How would you like to pay off your mortgage in four years? Heck, many of us would love to pay off a mortgage in 29 years! Four years sounds like the stuff of dreams and make-believe, right? We might not have believed it ourselves if we didn’t sit across from him in the basement and listen to his story. Today we’re proud to bring you Andy Hill, host of the Marriage, Kids and Money podcast, and long-time friend of all of us in the basement. You may have heard Andy before on the show, but today he’s agreed to share his amazing story on the podcast. We hope you can walk away from this one with some new inspiration and focus on your own financial walk.
What kinds of important items have people been spending their stimulus checks on? Well….while many Americans spent their checks on necessities, companies are also reporting some surprising not-so-great results. We’ll dive into what people have been spending their cash on, AND save some time to cover why 70% of workers can’t save for retirement.
Later in the show, we’ll throw out the Haven Life Line to one Dad-To-Be expecting a son in November. Eric and his wife know they can open up a 529 plan for their son, but wonder about other accounts. They both live outside of the U.S., but Eric still makes money from a Colorado-based company. Can he open up a brokerage account for his son?
Plus, Doug will test your nerd-mettle during today’s trivia segment with a thundering round of back-to-back fantasy and sci-fi questions. See if you can guess them all!
Headlines: Stimulus Check Splurge or Home Essentials?
- Americans use their $1,200 stimulus checks to splurge at Walmart, Target, BJ’s and Best Buy — here’s what they’re buying (MarketWatch)
- This Is the Reason Almost 70% of Workers Can’t Save for Retirement (Fool)
Andy Hill: Paying Off Your Mortgage in Four Years
Looking for Andy’s story in its entirety? Click here: 15-Year Mortgage Paid Off in 5 Years
Plus, you can listen to Andy’s podcast here: MarriageKidsAndMoney.com
Keep up to date with Andy on Twitter: @AndyHillMKM
- Approximately how many languages can C-3PO, one of the droids from the Star Wars franchise, speak?
Haven Life Line
- Eric and his wife will be having a baby boy in November. They know they’ll have a 529 plan for his son, but can they create something like a brokerage fund as well? Eric and his wife both live out of the U.S., but he still earns income from a Colorado based company.
Want the guys to answer your question? You can call into the Haven Life Line and get your question answered on-air HERE.
Join Us Wednesday: Phil Town
This Wednesday we’re sitting down with investor, motivational speaker, and author of two financial New York Times best-sellers, Phil Town.
You can read our deep dive into in Monday’s show below:
HAPPY MEMORIAL DAY to all those in the USA, and let’s take the time to remember those who gave the ultimate sacrifice for our country. And for those of you who do not live in the USA, HAPPY MONDAY! We welcomed Andy Hill from the Marriage, Kids, and Money podcast, who paid off his mortgage in four years. We tackled the headline: why can’t 70% of workers save for retirement. Plus, we threw out the lifeline to a listener who called into the Haven Lifeline.
“While many Americans have used their stimulus checks to cover basic needs such as groceries, mortgage or rent, there’s evidence people are also spending the money on non-essentials including electronics, clothes and toys, according to major retailers.
“‘Call it relief spending, as it was heavily influenced by stimulus dollars, leading to sales increases in categories such as apparel, televisions, video games, sporting goods and toys,’ Walmart WMT, -0.52% Chief Executive Doug McMillon said during the company’s earnings call Tuesday.”
Joe and OG practically scoffed at this notion: free money should be used to buy more stuff. Joe ponders, “At what point does somebody have to think to themself, ‘I’m going to use this as an opportunity? And not an opportunity to make my video games look better, but an opportunity to finally, finally get on the right track’”?
“At what point does somebody have to think to themself, ‘I’m going to use this as an opportunity?”
-Joe Saul-Sehy, on making wise choices with Economic Impact Payment checks
So what is the driver behind our seemingly insurmountable obsession with spending money without a second thought? Education, peers, societal pressures, human nature? That’s a challenge for all of us, but with planning and forward thinking, future windfalls can be put to productive use.
“Though Social Security helps seniors pay the bills, those benefits aren’t designed to sustain retirees in the absence of other income. Social Security will replace about 40% of the typical worker’s pre-retirement wages, but most seniors need roughly twice that amount to maintain a decent standard of living once they’re no longer earning a paycheck from work. That’s where personal retirement savings come in.
But not everyone enters retirement with a loaded IRA or 401(k), and for almost 70% of workers today, saving for the future is off the table for one big reason: They have too much debt.”
