Project Mickey
I DON'T MAKE New Year's resolutions. I exercise to feel good, not to lose a certain number of pounds or notch some personal athletic record. I save because my future self will appreciate the sacrifice I make today, not because I���m targeting some specific level of wealth. I���ve never had a defined life plan. My career has been opportunistic. Yet, despite all that, my wife and I settled on and pursued two goals early in our marriage that had a lasting impact on our family���s finances���and on the stories we share with our kids as they, too, become adults.
In 2000, our daughter was born. In early 2002, we were expecting again. After a prenatal visit early in the pregnancy, my wife called me during a hectic day at work.
���We���re having twins,��� she said.
I told her to be serious. She was. I took the afternoon off to come home and process the news with her. We knew how much it cost for one kid. We were two working parents, but it was a financial struggle. Now, the cost would be multiplied by three.
As 2003 ended, our oldest was three and our two youngest were one-year-olds, and the expenses felt huge. Daycare and preschool cost $24,000 a year. It represented a hefty line item in our family���s budget. We also paid $24,000 every year on our mortgage, though that included regular extra-principal payments. Fortunately, we had no student debt and no credit card debt, and we owned our two cars. Despite the financial commitments of a growing family, we made it a priority to save for the future.
Every year-end, we talked about our personal and financial objectives for the following year���how much to save in your retirement plan, how much in mine, how much for this home improvement project, how much for that trip. As 2003 turned into 2004, our discussion took an unusual turn. We both felt the pull to try something different. After more discussion, my wife proposed a new idea: pay off the mortgage early.
Home and away. We had bought our home when we moved to Overland Park, Kansas, in 1997. We were only six years into a 30-year mortgage. We���d paid $175,000 for the house, borrowing $167,100 for 30 years at 7.875%. Less than 12 months later, we refinanced to 7.25%. In 2002, we modified the loan, lowering our rate still further, so we now paid 5.625% on the remaining $143,168 balance. Our required monthly payments were $1,200, but we continued sending $2,000 each month, the same payment we���d made when our mortgage rate was higher.
We compared the 5.625% to what we thought the stock market might deliver. After the 2000-02 bear market, share prices had moved steadily upward. Perhaps stocks were indeed the better bet. But in the end, we had an emotional reason for continuing with the extra-large mortgage payments.
To us, financial freedom didn���t mean retiring early. We were two 30-somethings with three kids age three and under. The idea of not working was impractical and silly. Instead, at the time, achieving some level of financial freedom meant owning our house and never having to worry about where we would put our heads. If I lost my job, losing our home wouldn���t be a risk. If we wanted to pursue different careers, we could afford to earn less. It was easy and fun to think about what we could do with an additional $20,000-plus that wouldn���t be going toward house payments anymore.
In addition, we felt confident this would be our home for the long haul. We loved our city. We had put down roots in a new place we called our own, and we both wanted our kids to grow up in one house. It was big enough to meet our needs for a long time. We had already moved multiple times and we had no desire to do it again. More important, we wanted to be in control of our money rather than letting it control us. Paying off the mortgage was a crucial step in that direction, plus it felt like something different from what everyone around us was doing. It was a long-term financial goal���daunting yet achievable���that we could both get behind. Maybe we could even turn it into something fun.
By 2004, when we began in earnest, $130,000 remained on the mortgage. We worked down the balance to $125,000 with several payments, and then the excitement waned. The numbers were still too big and the undefined end date seemed too far off. We needed something to help us refocus, something long term to keep us moving forward and excited.
We had always been a traveling family. Earlier, in 2001, we had driven with our one-year-old daughter to Arlington, Virginia, to spend time with family. When I reviewed the route, I noted it would be our daughter���s first time passing through eight states. Wouldn���t it be fun, I now mused, to visit all 50 states with our kids by the time they finished high school? It would be a good excuse to see new places, show our kids the country, open them up to new perspectives and create a love of travel. The likelihood that they wouldn���t remember anything at such a young age was of no consequence. We were after shared experiences and stories we could tell later.
By 2004, the kids had visited 16 states, every one of them by car. Our budget didn���t allow for flights for five people. Could we somehow weave together our mortgage and travel goals? My wife proposed that we fly to Disney World to celebrate once we paid off our home loan. Celebrating the achievement with a once-in-a-childhood trip to Disney seemed like an idea that we could all get behind. As a bonus, we would also experience Florida���another state to add to the kids��� list. Suddenly, our two goals became one.
