In Discussions, Money, Wealth

Damned if you do, damned if you don’t

Just so you know, when you’re talking about your money, nothing you do is right.

On my post on how we paid for our $600,000 condo in cash to avoid a mortgage, I got a (valid) comment the other day about how silly (he didn’t say silly, but he meant it) it was to tie up $700,000 of our assets ($350,000 of my money as my partner ponied up his half), when we could have easily scored a mortgage at today’s low rates (4.69% in my case), and invested the rest of the money instead.

Paying all-cash for a condo, it seems, was for this commenter, an unrealistic wealth-hindering move.

Maybe for some of you too! Who knows, at least he said something about it…!!

I’m apparently illogical, and I am an extremist for pushing my extremist view of all-cash for a place, not to mention being a terrible role model for young people trying to build wealth.

Okay, maybe I concede to being a bit extremist for this all-cash view, but.. it is my view after all.

You can refuse to do what I did you know, it is called “free will”.

vegetables-food-shopping

(I am pretty sure I also told people in that post that vegetables are the devil and we should all take up smoking to lose weight.)

(Nooooo. I’m just teasing. 🙂 )

I’m not quite sure what to say about that last part of being a terrible role model, because I myself, am a “young person” who is “building wealth”, and I made this decision on my own, so am I excluded from this group or just a pariah now?


I thought being debt-free was being a good role model…  : \

Anyway.

Just as how research has proven that eating tomatoes can cause cancer, but suddenly don’t cause cancer any more, because newer studies have shown eating eggs now cause cancer, you are really damned if you do and damned if you don’t these days..

Especially in what you do with your money.
I am resigned to that now.

IF I HAD MIRED MYSELF IN DEBT….

house-home-door

50% of my assets are in my house

It was an excellent point that I may have been biting off a bit more than I could chew as most of my assets are now in my house, about 50% I’d say which is a pretty good ratio.

I have the other half in retirement funds, and cash.

My partner is in the same boat, with more actually.

I would say it is not a terrible ratio, but 10% in my house would have been a better ratio of course, with 90% being liquid assets… but that’s why I have the next 30 years to work and build up the rest of that money without worrying about a mortgage and this debt I owe.

I’m young! I have time!

I am stupid either way, really

If I had taken a mortgage at 4.69% for 10 years, then I’d probably be called stupid by some other reader (not you, of course) for going back into debt, paying a bank for money I don’t need to borrow, not to mention being on the hook to pay just about the same amount I paid in rent ($1000, perhaps more!!).

How dumb would that be, to go from a sweet renting situation of $1000 a month, to having to fork out an additional $1000 just to pay a bank to borrow money I don’t need, so I can invest my capital on the stock market?

I’d just have kept renting.

My stock investments have been rocky as of late

nature-zen-flower-rocks

I have had that capital invested in the stock market, and it has done well, but in recent years, it has kind of gone up and down. My bet on oil has not paid off thus far. I’m gambling with that money, really.

I am still waiting, but who knows WHEN oil will go back up?

Peace of mind is worth that $6000

In all seriousness, with my sort of loosey-goosey situation, I don’t have a steady income, and paying a set, fixed mortgage amount every 2 weeks, also gives me the creeps.

I hate not paying on time, and I do feel rather antsy at owing someone money, especially after having cleared $60,000 in 18 months with questionable forays into frugality such as stapling my too-big pants to avoid buying new ones, or refusing to go out & have fun because I was punishing myself & couldn’t spend a single penny.

So sure, in the “long-run” (estimated time? 10 years..) I could make an average of let’s say 7% on the stock market with that money invested, minus the MER fees I’d pay, so let’s call it 1% as profit on my $300,000 (let’s assume I put down $50,000 as a down payment).

Maybe 2% after all is said and done on $300,000.

Okay.

A potential $6000 is a pretty sweet chunk of change but it is that versus… peace of mind, paying only condo fees & taxes, owning a place outright, and not giving those greedy banks any more of my money.

Or worse, I lose that money I have invested (it has happened before, you know), and I don’t even have a potential $6000 and I wish I had put that money into something else instead.

Everyone wants to be mortgage-free, right?

I had the money, so I did it.

If people had lots of cash today, they’d clear their mortgage and debts first.

So jumping ahead of the line, seems to have been the most logical choice for me and my money.

It was that, or borrow money & pay interest (no matter how low) would mean I am still paying for something I didn’t need.

It is probably a more PF-approved move if I had taken a mortgage, slogged to pay it off for 10 years and then just suddenly dumped cash on the whole thing and become “debt-free” and “mortgage-free”, and have a nice big party, probably some posts about how I did it and maybe a giveaway to celebrate the whole event.

Ironic, really.

We can talk about how it was or wasn’t a wealth-building move, and analyze it to death about how it is or isn’t a good thing for young people to learn as a wealth-building move, but at the end of the day, I didn’t put my money on a bonfire & torch it, now did I?

fire-home-cosy-woods-zen-minimalism

It’s still in a saleable asset, and having received my new house assessment the other day, I am actually a little peeved that it has gone up (it means higher taxes).

*shrug*

And that’s that.

