163                   $114,487 (-64.44%)


As for the third and final ingredient (time), well as you can see from the chart above, in twenty four months we have paid off two houses totaling $114,487 of mortgage debt.  That's an average of $4,770 per month!  The snowball kept getting larger and larger.  That's the way it works.  What a fun way to play in the snow ;-)

Of course, our determination was tested all along the way.  There were several adjustments and a fair amount of second-guessing.  Like most, we had months when life got in the way and the additional payments had to be temporarily placed on hold; Not the least of which was a loved one getting diagnosed with Cancer (all is well and in full remission), shoulder surgeries (as in three of them), and then trying to balance out this austere plan with some reasonable enjoyment of life (Our trip to London, Ireland and other vacations).  On the flipside, however, there were those wonderful months when unexpected bonuses were applied in large amounts toward the debt.  It was absolutely thrilling to see balances precipitously drop resulting in interest monies saved.  For example, when possible, we would add any windfalls like bonus distributions or extra monies earned to pay off the balances even more quickly.  On two occasions we were able to make 15k payments.  On one occasion, 10k. and several other 6k to 8k payments on three other occasions.  These massive additional payments really grew the snowball and became encouraging, tangible evidence that we could reach our goals.  In the end, however, it was time that did its job and here we are two years later with two of the three houses completely paid off and the additional available passive income from those rentals just adds more snow to our massive snowball. We now have nearly $1,000.00 per month of additional income that now no longer goes to the bank.  It comes to us like a sweet dividend every month.

Speaking of dividends... A change in direction



As of January 1st. we are changing direction.  Our company is building a new office and it will include a couple of apartments where the owners can live.  This build out is being financed by the company and it means that we will be selling our modest 900 sq. ft. two bedroom house this Spring. 

Then what?  We can use the proceeds from the sale of our house to pay off the remaining rental house in full.  As a result, we finally get to do something we've really, really been wanting to do for years:  Create a Dividend Growth portfolio as an additional passive income stream.  I've mentioned my love for dividend stocks here on several occasions over the past two years, but I was determined to stay the course toward complete, absolute and unequivocal debt-free living by paying off the three remaining mortgages and converting them into income streams.  The payoff of that final mortgage will also mean an additional $553.88 in monthly income and the complete realization of our stated goal:  Pay off $177,650 in mortgage debt and add $1,476.46 to our monthly passive income stream.  The additional $1,476.46 of capital along with the monies we've been directing toward the mortgages can now be redirected toward building our dividend growth equities portfolio.  How cool is that?  Compounding at it's best as our little investment dollars work full-time to make more little investment dollars.  Now that's worthy of a celebration!

If you've ever needed convincing about the merits and superiority of DGI (Dividend Growth Investing) vs. the 4% rule, here are a couple of articles for you to read.  I think it's well worth your time and they convinced me that DGI blows the sacred "4% withdrawal rate" out of the water:



If you've been regularly reading this blog or are here for the first time, I hope it proves as encouraging for you to read as it has been for me to post my ups and downs of real-life debt pay down.  Since there are a million bloggers telling the world about their dividend portfolio efforts, I don't have any inclination to blog about my efforts going forward.  It's been interesting and fun.  I've never run any adds on this blog or tried to sell anyone anything.  The true motive behind this Pay off my rentals blog has always been to help keep myself accountable while encouraging others along the way.  I sincerely hope the latter has been as successful as the former.  My intention is to keep it online and accessible as it costs me nothing.  I'll even check in from time to time to address any comments you may leave.

Best wishes to all of you working hard to pay off debt and build a passive income stream(s).








Friday, October 31, 2014

Update - October/November, 2014

October/November is synonymous with falling leaves, but in our case, October/November is just another couple of months of falling debt totals for our rental houses.  We are down to the last two months of paying off House #2 which now sports a balance of exactly $10,000.  The goal, as it stands now, is to make two payments of $5,000.00 (one at the beginning of December and one at the end of December) and have it paid off by December 31st.  How will we come up with ten grand to achieve this?  Just a little bit of financial maneuvering.  Our distributions from our company usually hit my bank account a couple of days early every month.  So, we will simply apply our January 1st mortgage payoff amount to the very end of December and voila! House #2 mortgage will be history.  That will make for a very happy beginning to 2015, don't you think?

Jan 1, 2013 (Beginning Bal)                  October/November, 2014     Amount Paid Off
==========================================================================
House #1 - $70,908                                         House #1 - $63,833                     $  7,075
House #2 - $57,619                                         House #2 - $10,000                     $47,619
House #3 - $49,123                                         House #3 - $ 0                             $49,123
-----------------------------                                    -----------------------------               -----------------------------
Total:       $177,650                                                            $73,833                   $103,817 (-58.44%)

We have surpassed the 100K mark on the relentless march toward complete and total payoff of these rental houses!  At this point the income from the rental houses is really adding wind at our back. As planned, that income is supplementing our payoff efforts in a very meaningful way.  Once the second house is paid off, we will have yet more income to apply to the payoff of house #3. 

