Financial Independence | Let's Talk Money Goals

Hi, my name is Lauren from the Portland, Oregon area, and my money goal for 2021 is to pay off my mortgage. So there are many different factors at play when people think about whether they should pay off their debt or not. And so before we go into those, can you tell me a little bit about why this is your goal for 2021? I feel like I have a little bit more freedom to travel more, take more risks in my career, just be a little bit more free with my decisions. If I didn't always have the mortgage payment looming over me every month. So with your mortgage, would you be paying it off in monthly installments throughout the year? Or would it be a single lump sum, drop it all and have it totally wiped out? It would probably be a little bit at a time, just because it kind of makes me nervous to do it all at once. I am also in the same camp of being wary of huge lump sum payments, a lot of money that is kind of working for you in the sense that you won't have a monthly payment for your housing after that. But at the same time, it's not building, you know, it's not accruing interest or anything. So once you have that deposited, it's just completely gone. Remember that certain types of debt are better than others. When deciding whether or not to prioritize a certain debt, look at the interest rate. In general, one of the reasons why we think that mortgage debt is an okay one to have is because the interest rates tend to be so low, especially if you've refinanced in the past year, it's probably a lot more affordable. I'm actually not thinking about refinancing. If my plan was to pay off the mortgage in 10 years, then I certainly would, because I would be able to recoup the closing costs. But with my plan being to pay off the mortgage in three years or less, I just don't really see the benefit because what I would pay in closing costs, I really wouldn't have time to make up in interest rate savings. Yeah. And there's a debate around sunk costs like that. Some people think that, oh, because you've already spent that money, it doesn't really matter. And I tend to get a little bit caught up on money like that, where I wish that I hadn't spent it, or I tried to plan around it so I don't have as many sunk costs when it comes to things like this. So I think you did it in a pretty smart way. And I'm an overthinker. So any mistake I make like that, I will beat myself up about. I feel like when it comes to financial decisions, it's hard to overthink things like this. You really want to make sure that you have all of these different factors considered before you pull the plug or before you make the jump and actually do whatever you want to do. Before you start tackling debt, ask yourself what being debt free means for you. Well, Lauren, I'd love to hear more about your idea of financial independence, because that's one of your big motivators here. So how do you define what it means to be financially independent for you and for your husband? I think financial independence, what really appealed to me about that idea is not having to be tied to a nine to five job until I'm 65 years old. I'm a total type A, so I know I'm not going to retire at 40 and do nothing for the idea of having the flexibility of, you know, changing careers if need be or if some opportunity arises. I'd love to hear a little bit more about the process that went into crafting this goal. I got really into listening to personal finance podcasts, and a lot of them kind of talk through the steps to like being financially independent. And one of those key steps was getting rid of your mortgage. And I'd never really considered that to be a priority or something that I should do. So that got me moving down the track of, all right, what's the quickest way to pay off my mortgage? And should it be a three year plan, a five year plan, 10 year plan? Like what could I actually do based on my other competing goals at this time? If you are working toward a long term goal, like financial independence, create a realistic plan that you can stick with over time. How you approach your money goal will depend on your financial situation. You're on a NerdWallet video right now. NerdWallet is all about researching financial products, decisions, and being informed. I'd love to hear how you approach making financial decisions. I definitely like to use custom made spreadsheets. I have so many that I've tweaked to, you know, give me the very specific information that I'm looking for. But then there's also so many resources out there. And personal finance is kind of tough to talk about with your in real life family and friends. It can be uncomfortable. So being able to be a little bit more anonymous and to ask and read questions online is really helpful because sometimes you get very specific and detailed information that you wouldn't necessarily be able to get. I just love having an online community that you can kind of shoot out a thought and get their feedback on it. And it's not always going to be good. You definitely have to take it with a grain of salt. But so many other people have already been through this process and have paid off their mortgages early and knowing what hiccups they went through, I think would probably be pretty helpful for your process as well. Lauren, thank you so much for sharing your money goal with us. I hope that what we've shared has been able to help you decide whether or not you want to do this in 2021. It has. Thank you, Sean. I look forward to putting this into practice. If your 2021 money goal is to pay off your mortgage, make sure you're also balancing your other financial priorities like saving for retirement and building up your emergency fund. Also, try to keep your housing costs within 36% of your take-home pay. And if you are a homeowner and have not yet refinanced, now is still a great time to do so.