Today, I awoke to the news of a ceremony honoring those who lost their lives in the attack on the World Trade Center on 9/11/01. Most of us can remember where we were when we heard about this tragic event. I was awaken on that Tuesday morning by my clock radio announcing that an airplane has hit one of the towers of the World Trade Center. I quickly turned on the TV. The picture of the plane smashing into the sky scraper is forever etched into my memory.
But for me, this date reminds me of another significant event, the 9/11 attack corresponded with our final mortgage payment. These two events are forever linked in my memory. That terrorist attack caused many changes to take place in our country that effected my life. Becoming debt free caused many changes for my family as well.
Many of you have read the full account of my journey to become debt free in the first chapter of my book, The Doctors Guide to Eliminating Debt. Our final debt was the $2,703 a month house payment. Because of the debt snowball (also explained in my book), after making that final mortgage payment, about $10,000 a month was freed up that had been used for paying our debts. That extra $10,000 a month made a profound effect on our life.
We were no longer making payments to anyone so all that money was now ours to direct elsewhere. The bank was no longer getting their pound of flesh, we were no longer paying for our past. Here are some of the ways it changed our lives.
1) Our stress level decreased. I did not understand the full effect the debt was having on my level of stress until after the debt burden was lifted. No more debt = no more drive to pay off the debt. I felt a freedom that I cannot adequately explain. I have likened it to trying to portray what medical school and residency are like to someone who hasn’t had that experience. There is no way to factor in the stress relief when calculating your debt pay off. Others have written me to say: “Now I understand what you meant about how it feels to be debt free.”
2) I was able to improve my medical practice. Once I became debt free, the drive to keep my production high at the office decreased. Since I no longer worried about making the house payment if my production dropped, I was now willing to make some changes to make my practice more enjoyable. The big one was to drop vascular and thoracic surgery. I didn’t like doing those cases, but they paid so well that I was afraid to drop them. I had the courage to make the move only after paying off the house. Surprisingly, my income did not drop, because the cases that I dropped were replaced with cases that I liked. It was a win all around.
I also started taking every Monday off after a call weekend. What a relief that turned out to be. To have an open day after picking up patients for three days made it easy to tie up loose ends and schedule any needed surgeries on Monday. I did not care if that day off cost me some production. With no debt, I could live happily with less income.
3) I bought a sports car. I had wanted a sports car for some time, but becoming debt free was our priority, so it had to wait. Now that we were free from debt, I started shopping for a car. I ended up paying cash for a used Toyota MR2 Spyder convertible and it was a lot of fun. It is amazing how quickly you can save money when you have an extra $10,000 a month coming in. My wife couldn’t ask me anymore, “Are we debt free yet?” when I found my sports car.
4) We invested in real estate. Once you become debt free, all the money that was going to pay down debt is now available to use elsewhere. We decided we would invest it in real estate. Over the next six years we purchased five apartment complexes and twelve years after our first purchase, the cash flow from the apartments exceeded our household expenses. We became financially independent much earlier than if we would have made minimum payments on our debts. The combination of lower expenses and higher passive income accelerates your ability to become financially independent.
5) We used cash flow to pay for our kids’ college. Without debt taking our monthly income, we had plenty to pay for college without touching our savings. In fact, the house payment alone would have done the trick. Even when both kids were in school at the same time, college did not exceed the $2,703 a month we had been making in house payments. Many people have asked me over the years about saving for college. We didn’t have a college savings account. I often ask them, “If you didn’t have a house payment, would that money cover your college expenses?” The answer is almost always yes. If you are wondering what to do to save for college, start by paying off your house. Then when college is finished, your kids will have a college education and you will still have no house payment. Another win-win deal.
6) We needed less for retirement. Our house payment was $2,703 per month or $32,436 per year. Using the 4% rule, 25 times this is $810,900. Factoring in our tax payment, I would have needed in excess of $1,000,000 more in my retirement account to be able to pay the mortgage payments in my retirement. If I had followed conventional wisdom, and let it ride for 30 years, I would have nine years to go on my mortgage payments. Paying off my house early meant I could retire $1,000,000 sooner, not even counting any other debt I might still have. I have been retired from medicine now for a year and a half and I don’t think it would have happened if I hadn’t become debt free 17 years ago.
7) Our giving increased. Without debt, we had more to give to others. We were able to support more causes with our greater disposable income.
8) We paid cash for a new motorhome. We had been enjoying our first motorhome for many years. We purchased it with borrowed money when it was three years old. It was one of our debts when we began our debt free snowball. Our kids were getting bigger and the old motorhome was getting cramped. Now that we were debt free, we saved and bought a new motorhome with cash. This one had two slide outs to give us more room inside for a rainy day at the coast. We have had it for 16 years now and are just beginning to think about finding its replacement.
We have been enjoying these eight things that were effected by our decision to become debt free for the last 17 years. The mortgage was the last of our debts to be eliminated. If you have been thinking about taking the plunge and eliminating your debt, just do it. Do not waste your valuable time attempting to figure out the interest rate differential of keeping the mortgage and investing vs. paying off the mortgage. It’s not about the math. Those who have tasted both sides, with and without a mortgage, know what I’m talking about. I
f the better answer was to play the interest game, then the people who have paid off their house would decide to acquire a new mortgage and invest it for maybe a bigger profit. That just doesn’t happen. Once debt free, most people choose to stay that way. I hope you do too
If you are ready to stop managing your debt and start eliminating it, then pick up a copy of my book, The Doctors Guide to Eliminating Debt. You can be debt free and enjoy all the above benefits as well. If you don’t have a mortgage anymore, tell us what you think about going back into debt. I’d love to hear your thoughts.