Looking back on 2015, it was a fairly significant year for me in more ways than one. And I achieved one financial goal I set out to achieve – putting aside at least 10% of my income into investment. So this year I am going to aim for something even bigger: to pay off the mortgage on my residential property (i.e. my home).
As I write this, it seems like a mind-blowing, impossible dream. I mean, doesn’t it take like 25 or 30 years to pay off your mortgage? And I’m a single mother of two boys, paying childcare fees, school expenses etc etc.
But, as Napoleon Hill said in Think and Grow Rich: “Whatever the mind can conceive and believe, it can achieve.” In other words, if you can think it, you can do it. And as I have learnt, it is good to articulate big goals as the worst you can do while aiming for the stars is to *only* hit the moon.
Now, there is a thing about goal setting and the law of attraction. Just saying, “oh, I would like to do that one day” and forgetting about it as you get distracted with other goals won’t make it happen. There are a few tricks to it. Firstly, your goal has to be achievable and measurable. I.e. specify when you will achieve it (in my case, 31 December 2016). Secondly, it is good to think about it in positives – i.e. rather than ‘I will wage a war on my mortgage’, frame it as ‘I will own my house outright’. This is because you might subconsciously end up willing yourself to continue to have a mortgage – and perhaps even a bigger one than what you had to begin with. And it is also important to constantly to focus on your goal – Hill recommends writing it down and repeating it out loud every night before you go to bed. This process of repetition and affirmation is vital for training the mind.
There is also a theory that you ought not to share big and seemingly impossible goals with well meaning friends and family. Like saying your wish made on a shooting star out loud, articulating a goal can make it vanish. This is because people who are less ambitious might rubbish your idea, and you might consequently modify your beliefs to something more mediocre. So it is best not to share unless among like minded, can do people – hopefully you the reader are the right audience to encourage rather than discourage.
Napoleon Hill in this Youtube clip also talks about goal setting, based on advice given to him by Andrew Carnegie – “the power to take possession of your own mind and direct it to whatever ends you might desire”.
There is quite a lot in this recording, and Hill rambles a bit and goes on about envelopes, but stay with it because the advice is gold. One of the key practices (around 4.58 min) is to decide on your goal, write it down ‘in a neat pocketbook’ and then on the opposite page write down ‘a clear statement of precisely what you intend to give in return for what you desire in life’ (i.e. what you intend to do to get it).
Using this practice, I decided to challenge myself to sit down and write down as many things I could do to achieve my goal as possible. To give you context, my mortgage is just under $200,000 – so this is rather a big goal for one working mum to pull off. This is my list of ‘what I intend to give in return for my desire’. I got to 20, but for the sake of brevity will share 10.
1) Refinance to a lower interest rate. With interest rates at a record low, it is a good time to refinance. I will need to pay break costs, but I want to refinance anyway as currently the loan (and ownership of the property) is in joint names with my ex. I have been studying various deals on the InfoChoice website, weighing up low rate with other features I want such as offset accounts and redraw facilities and am hoping to go with UBank.
2) Increase the auto debit from my pay. I already pay an amount each fortnight from my pay to the mortgage, but I will increase this amount from the next pay. I was previously putting aside an amount into a Vanguard index fund, but I will instead pay this onto the mortgage. You could argue that the return on investment would be potentially greater if I focused on other investments, but I want to take advantage of the low interest rate and slash my mortgage. Basically I really want to pay off my mortgage to achieve financial security, so that the priority and focus.
3) Every dollar counts. Every single dollar matters. One dollar paid on the mortgage is not just one dollar. Assuming an interest rate of 4% (noting many homeowners are probably paying much, much more), $1 paid off a mortgage is at least equivalent to saving $1.04 tax free. That is assuming you pay off your mortgage in one year, which few people do. I love playing around with online mortgage calculators such as the one from the ASIC Moneysmart website (https://www.moneysmart.gov.au/tools-and-resources/calculators-and-apps/mortgage-calculator). Assuming a mortgage of $200,000 over 25 years at 4% with $10/month fees, you would pay $1066 per month. In total you would pay $119,702 in interest (over half the original cost of the loan – although you would expect the value of the property to rise). If you just paid $1 extra a week, you would pay off your mortgage two months earlier. It all adds up …
4) Continue to rent out my granny flat and consider renting out a spare room in my house. The rent from the granny flat goes directly onto my mortgage. And I have great tenants. I’m decluttering the front room in case I want to rent that out as well. I have faith that I will continue to attract good tenants.
5) Sell more investment properties. We are planning to gradually sell off investment properties in 2016 and 2017 inline with the separation property agreement. Hopefully we can get a good price and I can use this to reduce the mortgage.
6) Write for money. Turn my hobby into something profitable by writing articles and being paid to do it. Why not? I love writing and would love to write more. I will start to pitch ideas and see what happens.
7) Declutter and sell stuff I no longer need. I tend to give away things through Buy Nothing, Freecycle etc but I will challenge myself to try to sell things first – I also give away generously and find that I often attract what I need. My shed and under my house will be good hunting grounds for this challenge.
8) Plant more edible things in my garden. I was really slack with my vegie patch last spring/summer – I didn’t even get around to putting in tomatoes. But I am reminding myself that every little bit counts, and share the bounty you have with others and they will return in kind. OK, so my vegie patch is overgrown but I can still grow herbs by the back door and try for an autumn crop. Over the last few days I put in a few more seeds and started growing thyme in my rock garden.
9) Reduce food/grocery budget to $11 a day. In 2015 my daily grocery budget hovered at just under $13. Now that Little A is en route to being toilet trained (it has only taken a year of accidents and he is still ever so stubborn!) I can shave a bit more off the budget. And even with being frugal, I am still often appalled at the excess I still waste and throw away. We have more than ample for our needs (and I am not exactly withering away, as my ample girth testifies.)
10) Reduce op shopping. I love a good op shop almost as much as a church fete or garage sale. Last year I purchased a lot of clothes during my year of style. This year I am going to focus on appreciating what I have with gratitude, and fixing things. I will still op shop but only for things I really need. I will always take a list with me before I head into an op shop. At least, that’s the plan.
So, that is ten ideas for reducing my mortgage. And really, the point of this post is to show that once you decide on a goal and open your eyes to possibilities, there are more than one way to arrive at your destination. On paper my goal looks at first impossible, but sometimes one step at a time the way becomes suddenly clear. Wish me luck.
Do you have a financial goal for 2016? If so I would love to hear about it.