OG agrees: he has seen many cases where the wants/needs of today often supersede the need to save for tomorrow. He cites Robert Kiyosaki as having identified the perils of consumerism. As your career situation changes, it is common to want to upgrade your house, but OG has seen many instances of truly wealthy people later in life having avoided this pitfall. Particularly, when refinancing in today’s low rate environment, OG urges consumers to take out the 15-year mortgage, and not the 30-year. He argues that your spending habits conform to what your available bank balance is; thus you’ll resist the temptation that will undoubtedly come when you get your next pay raise.
Joe agrees: “When we think about debt, we don’t think that we’re locking in a decision in the future that I may or may not want to make in the future.” This drives the point home: debt is essentially spending money that you don’t have for today and forfeiting that “life energy” (to quote Your Money or Your Life) that you’ll never get back.
OG reiterates that the freedom that not having payments provides is undeniable…in Joe’s case, he has the flexibility to move across the country, and his wife has the freedom to take a different job that is better suited to their current situation. If they were in debt and making payments on stuff they bought years ago, that freedom may not have been there. “Don’t think about things in terms of payments; think about life in terms of trying to be unencumbered,” Joe sums it up.
“Don’t think about things in terms of payments; think about life in terms of trying to be unencumbered.”
-Joe Saul-Sehy, on the freedom that eschewing debt provides
Deep Dive into our Conversation with Andy Hill
Andy Hill is the creator and host of the wildly popular Marriage, Kids, and Money podcast.
Andy paid off his mortgage in a very short time. Let’s dive in…
Getting on the Same Page: Communication is Key
Before making the commitment to aggressively paying off the mortgage, Andy shared that, even before buying the house, he and his wife Nicole drew up a plan to live on a lot less than they earned. Even with two young kids, they managed to live on 40-50% of their take home income, which they applied those massive savings toward their big goals, first of which was to pay off the mortgage. The drive to pay off the mortgage came when their life changed: Andy’s wife felt it was time to move from their 1200 square foot bungalow to a larger home when the second child was on the way. Andy says, “With that purchase, it felt a little bit claustrophobic to me, because the mortgage was going to get bigger, and I would have to continue to work in a job that I was not really that excited about to pay for a home that I would have for a very long time.”
“With that purchase, it felt a little bit claustrophobic to me, because the mortgage was going to get bigger, and I would have to continue to work in a job that I was not really that excited about to pay for a home that I would have for a very long time.”
-Andy Hill, on his trepidations about committing to a long-term mortgage
This feeling of anxiety led Andy and Nicole to have a series of serious conversations, which resulted in an alignment of goals – the elimination of their mortgage ASAP.
Making an Action Plan
The focus on finances also led to them saving more money, and won over Nicole’s buy-in. This allowed them to focus as one team on the possibilities – Nicole being a stay-at-home-mom, freeing up cash flow by paying off the house early, and intentional spending. That’s not to say it was easy…as many couples, Andy and Nicole did not always see eye to eye. They went as far as seeking marriage counseling, but were committed to each other and to finding common ground. It required each one finding empathy for the other.
Andy admitted that over the nine-year payoff period, they enjoyed an average income of $190,000, great health, and no other debt. Joe acknowledged the advantages, but argues that it still is not necessarily easy: “Whether it’s paying off your house or paying off that one credit card, whatever it is just setting a goal and attaining it….for all of us it’s figuring out what your competitive advantage might be; are you able to hustle better than somebody else, do you have an income stream, do you have whatever it is and how can you make that work for you?”
Cuts in Expenses
Andy elaborated further on how they reached the 40% savings rate.
1. Entertainment. A huge part of the initial expense curtailing came from cuts in entertainment. This was a no-brainer since they did not have kids yet and would go out frequently – to concerts, restaurants, and the like. When they learned that they were going to be parents, that added some urgency to the mission – less drinking and less partying.
2. Shopping at less expensive grocery stores, like Aldi. They went from a married couple with no kids spending around $900/month to a family of 3 and then 4 spending around $600/month. Furthermore they began meal planning, shopping only with a list to avoid impulse buys, and shopping wisely to get the best deals. Simply put, they began spending conscientiously.
3. Looking at high-deductible insurance plans. “If we have more in savings, can we take on more of the brunt like if we got a high deductible healthcare plan or higher deductibles in some of our other insurance plans.” Little wins added up.
4. Two years into their marriage, they had paid-for cars, so no loans or leases that put a drain on their cash flow.
They ultimately saved on the big three expenses – transportation, food, and shelter.
It was not easy. Andy remembered that the most difficult aspect was learning to say “no” to friends and family when it came to vacations and going out…all of which generally involve spending money. Andy said that when sharing what he and Nicole were doing (cutting back, saving more, etc.), the typical reaction was, “why? Let’s have some more fun today, you’re going to miss out.” Andy and Nicole stayed strong and kept their financial goals front and center in their minds, which made it easier to say, “we’re not going to do this today so we can do this tomorrow.”