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Sherry of Save. Spend. Splurge.

Millionaire at 36 after getting out of $60K of student debt in 18 months, a little over a decade earlier, using TheBudgetingTool.com. Since then, I have paid my $600K home in cash (my half was $300K), my $180K casr in cash, worked 50% of my career (taking 1-2 year breaks), and quadrupled my income within 2 years of graduating, going from $65K to $260K with an average lifetime savings rate of 50%. I could retire today if I wanted, but love my work-life balance as a freelancing consultant in STEM (Science, Technology, Engineering, Math). I am all about balance - between time and money, and also enjoying my money. I also post daily on Instagram @saverspender.

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25 Comments

  1. SP

    there are pros and cons to either approach. I think people react because your choice is an unusual choice. It is an unusual choice mostly because the vast majority of people don’t have the option to pay in cash! If everyone had the ability, i think that it would be much more split. More people would do it, others would still choose not to.

    We have <30% of our net worth in our house right now. I think as long as it was around 50% or less, it is enough liquidity for me.

    Reply
    1. save. spend. splurge.

      That’s what I felt too. 50% was my threshold, but that’s just my personal savings. My partner’s ratio is probably more 30% or less.

      Reply
  2. Ramona @ Personal Finance Today

    We got a small house in a nearby village. Cash. It’s clearly way cheaper than your house, but it will be our retirement home for sure, leaving us 2 apartments in a big city to put for rent. If you have the money, then avoid debt by all means 😀

    Reply
    1. save. spend. splurge.

      Well, we also have an inheritance of super cheap retirement homes coming to us some day. If my partner sells them, he gets the money but we could live there together.. and I’d pay my half for it.

      *shrug* I don’t like paying … even if it’s pound foolish.

      Reply
  3. NZ Muse

    If I could buy in cash, I would’ve. Not having a housing payment would be such a freeing thing for the budget. The majority of my net worth is also tied up in my house which is partly why I am not throwing absolutely everything at it. For the first time I am committing to investing regularly outside of retirement.

    6k isn’t really all that much, in the grand scheme. For me, my number for peace of mind was less than $2k. 10% on a car loan (which is a GOOD interest rate here) was a no brainer vs draining cash savings.

    Reply
    1. save. spend. splurge.

      My net worth is only 50% in the house which is right on target with my original wish… The rest is in retirement / cash.

      If I had everything in a house, yeah I’d keep more of my cash flow available outside of my mortgage to weather any storm…

      Reply
  4. Elisa

    I admire you and your partner for deciding to pay cash for your house,

    I am 72, and we did the same thing (twice), and continue to be happy with our early decision of not to incur any unnecessary debt. We have friends older than us (professionals who made good money in their working days) .who are still paying a mortgage, who stress about it daily, and, as a result, are living retirement check to retirement check.

    They think we are lucky, but what they don’t understand is that we chose to lead a different lifestyle when we were younger to be debt-free (e.g., eating out less, driving economical cars, only buying what was truly needed, paying up-front for our son’s college, paying also up-front for two additional graduate degrees for us, etc.).

    We still managed to make an awesome investment in our house (has doubled in price–location is key here, and we were lucky in this regard), and have substantial retirement savings, which continue to grow despite current insecurities in the stock market (dividends are awesome!).

    Discipline, common sense, hard work, gratitude, and carefully “doing the math” before undertaking financial decisions are key ingredients in achieving a debt-free life while still enjoying ourselves on a daily basis. You don’t need to feel deprived–there is so much to enjoy in this life, and yes, that includes fashion as well.

    Don’t doubt yourself for one minute Sherry. In my opinion, you are a very smart young lady who is on the right track. I love reading your posts, and learn something new from them daily. I also love your work ethics, which I have found lacking too often these days among young professionals, despite the fact that they have major school loan debt (some greater than $150K).

    Reply
    1. save. spend. splurge.

      You’re an inspiration!!! I’m marvelling a paying twice for a place in cash… We do make priorities in life and I did doubt myself a little but I think peace of mind and by worrying about a heavy debt to a bank was probably our driving factor more than any potential gain on the market in goodness knows when.

      I actually do very much love the idea of only paying taxes, insurance and fees.

      My friend just put 20% down on a place and is stressed out about the mortgage before it has even begun.

      Reply
  5. ArianaAuburn

    WTF is this guy’s problem?
    You and your partner secured a place to live for your SON.
    That is what matters. Some money decisions have to be based on personal situations.
    With a secured place to live (and no landlord) you and your partner can weather out the bad financial situations. If a tax or condo fee situation arises, you can negotiate or extend terms, not to to mention have less money to come up with than a mortgage. Owning a place outright is better because at least you don’t have to worry about finding a place to sleep at night.
    Especially during those cold, Canadian winters.
    This guy can shove his suggestions up his ass.

    Reply
    1. save. spend. splurge.

      I don’t think he has a problem so much as he is making valid points on what he would have done and has done (has the money for $900K house, etc)…. But his points were valid in that yes I COULD maybe make more on the market but I’d rather trade that $$$ give or take and just be done with it.

