Mike Earl, CFP®, CPWA®
One of the most-viewed articles ever on our website is the article “Mortgage-Free by 43,” the story of team member Adam Colby and his wife Kristi paying off their mortgage by age 43.
The popularity of that post shows how much we all resonate with the idea of being 100% debt-free. You can crunch all the numbers you want about an investment portfolio earning much more than your mortgage rate, but almost everyone resonates with the value of owing no money to nobody (I picture Prison Mike saying it like that).
As if to one-up Adam and Kristi, we received the following email recently from a client couple that is under age 35:
This is a young, successful couple that has made smart financial decisions for many years. They could have bought a more expensive home at any point over the past number of years, but they didn’t. Instead, they kept hammering away on their mortgage. And now it’s paid off.
Life has still been enjoyable for them during this time (it’s not a rice-and-beans lifestyle). They've still been investing in the stock market, too. But they have relentlessly focused on paying off their mortgage, and I think that goal has been an energizing force for them all along.
You’ve heard the acronym that goals should be SMART (Specific, Measurable, Achievable, Realistic, and Timely).
Paying off your mortgage checks all the boxes on SMART!
Contrast that with a goal of “investing more money.” I’m all-for clients investing more money, but it’s a difficult goal to quantify.
While many of us set a portfolio goal in our minds (e.g., a client wants to build a $3M liquid portfolio), we don’t know when we’ll reach that goal (what will the stock market do over the next 10 or 20 years?) – or whether that dollar amount will be enough at the time we reach it.
Not to mention, our human nature is such that “enough” is an elusive target. When we hit that $3M portfolio, it’s natural to simply raise the bar a bit higher – “we better get to $4M…inflation has really ramped up.”
In the end, being 100% debt-free is a highly accurate Indicator of Wealth.
Picture a couple that has paid off their mortgage…when you picture that couple, are they successful or struggling to get by? My guess is that you automatically envision someone who is successful--and who probably has less stress in their lives than most folks.
If you are 100% debt-free, you can be wealthy with $500,000 or $5,000,000 in your portfolio.