In August 2018, I posted Merry Christmas 2024! about a plan to pay off my mortgage early. As phase one of that plan, from August through December I shored up our liquidity, aka an “emergency fund”. Due to some additional medical and business expenses, and a few discretionary purchases, I did not reach the liquidity goal I had set as a prerequisite to making additional payments on my mortgage. However, perfection is often the enemy of progress. I had established January 2nd, 2019 as the date certain to commence additional mortgage payments, and a shortfall on my liquidity goal was not going to stop me from moving forward.
Medical Bills. One need for liquidity is preparation for inevitable medical expenses. We often speak of “unexpected” medical expenses, but there is no such thing. We are all mortal. Even someone like me who generally makes good lifestyle choices faces health issues. Medical expenses are a fact of life for all of us. Accordingly, the good news for our liquidity is that we have significant savings in our Health Savings Account, which I topped off this year by maxing out our contributions. Between those funds and health insurance, my family is well protected against medical bills.
Everything Else. Beyond medical bills, liquidity is needed for other inevitabilities that we pretend are unexpected: home repairs and car repairs, for example. Such repairs might be random, but they are not unexpected. We need to have cash ready. Then there are truly unexpected expenses; we’ll find out what those are when they hit us. Job loss? Inability to work? A slowdown at the business? We need cash ready for those circumstances, too. It is in this “everything else” category where I fell short of my liquidity goal. Rather than a war chest, I have more of a shoebox. I will continue to work to eliminate this shortcoming.
Tipping the Scale. If the shit really hits the fan, I do have other, less liquid resources available. There would be frictional costs to be paid to access those resources, and I’d prefer it if they could remain undisturbed. However, knowing those are there if my liquid accounts are insufficient to cover emergencies, I am comfortable moving forward with my plan to pay off the mortgage early.
20 to 6 years? So how do I take over twenty years of payments and shorten them to about six? I take my required monthly mortgage payment and add 152% to it. That is a sum I have chosen for my particular situation where it is aggressive enough to make a big difference but not so aggressive as to be unrealistic or to impose too much on other allocations. I’ve printed up an amortization schedule and taped it to the wall next to my desk. In this manner I am reminded daily of my goal, I can see the principal and interest paid with each payment, and most importantly, I can see the balance drop like a rock. So Merry Christmas 2024!
P. Gustav Mueller, author of The Present.
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