      Too many variables I cannot account for, but the only one I can control is how much I pay each month out of pocket while my situation as a freelancer is uncertain.

      That, and owing money I don’t need to borrow also plays a part 🙂

      Reply
  6. Michelle

    The price for peace of mind is priceless. 😊

    Reply
  7. EVELYN BARRY

    I have done this calculation over and over for several people wondering about buying their house with cash (or paying of the remainder) or keeping the money in investments.
    Each time the calculation comes out that you are only slightly ahead if your money is in investments.
    Having said that, the interest rates for mortgages here are below 3%. It is ridiculously low. It is obvious that it cannot continue for 25 years.
    I think it depends on your comfort level. I don’t think either idea is wrong. For me I like the idea that my house is mine, no one can take it over if times get tough. I don’t like the idea of paying someone interest. That money is money I worked hard for. Other people can be completely comfortable with paying interest.
    You are young, paid for house, good incomes, you can easily build up your wealth in investments again. That is awesome!

    Reply
    1. save. spend. splurge.

      A locked in rate I would pay for 10 years also doesn’t make me happy. I have to pay a fee to “get out”…

      Reply
  8. vivien

    paying in full is common for self employed and with dependents for your reasons above. I’m salaried but am planning gradual move into self employment so all cash no mortgage is what I needed for the peace of mind. In the case of no children and worse case of no job n no cash flowing in from gig I could even rent out my place and use the cash flow to stay ramen profitable.

    Reply
    1. save. spend. splurge.

      I also couldn’t get the best rate as I am self employed… Even though I have assets and make good money when I work (keywords: when I work), it is not “steady” employment for them..

      Reply
  9. Kathy

    We too went back and forth on whether to pay cash for our new home we built or take out a mortgage. With interest around 3% at the time, we definitely could have gotten a great deal on the mortgage, and financially that might have made sense. But how sweet it is knowing we have zero debt, owe nothing except real estate taxes and insurance. What one needs to consider is …can you make more money in investments than what your mortgage costs? Can you earn more than 3% (or your mortgage rate) after taxes and are you disciplined enough to put those earnings toward your mortgage? I’m thrilled that we were financially able to pay cash for our home.

    Reply
    1. save. spend. splurge.

      I think I could have earned at least 4.69% but taking into account inflation at 3% and then my cashflow being restricted further by another $1500 for the mortgage over renting at $1000 for a total of $2500 out of pocket each month, it seemed silly.

      It is either I buy in cash and reduce my costs from $1000 to $500 or I just keep renting at $1000…. What didn’t make sense was paying more each month.

      Reply
    2. save. spend. splurge.

      Forgot the investing fees. So it would be having to earn 4.69% + MER fees + inflation with obviously a profit of at least 1% on top of all that in the next 10 years.

      Reply
  10. raluca

    I just wonder if this person would also advocate going out there and borrowing 200.000 dollars at age 30 in order to invest all of it on the stock market. Would that be a good move in his oppinion?

    Because however you want to slice it, that’s exactly what borrowing for a house in order to keep your money in the stockmarket is. It’s a bet that your house will keep it’s value and the stock market will not tank. Sure, it may feel good that you think you own a house, but you don’t, your bank does. And the stock market is not a place where you should put your money if you think you might need it on a short notice, because it was only 8 years ago that we saw how trillions of dollars dissappear into thin air, in the Great Recession.

    As an asside, my bet on oil did not pay off either. Oh well, at least I can wait.

    Reply
    1. save. spend. splurge.

      I know it’ll bounce back but it is just WHEN. I didn’t foresee oil taking this long to recover. Those oil magnates are really putting the pressure on fracking…

      Reply
  11. M

    To each their own. I don’t agree with the comment at all. What you & your partner did by paying in cash is the way to go. My grandfather was a lot like you. When he built his house he initially had a line of credit but couldn’t stand it and paid it all on the second payment. He just couldn’t stand the thought of owing. I think it’s good the way ya’ll did it- you’re aware of what you have & live within your means. That’s hard for a lot of people. You have good sense & are not in debt; that’s all the proof you need to be a successful personal finance guru. You do you. -M

    Reply
    1. save. spend. splurge.

      I don’t like debt, even if it is cheaper and I see it making more in the long run. That said, we can’t write off our mortgage interest here on our taxes AND my cash flow would have been restricted with a mortgage…

      Reply
  12. Revanche @ A Gai Shan Life

    *laughs* it’s always easy to tell someone how they SHOULD have spent their money.

    Personally I would have had a hard time deciding which option was the most right for our lives because we have a slightly different situation but I particularly love that even if your half of the home money isn’t out and earning you a ton of money in the stock market (assuming you put it in the right place and the right time for the right length of time), you aren’t paying a penny of interest. Weighing the unknown opportunity cost against the known cost of interest? Especially considering your income is irregular? Makes perfect sense for your situation.

    But again, it’s always easy to judge other people when you don’t have to live their lives.

    Reply
    1. save. spend. splurge.

      He made good points. I think they’re valid but for me, I’d (as you said) would rather not pay interest and be on the hook each month for it. Maybe I’ll regret it in 10 years.

      Reply

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