This guest post from Jesse (who juggles) is part of the “reader stories” feature here at Get Rich Slowly. Some stories contain general “how I did X” advice; others are examples of how a GRS reader achieved financial success — or failure. These stories feature folks from all levels of financial maturity and with all sorts of incomes.
My wife and I paid off our house in April while we were both still 29 years old. We have no other debts (except the occasional library fine). How did we do it? Here are the six key factors.
Living like students
We live on half our income and save the other half. This isn't exactly 50/50, but that's the general breakdown of our finances.
We were college and graduate students between 1998 and 2007. We got used to living a student's standard of living. When our household income doubled in 2008 and increased again 2009, we maintained the same standard of living as if we were still in school and then saved the rest.
Buying a home we can afford
We bought a house for a price that was just under a full year's income In 2009, our household income was right around $100,000. We probably could have qualified to purchase a home for $200,000 or $250,000. But we were committed to buying a home that we could have paid off either immediately or within a year, so we only looked at houses priced at $120,000 or less, hoping to only pay less than $100,000.
We also found ourselves in the unexpected situation of being interested homebuyers during one of the housing market's darkest moments in recent history: spring and summer of 2009. We got plenty of attention from a great realtor who was happy to work with our low budget. We also knew that we could get a great deal on a house — and we did.
Most homes in any market under $100,000 are fixer-uppers. I have experience in construction, so I knew that I could repair much of the house myself. We found our winner (a foreclosure that was purchased for $250,000 in 2007) and paid $88,000 for it. Most of the fixing-up needed was cosmetic stuff. The roof, foundation, and structure were found to be in good shape. The federal government sent us a check for $8,000, and we took out a mortgage for $55,000. We paid off that $55,000 in ten months (using some money we kept in the bank at closing, plus our surplus income for those 10 months).
In the year we've lived in the house, I've done most of the repair work, and we've only spent about $5,000 in improvements. We are now to the point where the house is mostly where we want it to be with the exception of the kitchen, which will be the one major overhaul that could cost $25,000 or more. But for now, it's functional, and we'll only re-do it as we can afford to pay for it with cash.
Giving to charity
We give just over 10% of our income to charity. I don't think this is a fixed requirement in order to live a happy life, but it helps us to be free from money so that we're in charge of it rather than the other way around. This foundation has helped us to be in a position to save and live frugally, thus allowing us to be debt-free, including the house.
Destroying student loans
We both went to a private college as well as graduate school, yet all of our school bills were paid in full by the time we graduated graduate school.
My wife worked a crazy high-paying summer job in college that I signed up for just before we got married (which was as we were starting graduate school). It's not for everybody, but it worked for us: We sold educational books door-to-door. We netted as much as $22,000 and $23,000 each in a summer, paying for life and school each semester with cash.
That started us on a a debt-free foot when we graduated from school in 2007. This summer job also put us through the heat of running our own business, dealing with lots of rejection, and working hard. These principles helped us to learn that true income comes from hard work and having low expenses.
We save money by cutting back a little in a lot of areas.
We don't have a television, which saves the cost of buying a new one every few years, as well as the monthly cable bill. Instead, we have affordable internet, and watch movies and a few TV shows on the computer.
We actually went without internet for the two years while we rented and saved for a house up until we paid off the house. I used the internet daily at the local library for free. It was hard sometimes, but the one hour time limit per day saved me time to do lots of other productive things in life.
Here are some other ways we save:
- When we go out to eat, we usually skip on drinks or dessert. We just get water and maybe a cheaper treat from the store on the way home.
- We don't do Netflix. We might pay to see a movie at a theater once a year. Instead, we get tons of great movies for free from the local public library.
- We have one car (a 2001 Toyota Corolla, which gets anywhere from 25-30 MPG) and two bikes.
- We don't subscribe to any newspapers or magazines. We keep in touch with information via the internet and through free local papers.
- We shop at yard sales and thrift stores for many items ranging from clothes to furniture.
- We never buy new cell phones. I use a Nokia block phone that basically makes phone calls and sends texts. We have a family plan for both our cell phones that costs only $75 a month. We do not have a land line.
Every day, we enjoy the simple things in life such as walks, picnics, bike rides, community festivals, etc. Most of these activities are free yet priceless.
Paying off the mortgage
We were convinced that paying off a house rapidly was a smart way to allocate surplus income.
Thanks to financial guru Dave Ramsey, we've found that the psychological momentum and freedom you gain from paying off the house rapidly is much more valuable than the money you would mathematically save by investing surplus income in a 8%-12% stock market and holding on to a 5% mortgage. I'm glad we went in this order, because there's something truly freeing about knowing that we are no longer debtors to anyone.
In February, we found out that we're pregnant with our first child! Now we can welcome this child (due this September) into a paid-for house! My wife will quit her job to stay at home with the baby while I continue to work. This is only possible because we've learned how to live on one income and we have no mortgage payment.