Wednesday, October 28, 2015

Update - November, 2015 - Keep on truckin!

Another few months have passed and I thought I'd update the few of you out there that may still be following my Rental mortgage payoff journey.  I am now nine months shy of the goal date which also means I'm 33 months into this marathon.  I now have far more mortgage payoff miles in my rearview mirror than I have left to go.  Time is doing what time does best...keeps moving relentlessly forward and stands still for no one.  It's both a friend and an enemy.  A friend to those with a plan and the determination to stick to it, but the enemy of those who just live from one day to the next, never planning beyond tomorrow.  Okay, okay enough waxing philosophical!

I can't tell you how often I thought the whole debt payoff process through from several different angles and entertained different ideas on how to accomplish it over the past several years.  I've gone back and forth on saving and paying in lump sums to sending every spare cent in the minute it cleared my bank account.  At times, I've decided to invest, only to end up selling the investments and sending those monies to pay down the mortgage.  I keep coming back to the simple realization that I've never wanted anything so badly as I want to see this goal through to its completion.  Having said that, I've just sent another $8,900.00 in addition to November's regular payment to the bank and taken a chunk out of this last mortgage.  As of November 1st., the balances look like this:

November Payoff Stats:
Jan 1, 2013 (Beginning Bal).                                                        November 1st, 2015                                Amount Paid Off
House #1 - $70,908                                         House #1 - $29,639                      $41,269
House #2 - $57,619                                         House #2 - $ 0                              $57,619
House #3 - $49,123                                         House #3 - $ 0                              $49,123
-----------------------------                                    -----------------------------               -----------------------------
Total:       $177,650                                                          $29,639                     $148,011 (-83.31%)

My last update was in August and the balance was $39,824.  It felt good to be under $40k but it feels even better here in November to be under $30k!!!  We just keep on truckin' and it just feels right. 

It's always super cool to see what the accelerated payoff plan does to the Principal/Interest ratio.  Just a few months ago back in January when the balance on House #3 was $63,163, the Principal/Interest ratio was $335.60 Principal / $218.28 Interest.  Now, having paid the balance down to $29,639 the ratio stands at $450.45 Principal / 103.43 Interest.  That's an additional $114.85 applied toward principal every month.  $114.85 each month  ($1,378.20 yearly) more money going (or "staying" if you prefer) in my pocket instead of going into the bank's coffers.

The reward is just around the corner and the payoff will have been well worth the sacrifices.  I'm on track and dare I say, may even be able to meet my mortgage payoff goal sooner than next July.  $177,650 paid off in forty-two months equates to an average of $4,229.76 per month applied toward the payoff.  Of course it hasn't been quite that linear, but it still amounts to a great deal of money applied month after month after month.  A short sighted person only looks at how they could spend an extra $4,200 and all the nice things that would buy.  A far-sighted, big picture kinda guy sees getting out of debt and converting that into a nice income as the reward in itself. 

I obviously haven't been posting every month.  I'll post every few months when it seems worthwhile to update everyone.  No money being made or sought on this blog.  It serves the purpose stated at the top of the page and hopefully encouraged a few who are travelling the same path toward FI and debt-free living.  To all of you I can only say, "Keep on truckin!"

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% of 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.   

August Payoff Stats:

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) or a lower reward in exchange 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.