Matters of principal. Later that week, my wife came home with a 1,000-piece puzzle of Mickey Mouse and explained her idea. We would assemble the puzzle, then take it apart, placing contiguous pieces in separate baggies. One thousand pieces, divided by 125 reductions in the loan balance of $1,000 each, meant eight pieces per bag. Every time we reduced the mortgage principal by $1,000, we would put eight more puzzle pieces together. We would glue the pieces to a poster board and then put the partially completed puzzle away, while we awaited the next time we could add pieces.
About the same time that we started this project, I changed jobs, moving to a corporate credit union. My pay didn���t change much and our progress continued. We would go overboard from time to time, postponing some small, immaterial purchases to make larger payments on the mortgage. If expenses became too large, we instituted a checkbook lockdown until they moderated. My new job was located near a branch of the bank that held our loan. I would drive to the bank branch over my lunch hour to deposit the check and receive the receipt. By the end of 2004, the mortgage had declined to $97,000. We could see Mickey���s ears and part of his face.
In 2005, my twins joined their big sister at her school, and I changed jobs again, joining an investment advisory firm. It meant a pay cut, but my wife and I agreed that was an okay price to pay because it was the type of role I had envisioned when pursuing my Chartered Financial Analyst designation several years earlier. Still, that didn���t make it any easier to reach our goal of being mortgage-free, but that was a tradeoff we were willing to make. By the end of the following year, the mortgage had declined to $52,000. We could see Mickey���s gloves and pants.
The years passed, the principal declined, the puzzle filled in and the goal grew nearer. Every month, we brought out the poster board, tallied up how much we had paid off and added more pieces to the puzzle. The kids didn���t grasp the ���why,��� but they liked puzzles and always clamored to add more pieces. As the end approached, they came to understand the celebration that was to come.
We continued traveling, and we did it inexpensively. We drove to see our extended families, and slept on guest beds and floors. We met friends in state parks for long weekends. We camped, something both our families had done growing up. Neither had a lot of money to spare when we were young, and camping offered a way to have a vacation and get away. We drove everywhere, all five of us in a little Subaru Forester, getting creative with three car seats and boosters in the tight space. We did have one indulgence. Every January, my mother-in-law would stay with our kids for a few days, while my wife and I flew somewhere warm.
Paying off the mortgage wasn���t done at the expense of other savings priorities. We made sure to contribute to our workplace retirement plans. We funded 529 college savings accounts for each of the kids. We set aside money for home repairs, both expected and otherwise. We were willing to do without extra ���wants��� that others often see as needs.
By the end of 2007, the loan balance was down to $27,000. We thought the final payoff might happen in 2008, so we began researching Disney World. We decided to build savings to the point where we could pay off the entire balance with one final check. In 2008, we booked the trip for October.
Our plan was to spend a week and visit the four Disney parks: Magic Kingdom, Hollywood Studios, Animal Kingdom and Epcot. Normally, we would have chosen to stay somewhere nearby to save money. But instead, we stayed on the Disney property and saved time by avoiding the commute to and from the parks.
We also decided to buy Disney���s meal plan. Paying individually for each meal would have left us feeling figuratively spent and in a sour mood. By buying the plan, even if it was likely overpriced, we knew each meal was covered, leaving us in a much better frame of mind to remember the trip���s purpose���a fun family celebration. If the kids wanted an expensive menu item for dinner, or ice cream in the middle of the day, no problem. The approach worked beautifully: happy kids, happy parents.
Free at last. In truth, the trip���s timing was far from ideal. In September, the long-simmering housing crisis erupted, markets crashed and a global financial crisis was upon us. I had been with my employer for three years. Suddenly, everything looked uncertain. We were investment managers and markets were collapsing, with no end in sight. Was my job safe? At least no one was going to take our house. In November, we wrote a check to the bank for $9,400. The next day, my wife walked into the lobby to present our final payment, 11 years after we first took out a loan to purchase the house. We let the kids put in place the last pieces of Mickey���s golden shoes.
