Yes that’s right! You get to spend money AND mutilate that mortgage! How? You get specific… REAL specific, but I’ll get to that in a second.
The picture above is one I took just a few weeks ago whilst touring abroad in Oia, Santorini, Greece. Oia, as you can no doubt tell, is a beautiful and relaxing place. Whilst you might not have heard of the town, you’ve no doubt seen the picturesque scenes time and time again, the ones with the all white and blue cave houses built into the cliff faces over the Agean sea. The ones that look like this:
That was actually the view from the roof of the place we stayed in, just awesome. I’d love it if someone bought a parcel of land just outside the town and put a Wet n Wild on it with multi-kilometre water slides all down the hills/cliffs finally ending with it dumping you into the Agean sea with a huge launching ramp. Probably not the towns style though… Santorini was only one part of our fantastic tour too, we also had stops in Paris, Athens, Rome, Florence and Venice over a three week period. There was a lot of boarding planes and trains as well as various other types of transport not to mention the walking and steps! In one single day in Santorini we walked up over 1,000 steps just walking around and exploring. We both had a great time and I don’t think I’ll ever forget that relaxing moment when I took that top picture, best ice cold juice I’ve ever had
There’s not a great deal to do in Santorini so if you don’t like just relaxing it may not be the place for you, but why you’d want to do anything there besides sun bake, relax, sip orange juice and enjoy the gorgeous view is beyond me. Aside from those things though we were still doing one very important thing whilst on our vacation, killing our mortgage. You see, we have Automatic, Extra Mortgage Payments that come out each fortnight regardless of whether we’re on holidays or working hard. We’ve also analysed, cut back and even increased in some areas of our yearly expenses to make sure we’re not only killing our mortgage but also still living a happy life.
The 5%
I always encourage you to pour 70%+ of your after tax wage into paying off your mortgage (How Much Extra Should I Pay On My Mortgage) however I am also a firm believer of making sure you’re appropriately well motivated to do this task. Paying off a mortgage (even for us mortgage mutilators) takes many years so you need to make sure you don’t descend into a pit of misery and boredom while your plan plays out. It is better to devote 65% of your after tax wage to paying off your mortgage for the 7 or so years it might take and spend the other 5% on something you love if it means you go the distance and never waiver from your plan. There’s not point getting to 70% and not being able to maintain it and then giving up 6 months later.
It’s because of this motivational need that DW and I regularly spend a good chunk of money on travel. Judging from most of the general population we’re a bit “weird” in that neither of us drink alcohol, neither of us have a coffee or soft drink habit, neither of us go shopping every other night or do other common things that suck away your hard earned money. We don’t really enjoy those things so it’s not hard for us to not do them. As such our coffee bill for last year was $0 for example. What we do enjoy greatly though is travel and so this is the one area where we splurge on and why not? If you’re going to spend money, best to spend it on what makes you happy! The only rule I set is a budget limit each year that we both agree on. Beyond that hard limit we spend it however we wish.
Spending To Save
This psychological hack of spending money in order to stop yourself from getting cabin fever isn’t new. I originally adapted the rule from the famous book “Your Money Or Your Life” which is a very good start for anyone just getting into the realm of budgeting as well as learning about how to handle money properly in their life. It describes the process of going through your past spending, sorting it into various categories (food, travel, coffee etc) and then deciding which ones truly bring you happiness and which don’t. If coffee for instance really brings you genuine happiness when you drink it (who knows maybe you’re a coffee aficionado or something!) then you keep spending money on it. If you feel “cable TV” doesn’t really float your boat however or maybe just doesn’t promote the life you want you eliminate it. In this way your expenses morph into a new form that actively encourages a happier life for you. It also usually ends up reducing peoples spending too which brings about the results of saving money AND making you happier.
We’ve cut out many things from our budget (TV, shopping, computers/tech/mobiles, cars, etc) and increased the ones that we’ve found really make us happy. The end result is that we never feel “deprived” or bored as the years go by. It actually feels a bit like cheating because we’re not only saving huge amounts of money but getting to splurge on what we want too. It’s a win/win situation that is pretty straight forward to setup. The only thing you have to be careful of is having too many “splurge” categories. I’d say any more than about two should start sounding alarm bells. For us it’s mainly travel and active hobbies because they keep us active and healthy.
Choosing Your 5%
As I’ve said, the best way to find out which category you should maintain or even increase is to properly analyse ALL your expenses. You might already know that “watching the footy” is what truly makes you happy but the important point is that you should be decreasing or eliminating the other negative expenses at the same time because it’s these savings that offset the other spending. It’s no good just spending another $100 a month on cable without first cutting that shopping and Mother habit. What you should see is the expenses that you don’t care about go away whilst your most favourite ones stay or possibly even go up a bit.
So what is your one category of splurgeyness? Do you love travel just like us or is it something a bit different?
The benefits include: 1) How to pay off your mortgage faster than 99% of people with one hour a month of work 2) How to get rid of your debt and have the freedom to spend money on the things you love, guilt free 3) Clear outline of how to setup your expenses, mortgage and general finance 4) How offset accounts work and how to get the same result without being gouged by the big banks 5) How to cut through the crap and focus on the things that truly matter when taking down a mortgage 6) How to adjust the strategy so it works for you, even if you have kids, even if you only have one income 7) How to do all of these things and maintain a normal social life (and never be cheap).