When this odyssey started in January of last year, a $177,650 balance seemed so huge and overwhelming.  All I knew at that time was that I had a deep desire and strong yearning to be 100%debt free within 42 months.  It wasn't enough to be just "consumer debt free".  No.  I wanted to be totally, absolutely and unequivocally debt free.  Now while being debt free--excluding the mortgage-- is certainly a laudable achievement, having no mortgage debt in addition to no consumer debt has got to be the ultimate in financial peace.  Add to that the passive income that the rental real estate brings in each month whether I decide to get outta bed or not (kidding...I always get out of bed), and you've got a wonderful recipe for financial independence.

The other thing I knew back in January of 2013 was that if I stayed focused and stuck to the plan, time would take care of the rest.  And it is.  I mean really, think of how time marches on in our lives.  For example, if you're the kind of person that makes new year's resolutions, January 1st, 2014 was eleven months ago.  Nearly a year has passed by.  If you set a goal and formulated a plan, you'd be ELEVEN full months into its execution by now.  Yet, January of this year seems like just yesterday, doesn't it???  So, ask yourself, "Where do I want to be this time next year?"  Where can you be two years, three years, five years from now if you plot a steady course toward debt payoff?  You'll certainly be somewhere because time marches on.  It's an inevitable reality that we can use to our benefit...or detriment.  Before you know it you'll look back and either say to yourself:  "I wish I would've [insert desired goal].... or, "I did it!"  The choice is always ours.  But success stories are being written everyday by people who stop talking and just start doing.  So just do it!

JUST DO IT!

Blog about it.  Post a payoff chart like I did and chart your progress.  Go to the online blogs and shout it out.  They can be a tremendous source of ongoing encouragement because you'll quickly find yourself in the company of like-minded individuals who's successes and failures will keep you encouraged along the way.  In the meantime, see yourself enjoying the pleasure and personal fulfillment of your goal.  See it, feel it.  Use the power of imagination to impel yourself forward toward realizing your goals--be they financial or otherwise.

As for us, next stop...Jan 1st and a celebration of paying off house #2

Tuesday, September 2, 2014

Update - September 2014

London was brilliant!  That, along with "lovely", were expressions we heard often.  Indeed, London is a culturally diverse city rich in history.  The buildings have so much character that you could spend all your time just admiring the architecture and facades of yesteryear.  My wife and I thought it was a "lovely" place and we would go back in an instant. 

Westminster Palace and The Tower of Big Ben - England

Ireland was also an extremely marvelous country and the cliffs of Moher ("Cliffs of Insanity" as they were referred to in the movie "Princess Bride") were incredible.  Castles dot the landscapes and buildings hundreds of years old are still infants by their standards.  If only my rental houses could last so long...



Cliffs of Moher - Ireland
Cost of 12 day trip (Airfare, Hotels, Taxi. Spending money): ~$7,500.00  
Airfare was paid some months back and I just sent off a payment for the credit card for the remaining purchases.  No carry-over debt from this trip!  It was cash-flowed and that made it even sweeter.  

The people were very kind and we fell in love with everyone.  We can now add Europe to our list of places visited.  To date we've spent time in England, Ireland, Mexico, Guatemala, Nicaragua, Costa Rica, Panama, Colombia and the Dominican Republic.  What tremendous human diversity exists between those places. We wouldn't trade them for anything.  Next stop...Italy.  But that's another story.

SEPTEMBER UPDATE:



Jan 1, 2013 (Beginning Bal)                           September, 2014                       Amount Paid Off
=======================================================================
House #1 - $70,908                                         House #1 - $64,498                     $  6,410
House #2 - $57,619                                         House #2 - $19,418                     $38,201
House #3 - $49,123                                         House #3 - $ 0                             $49,123
-----------------------------                                    -----------------------------               -----------------------------
Total:       $177,650                                                            $83,916                    $93,734 (-52.76%)


Obviously it would have been nice to have applied the $7,500 we spent on the European vacation toward the payoff of house #2, but this is when you have to balance the quality of life and the value of the experiences that mold us and our attitudes toward the world around us with frugality and debt paydown.  

NOTEWORTHY POINTS:


The interest portion of the mortgage payment for house #2 was a whopping $74.44.  Just nine months ago in January of this year the interest portion of each payment was $203.12.  That's the beauty of the debt-payoff-snowball in action.  Compounding in reverse.  It is the wind at your back, adding its efforts to your additional principle to create an even faster payoff.  

As it stands now, I am hoping to have House #2 paid off by next February.  We have other plans in the works that may help us get the last house paid off by Summer of next year.  I can't share those details with you yet, so stay tuned!