Thursday 7 July 2011
In the beginning...
Welcome to my new blog, Frugal&Fabulous, which I plan to use to share financial and money saving tips. At the age of 30 I set myself the challenge of paying off my mortgage by my mid-30s. I've achieved it, and I'd like to help other people do the same. If I can do it then you can too. I don't want to gloat, I just feel I have valuable advice to offer. Paying off your mortgage is like taking a millstone from around your neck, like buying your freedom from wage slavery. Of course there will always be other bills to pay, but it's a leap down the path towards a better work/life balance. I'm not going to pretend it's an easy process, unless you get a winning Lotto ticket, but the end result is worth the sacrifices en route. Plus, once you get into the swing of it, finding inventive ways to save money and boost your income can be fabulous fun.
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I think it is important to mention that for many people, paying off a mortgage should not be their top priority. A mortgage is likely to be the cheapest loan anyone is ever likely to take out. therefore, careful thought should be put into deciding whether or not to pay off a mortgage early.
ReplyDeleteIf someone has any debt (eg loans or credit cards), then they should be the priority. The interest rates on those are much higher than a mortgage.
Also, if it's likely that in the coming years the person feels they may need to take out a loan, it'd be more worth their while to save the surplus they have now and use it for the planned expenditure in the future, rather than paying it into a mortgage and then having to take out a more expensive loan.
finally, and this may not be for everyone, there's also investments. At times like these when many mortgage interest rates are at a rock bottom (mine, for instance is just 1.5%), it may be worthwhile placing surplus money into a stocks and shares ISA. Obviously, there's the risk of low or negative growth to take into account.
If stocks are not your cup of tea, then maybe a cash ISA would suffice. You can get up to around 3.7% at the moment. In my case, a difference of +2.2% in comparison with my mortgage interest rate.
When saving rather than ploughing into a mortgage, it's important to compare the Gross interest rate if the account is not an ISA.
Valid points Steve, thank-you for making them. We all have our own, unique financial situation and life priorities. For me, paying off my mortgage as quickly as possible was the right financial choice, but that may not be the case for everyone. However there's absolutely no reason why someone can't follow my example, but then use the extra cash to pay off a different debt or stash it away in a high interest savings scheme instead. Or if they prefer to live for today, maybe they could blow it on Jack Daniels and tattoos. Seriously though, paying off your mortgage is incredibly liberating. It's the biggest monthly outgoing for many households, and the average term of 25 years is so long.
ReplyDeleteOh, don't get me wrong, I'm not disagreeing that paying off a mortgage is immensely liberating, even on a basis of self-satisfaction.
ReplyDeleteI'm following your blog and I look forward to reading your tips.