How I Paid Off My Home 15 Years Early
It’s not just about the R1.2 million saved in (unpaid) interest.
Freedom and flexibility are two sides of the same coin.
When I turned 30 – which you hilariously consider a ‘big’ milestone at that age – I wondered whether I could be debt-free by the age of 35. This was very much hypothetical, considering I was still paying off someone else’s bond! At that stage, I’d also not even bought my current car.
But, given the ‘lucky’ situation I found myself in (unmarried, zero kids), I figured this must be possible. I wanted to prove to myself that this is possible. I despise debt. And this is perhaps key to why I decided to a) buy a property and b) ensure I paid it off as quickly as I could.
Philosophically, I believe it is better to own the house you live in, rather than pay rent every month. If you don’t believe that, this is probably a good time to stop reading.
I’ve thought long and hard about sharing this. Opening yourself up to scrutiny of personal choices and thought processes when you know that anyone else simply cannot understand the context and circumstances in which these were made is tough. Especially when they’re sitting at the end of a pseudonym on another continent (Hello Robert!). This is part one of a two-parter, focusing on the why.
Next, I’ll share some details of the how.
Fear
My “apprehension” towards debt comes, like most things in life, from when I was younger. I watched as some of those around me used debt to live beyond their means and got themselves into heaps of trouble by doing so. Not lose-everything-kind-of-trouble, but it was sometimes close. So, ingrained somewhere in my psyche is this aversion to credit. Not paying a bill when it is due is completely inconceivable to me. I understand how slippery the slope is to find yourself in this kind of mess, which is why I’m so stubborn on ensuring I avoid it.
I didn’t rush out to buy a car when I started my first job. Rather, I waited until I had saved enough for a decent deposit – 20%, I think it was – and then I still bought a model/spec/variant or two lower than the car I really wanted. I paid that car off in about three years and I often joke with friends that I’d still be driving it today, had it not been written off by my insurer for a minor bumper-bashing (they lucked out)! When I bought a house, I was determined to settle that mountain of debt as fast as possible. It started off slightly more complicated than a typical new bond but end-to-end, this took somewhere around four years.
More on how I achieved this tomorrow…
Freedom
Not having debt to pay off every month (be that a bond, a car, student loan, or credit card) is so incredibly liberating (this is not the part where I gloat!). Not having these giant chunks of money leaving your account hours after you receive your salary means you can then extricate yourself from all sort of other restrictive arrangements. For example, switching your cell phone contract to prepaid. Many friends I talk to about this kind of stuff are simply unable to make a switch like this because they can’t afford the up-front cost of a handset every year or two, especially with high-end smartphone prices approaching R20 000 (and, in the case of the iPhone X, completely exceeding it).
What freedom does not mean is a never-ending spending spree because you suddenly have so much extra money. There’s a little more flexibility in my spending, but that’s to be expected.
Additionally, this freedom means you can structure your short-term and retirement savings in a calculated, structured way and stick to it! What better use did I have for any money I had saved? An index fund? I might’ve “lost” a few years of compounding that I would’ve received in a retirement annuity but with the market flat over the last three years, have I really lost that much or anything? Plus, this assumes that I managed to save a healthy amount of my salary every month, instead of finding any number of “more urgent” uses for the money. I firmly believe that I am much better off today.
Flexibility
Freedom and flexibility are two sides of the same coin. Not having any debt obligations means I have the flexibility to do things like buy the new iPhone when it comes out every year or take a two-week overseas holiday sometime during the course of next year. Or upgrade my mountain bike. I have the flexibility to perhaps study further. It also means I don’t suddenly find myself in debt when there’s one of those unexpected emergencies that life throws at you, like a geyser packing up or a dental emergency. This flexibility, particularly from the unknown, is priceless and precious few middle-class South Africans have it. Even in my circle of friends – where there’s obviously some selection bias – this flexibility is very much the exception.
I’ve saved over R1.2 million in (unpaid) interest over the full 20-year period. The trick now is to turn that into a lot more within the next decade-and-a-half.
This gives you some idea of why I made the conscious and deliberate choice to pay off a roughly R1 million bond in a crazily ambitious timeframe. Far more interesting, I hope, is how I managed to actually do so….