Fork In the Road
Mid-way through 2012, I began an income portfolio with the goal of replacing all of my family’s necessary expenses (financial independence — yay!). I was able to diligently save about $27,000 from that time to now. We were also fortunate enough to receive a windfall during that time allowing me to make a one-time addition of $25,000 to our income portfolio. After deposits and gains, we have a current balance of $55,669.17.
Creating an income portfolio using dividends to replace income for necessary expenses becomes much easier if you have no mortgage. So I figured that we should start aggressively attacking our mortgage simultaneously while building our income portfolio. Since July of 2012, we have been paying an additional $218 per month towards our mortgage in order to accelerate paying off the last remnant of our debt. We have also added additional payments here and there where possible (tax refunds, etc.). The single largest payment we made was from the same windfall I mentioned earlier, allowing us to make a one-time payment on our mortgage of $25,000.
This month, we made the decision that we really wanted to build upon the foundation we began as aggressively as possible. Before I get into the changes we have made, let me establish a baseline where we started. The original purchase price of our house was $298,000. After our down payment, the total mortgage was $248,000. In July of 2012, we refinanced to take advantage of lower interest rates. We refinanced with a balance of $233,250. At this time, the balance on our mortgage is $193,655 — not bad so far, but we can do better.
Now, we broke our new goals down over 2014 and 2015. At the end of 2014, we wanted to decrease our mortgage by 15% from where we are today which would put our balance at $164,000 at the end of the year. In terms of the income portfolio, our goal is to increase our savings in that account to $76,000 or 27%. We want to decrease our mortgage by another 15% or a final balance of $135,000 by 12/31/2015. For the income portfolio, we want to increase our savings by 14% to $100,000 in the same time frame. This plan, while aggressive, will really accelerate our financial progress and contribute to a lifestyle with reduced stress.
Now you may be wondering how we intend to pull this off. Let’s start with the mortgage. Our monthly mortgage payment is $1,447. As I mentioned before, we are already paying an additional $218 per month. We plan on adding $246 per month more for a grand total of $464 per month of additional principal. This of course has the snowball effect we are after by enabling each payment to “count more” as more goes towards principle and less to interest. In addition, we will be applying $20,000 from tax refunds, bonus payouts from our jobs and savings.
We will achieve our goal for the income portfolio in 2014 by continuing to save $453 per month into this account (we have done this for awhile now). We will add to that additional savings from tax refunds and bonus payouts from our jobs totaling $17,200.
If we can achieve our goals for 2014, things get much easier in 2015. Because we are paying less interest on the mortgage and receiving more dividend payments from the income portfolio, we will be able to reduce our monthly payment to the mortgage by $90.22 and reduce additional contributions to $17,200 and 15,800 to the mortgage and income portfolio respectively while still achieving our goals.
At this time, we will have another decision in front of us; Continue with this aggressive plan to continue accelerating our planning and debt reduction plans or scale back these efforts and enjoy a little more free cash flow.
|By the End Of:||2014||2015|
|Income Portfolio Balance:||$76,000||$100,000|
|Annual Mortgage Principle Payments:||$9,598.50||$12,891.24|
|Annual Income Portfolio Payments:||$4,983.00||$8,196.00|
|Additional Mortgage Payments:||$19,828.40||$17,200.00|
|Additional Income Portfolio Payments:||$13,242.60||$15,800.00|
There is no secret here. While my wife and I have been fortunate enough to find ourselves in lucrative jobs, we make less than $225,000 per year together everything considered. While that does account for a significant portion of our ability to accomplish these goals, one could easily set slightly smaller goals and achieve success. Most of what we accomplish is through discipline — we save every bonus payment, every tax refund and a significant portion of our take-home pay. I welcome any suggestions/questions in the comments. Thanks for reading!