Being mortgage-free didn���t lead to any immediate changes. We couldn���t openly celebrate. Amid the financial hardship caused by the Great Recession, it seemed insensitive. We didn���t know who might be worried about their job or home. We did, however, call our insurance guy to share the news���because we���d now have to pay the premium on our homeowner���s policy directly, rather than as part of our monthly mortgage payment. The financial freedom we sought came in subtle ways. We redirected the extra cash flow into a new and bigger car for our growing family, trading in an older car for a Honda Odyssey. We increased college savings for our kids, whose tight age difference meant we���d be paying college costs for three students simultaneously for at least two years.
We continued traveling. After covering all the states in the middle of the map by car, flying became necessary to visit the states we���d yet to experience. Having a few extra dollars set aside made those trips possible. In 2011, we visited Delaware, Pennsylvania and New Jersey. In 2013, Washington and Oregon. In 2014, California. In 2015, we toured New England. Waiting in line for a ride at a fun park in Killington, Vermont, we fell into conversation with the family in front of us. When we explained our 50-state goal, the parents expressed surprise and shared that they had only ever been to five nearby states, while we were in the process of clicking off six states over 10 days. It was then that our kids began realizing the magnitude of their travels.
Three years ago, my wife left a job that had turned toxic. It was late spring, our oldest was graduating high school and our younger kids were entering their junior years. She took the summer off to spend as much time as she could with them. We also had the money saved to visit Hawaii, state No. 49. When our oldest entered college that fall, we were ready to shoulder university tuition.
The following year, my wife again took the summer off before finding a better position in the nonprofit world. That was when we traveled to Alaska, reaching our goal. A paid-off house made us comfortable with the short-term drop in income, even as we visited our 50th state.
Admittedly, paying off our mortgage early probably wasn���t the best financial decision. My wife and I didn���t���and don���t���care. Today, the completed puzzle sits in a closet. Our kids will likely decide what to do with it after we���re gone. It stands as a lesson for them���and for us���that you can set big goals and reach them little by little by little. What about the celebratory trip to Disney? Along with our travels to 49 other states, it continues to provide memories and stories, which we share around the dining-room table when the kids are home.
Phil Kernen, CFA, is a portfolio manager and partner with
Mitchell Capital
, a financial planning and investment management firm in Leawood, Kansas. When he's not working, Phil enjoys spending time with his family and friends, reading, hiking and riding his bike. You can connect with Phil via
LinkedIn
. Check out his earlier articles.
In 2000, our daughter was born. In early 2002, we were expecting again. After a prenatal visit early in the pregnancy, my wife called me during a hectic day at work.
���We���re having twins,��� she said.
I told her to be serious. She was. I took the afternoon off to come home and process the news with her. We knew how much it cost for one kid. We were two working parents, but it was a financial struggle. Now, the cost would be multiplied by three.As 2003 ended, our oldest was three and our two youngest were one-year-olds, and the expenses felt huge. Daycare and preschool cost $24,000 a year. It represented a hefty line item in our family���s budget. We also paid $24,000 every year on our mortgage, though that included regular extra-principal payments. Fortunately, we had no student debt and no credit card debt, and we owned our two cars. Despite the financial commitments of a growing family, we made it a priority to save for the future.
Every year-end, we talked about our personal and financial objectives for the following year���how much to save in your retirement plan, how much in mine, how much for this home improvement project, how much for that trip. As 2003 turned into 2004, our discussion took an unusual turn. We both felt the pull to try something different. After more discussion, my wife proposed a new idea: pay off the mortgage early.
Home and away. We had bought our home when we moved to Overland Park, Kansas, in 1997. We were only six years into a 30-year mortgage. We���d paid $175,000 for the house, borrowing $167,100 for 30 years at 7.875%. Less than 12 months later, we refinanced to 7.25%. In 2002, we modified the loan, lowering our rate still further, so we now paid 5.625% on the remaining $143,168 balance. Our required monthly payments were $1,200, but we continued sending $2,000 each month, the same payment we���d made when our mortgage rate was higher.
We compared the 5.625% to what we thought the stock market might deliver. After the 2000-02 bear market, share prices had moved steadily upward. Perhaps stocks were indeed the better bet. But in the end, we had an emotional reason for continuing with the extra-large mortgage payments.