Paying Off the Mortgage, a Team Effort
When Andy and Nicole decided to pay off the mortgage, while still on two incomes, he explained that they got together once a month for something they called “The Budget Party” (“family money meeting”). In order to get her buy-in, Andy had to make it an event, often having a glass of wine, have some fun, and talk about their dreams in addition to looking over the numbers. Andy says he would do the heavy lifting ahead of time, crunching the numbers and looking ahead to the next month to run the budget by Nicole and win her agreement. This monthly sit down gave them both the opportunity to collaborate and get on the same page ahead of time so they did not have to talk about money all month long.
Joe, self professed King of the Money Nerds, agreed with the practice, and went on to share that he and his better half, Cheryl, meet weekly (can you believe this guy?), so the conversations about money just naturally flow throughout the week. In Joe and Cheryl’s case, it helps them to stay on top of everything – from checking on an unexpected change in the phone bill to knowing that they have the financial flexibility to take a spontaneous getaway trip for the weekend. The key, Andy reiterated, is to get the goals written down, practice continuous two-way communication, and share openly so you’re on the same page.
When Nicole left her job and they went down to one income, her $30,000 income from part-time employment was gone. Granted, he earned $160,000, so they were still doing well, even living in a high-cost-of-living area – high taxes, extra large mortgage payment, expenses for children activities, some vacations, etc. Throughout life though, Andy remained focused on paying the mortgage down aggressively, starting at $195,000 and attacking it relentlessly. In addition to cutting expenses ruthlessly, Andy says he paid more attention to the numbers, started a side hustle to bring in extra money, sold stuff from around the house they did not use on Craigslist, and threw all extra money at paying down the mortgage.
Keeping Momentum After the Mortgage – Building Wealth and Finding Balance
Joe noted that many people who accomplish a big debt payoff goal will often revert back to old habits and go right back into debt. How did Andy and Nicole stay on track? Andy acknowledged that once the primary goal of paying off the mortgage was met, the balance of focus shifted more towards Nicole’s priorities – fun experiences. He said they went on a lot of vacations in 2018, the year after paying off the mortgage. They also got excited about setting further financial goals, and the first one was saving up and buying a rental property, with the intention of buying it cash. However, after learning more about the process of how to buy a house, find tenants, become landlords, and maintain positive cash flow, both Andy and Nicole decided that it was something they did not want to do. Nicole helped him overcome the fear of leaving his job, asking him, “why are we doing this rental property thing? Why don’t you just use that as your runway to finally leave your job and do something that you like to do?”
The final goal was to leave his job and pursue other passions. They accumulated about $100,000 while saving for the rental property, which he was able to use as a cushion to transition from full-time employment to entrepreneurship. The focus has shifted from working extra hard to improve their financial situation to finding a happy balance between fulfilling work and spending quality time with family, having fun, and planning/taking vacations.
Putting it all Together: Interview Takeaways
- When setting financial goals, get on the same page with others in your life. Communication is key.
- Make an Action Plan. Write it down.
- Make a budget (“spending plan” if “budget” is a bad word). Write it down.
- Prioritize what you will spend on. Cut what does not help you reach your goal.
- Look for easy wins (cutting entertainment, going out to eat, changing where you shop for groceries may work for you as they did for Andy). Make sure this is communicated ahead of time.
- Look for unconventional money savers. Go over your insurance plans, revisit how much you are paying your financial advisor, evaluate what services you actually use (cable, landline, newspaper, etc.).
- Focus on the Big Three expense categories: Food, Shelter, Transportation. How can you realize savings in these areas?
- Revisit your current situation on a regular basis with your significant other and/or children. Make it a regular thing and make it fun.
- Don’t stop.
Eric and his wife are expecting a son in November, and would like to open up a 529 plan for his future college expenses and wonder about other accounts. The rub is that they both live outside the US, but he makes money from a Colorado-based company. He’s interested in learning about different account types.
OG likes opening a 529 for the kid, and maybe an UTMA/UTMA (Uniform Gift/Transfer to Minors Account) if you’d like for him to have money at 18. However, OG advocates saving and investing in Eric’s account/joint account, and make the kid the beneficiary. OG believes that taking care of himself should be Eric’s first priority.
Joe adds that, once the minor is old enough to do real work, the parents can open a Roth IRA in his name and contribute up to the amount earned or the IRS maximum contribution limit, whichever is less. Joe states emphatically that it has to be income earned by the minor. Do not try to dupe the IRS.
Special thanks to Student Loan Hero for sponsoring today’s show. They provide an invaluable service for those who are ready to pay off their student loans by helping borrowers consolidate, find better rates, find loan forgiveness options, refinance, etc.