Friday, October 26, 2012

Goodbye Mortgage

American culture could stand to be more open about personal finances.  Doing so would give us all an opportunity to learn from one another and avoid common pitfalls.  To that end, I want to describe how our family recently paid off our mortgage.

The pie chart above (click to enlarge) shows a breakdown of which factors contributed to paying off the mortgage.  According to the National Association of Home Builders, a home our size sells for $310,000 on average.  That amount represents the entire pie.

The largest slice, 71%, is attributable to savings we realized by purchasing a home in a depressed, rural housing market.  When coal mines in Hanna closed in the late 1990s, the town lost 13% of its population.  That left dozens of quality houses for sale at excellent prices.  We arrived a couple years late, so we actually paid twice as much for our house as any of our neighbors paid for theirs.

At 11%, the next largest contributor is a frugal lifestyle.  By going without some luxuries (TV, travel, prepared grocery items, low-deductible health insurance, etc.), we were able to make additional principal payments on our mortgage each month.  I'm astonished how quickly they added up.

The third largest contributor was a simple family rule: save a windfall.  If we received any unexpected income, large or small, we put it toward the house.  Before establishing this rule, such windfalls increased our standard of living. That caused financial stress as we inevitably grew accustomed to a standard of living we couldn't afford.

At 5%, Bitcoin investments made a valuable contribution.  In December 2010, during the WikiLeaks payment blockade, I become interested in Bitcoin and subsequently acquired some.  Those assets appreciated rapidly.  At one point, an opportunity arose to sell some Bitcoins and pay down our mortgage.  (Off topic: Bitcoins will change how the world thinks about money)

The smallest contribution, as expected, was the minimum, mandatory mortgage payments the bank required each month.  I personally attribute all but this last component to Providence.  I'd be glad to discuss that aspect further in the comments below.