To us, financial freedom didn���t mean retiring early. We were two 30-somethings with three kids age three and under. The idea of not working was impractical and silly. Instead, at the time, achieving some level of financial freedom meant owning our house and never having to worry about where we would put our heads. If I lost my job, losing our home wouldn���t be a risk. If we wanted to pursue different careers, we could afford to earn less. It was easy and fun to think about what we could do with an additional $20,000-plus that wouldn���t be going toward house payments anymore.
In addition, we felt confident this would be our home for the long haul. We loved our city. We had put down roots in a new place we called our own, and we both wanted our kids to grow up in one house. It was big enough to meet our needs for a long time. We had already moved multiple times and we had no desire to do it again. More important, we wanted to be in control of our money rather than letting it control us. Paying off the mortgage was a crucial step in that direction, plus it felt like something different from what everyone around us was doing. It was a long-term financial goal���daunting yet achievable���that we could both get behind. Maybe we could even turn it into something fun.
By 2004, when we began in earnest, $130,000 remained on the mortgage. We worked down the balance to $125,000 with several payments, and then the excitement waned. The numbers were still too big and the undefined end date seemed too far off. We needed something to help us refocus, something long term to keep us moving forward and excited.
We had always been a traveling family. Earlier, in 2001, we had driven with our one-year-old daughter to Arlington, Virginia, to spend time with family. When I reviewed the route, I noted it would be our daughter���s first time passing through eight states. Wouldn���t it be fun, I now mused, to visit all 50 states with our kids by the time they finished high school? It would be a good excuse to see new places, show our kids the country, open them up to new perspectives and create a love of travel. The likelihood that they wouldn���t remember anything at such a young age was of no consequence. We were after shared experiences and stories we could tell later.
By 2004, the kids had visited 16 states, every one of them by car. Our budget didn���t allow for flights for five people. Could we somehow weave together our mortgage and travel goals? My wife proposed that we fly to Disney World to celebrate once we paid off our home loan. Celebrating the achievement with a once-in-a-childhood trip to Disney seemed like an idea that we could all get behind. As a bonus, we would also experience Florida���another state to add to the kids��� list. Suddenly, our two goals became one.
Matters of principal. Later that week, my wife came home with a 1,000-piece puzzle of Mickey Mouse and explained her idea. We would assemble the puzzle, then take it apart, placing contiguous pieces in separate baggies. One thousand pieces, divided by 125 reductions in the loan balance of $1,000 each, meant eight pieces per bag. Every time we reduced the mortgage principal by $1,000, we would put eight more puzzle pieces together. We would glue the pieces to a poster board and then put the partially completed puzzle away, while we awaited the next time we could add pieces.
About the same time that we started this project, I changed jobs, moving to a corporate credit union. My pay didn���t change much and our progress continued. We would go overboard from time to time, postponing some small, immaterial purchases to make larger payments on the mortgage. If expenses became too large, we instituted a checkbook lockdown until they moderated. My new job was located near a branch of the bank that held our loan. I would drive to the bank branch over my lunch hour to deposit the check and receive the receipt. By the end of 2004, the mortgage had declined to $97,000. We could see Mickey���s ears and part of his face.In 2005, my twins joined their big sister at her school, and I changed jobs again, joining an investment advisory firm. It meant a pay cut, but my wife and I agreed that was an okay price to pay because it was the type of role I had envisioned when pursuing my Chartered Financial Analyst designation several years earlier. Still, that didn���t make it any easier to reach our goal of being mortgage-free, but that was a tradeoff we were willing to make. By the end of the following year, the mortgage had declined to $52,000. We could see Mickey���s gloves and pants.
The years passed, the principal declined, the puzzle filled in and the goal grew nearer. Every month, we brought out the poster board, tallied up how much we had paid off and added more pieces to the puzzle. The kids didn���t grasp the ���why,��� but they liked puzzles and always clamored to add more pieces. As the end approached, they came to understand the celebration that was to come.
We continued traveling, and we did it inexpensively. We drove to see our extended families, and slept on guest beds and floors. We met friends in state parks for long weekends. We camped, something both our families had done growing up. Neither had a lot of money to spare when we were young, and camping offered a way to have a vacation and get away. We drove everywhere, all five of us in a little Subaru Forester, getting creative with three car seats and boosters in the tight space. We did have one indulgence. Every January, my mother-in-law would stay with our kids for a few days, while my wife and I flew somewhere warm.
Paying off the mortgage wasn���t done at the expense of other savings priorities. We made sure to contribute to our workplace retirement plans. We funded 529 college savings accounts for each of the kids. We set aside money for home repairs, both expected and otherwise. We were willing to do without extra ���wants��� that others often see as needs.
By the end of 2007, the loan balance was down to $27,000. We thought the final payoff might happen in 2008, so we began researching Disney World. We decided to build savings to the point where we could pay off the entire balance with one final check. In 2008, we booked the trip for October.
Our plan was to spend a week and visit the four Disney parks: Magic Kingdom, Hollywood Studios, Animal Kingdom and Epcot. Normally, we would have chosen to stay somewhere nearby to save money. But instead, we stayed on the Disney property and saved time by avoiding the commute to and from the parks.
We also decided to buy Disney���s meal plan. Paying individually for each meal would have left us feeling figuratively spent and in a sour mood. By buying the plan, even if it was likely overpriced, we knew each meal was covered, leaving us in a much better frame of mind to remember the trip���s purpose���a fun family celebration. If the kids wanted an expensive menu item for dinner, or ice cream in the middle of the day, no problem. The approach worked beautifully: happy kids, happy parents.
Free at last. In truth, the trip���s timing was far from ideal. In September, the long-simmering housing crisis erupted, markets crashed and a global financial crisis was upon us. I had been with my employer for three years. Suddenly, everything looked uncertain. We were investment managers and markets were collapsing, with no end in sight. Was my job safe? At least no one was going to take our house. In November, we wrote a check to the bank for $9,400. The next day, my wife walked into the lobby to present our final payment, 11 years after we first took out a loan to purchase the house. We let the kids put in place the last pieces of Mickey���s golden shoes.
Being mortgage-free didn���t lead to any immediate changes. We couldn���t openly celebrate. Amid the financial hardship caused by the Great Recession, it seemed insensitive. We didn���t know who might be worried about their job or home. We did, however, call our insurance guy to share the news���because we���d now have to pay the premium on our homeowner���s policy directly, rather than as part of our monthly mortgage payment. The financial freedom we sought came in subtle ways. We redirected the extra cash flow into a new and bigger car for our growing family, trading in an older car for a Honda Odyssey. We increased college savings for our kids, whose tight age difference meant we���d be paying college costs for three students simultaneously for at least two years.
We continued traveling. After covering all the states in the middle of the map by car, flying became necessary to visit the states we���d yet to experience. Having a few extra dollars set aside made those trips possible. In 2011, we visited Delaware, Pennsylvania and New Jersey. In 2013, Washington and Oregon. In 2014, California. In 2015, we toured New England. Waiting in line for a ride at a fun park in Killington, Vermont, we fell into conversation with the family in front of us. When we explained our 50-state goal, the parents expressed surprise and shared that they had only ever been to five nearby states, while we were in the process of clicking off six states over 10 days. It was then that our kids began realizing the magnitude of their travels.
Three years ago, my wife left a job that had turned toxic. It was late spring, our oldest was graduating high school and our younger kids were entering their junior years. She took the summer off to spend as much time as she could with them. We also had the money saved to visit Hawaii, state No. 49. When our oldest entered college that fall, we were ready to shoulder university tuition.
The following year, my wife again took the summer off before finding a better position in the nonprofit world. That was when we traveled to Alaska, reaching our goal. A paid-off house made us comfortable with the short-term drop in income, even as we visited our 50th state.
Admittedly, paying off our mortgage early probably wasn���t the best financial decision. My wife and I didn���t���and don���t���care. Today, the completed puzzle sits in a closet. Our kids will likely decide what to do with it after we���re gone. It stands as a lesson for them���and for us���that you can set big goals and reach them little by little by little. What about the celebratory trip to Disney? Along with our travels to 49 other states, it continues to provide memories and stories, which we share around the dining-room table when the kids are home.
Phil Kernen, CFA, is a portfolio manager and partner with
Mitchell Capital
, a financial planning and investment management firm in Leawood, Kansas. When he's not working, Phil enjoys spending time with his family and friends, reading, hiking and riding his bike. You can connect with Phil via
LinkedIn
. Check out his earlier articles.The post Project Mickey appeared first on HumbleDollar.
No comments have been added yet.
