While writing my last post I made up a handy-dandy little spreadsheet to track net worth based on mortgage repayment and investment returns. The whole exercise was meant to prove a point and provide some visual aids for my post because charts are pictures and people like pictures.
After publishing the post, I kept on playing around with my spreadsheet, tweaking parameters and looking at numbers, because I am a data nerd and I like numbers. And while I was doing so, I played a little game of “what if” with myself. For what it’s worth, “what if” can be a dangerous game. “What if” often leads to silly things like the purchase of lottery tickets. If you play the lottery, well hey, good for you, no judgement here. But I think we can all agree that as an investment strategy it’s… um… lacking.
But in this particular game of “what if”, I went with “what if we actually did maximize saving and investment? What would that look like? How much can we afford to save per month and how would that impact prospects for early retirement?”
To answer the question, I went to Mint. If you’re not familiar, Mint is free online budgeting software. You synch it up with you banking, investment, and credit data and it helps categorize all your spending, track your investments, and give you a picture of your overall net worth. There are other budgeting tools out there, but Mint is the one I’ve tried and I’m pretty happy with it so it’s what I use.
Now savings is a function of income and expenses (income – expenses = savings). Income for most people tends to be pretty steady and our family is no different. We earn roughly the same amount of money each month. Expenses can of course be variable. Some months you spend more than others. But at this point, I have a good eight months of data of both my and Mrs. CIQY’s account information to look at our spending. So by looking at the year’s data for income and expenses so far, I can get a pretty clear picture of what we have left over on average during a typical month after doing what we already do.
And the news is good. It turns out we’re actually pretty good already at saving. By increasing our savings rate only slightly, we should be able to have our mortgage paid off in ten years, which is 13 years ahead of schedule!
This of course is based on certain assumptions. First, it assumes that our mortgage rate doesn’t climb too much higher than than it is, which is perhaps an unreasonable assumption. It also assumes no major market events that will significantly impact our average rate of return over the next ten years, which is also maybe too optimistic. And of course, it assumes that neither our income will decrease nor our expenses increase by a significant margin. Which is just way too naive. Did I mention New Baby is due to arrive in about four months? I think I have.
So do all these mitigating factors make this goal unachievable? A pipe dream? Nope! Look, I said that we’re practically at this goal already, without even realizing it, and without much in the way of sacrifice. So if life does throw us some curveballs in the form of a big market crash or a spike in mortgage rates or what have you (and it will, oh it will), it just means we have to work a little harder to hit our target. Just because we’re not sacrificing too much right now, it doesn’t mean we can’t if it turns out we need to.
They say it helps in life to achieve progress if you have a goal. Now we have one: mortgage paid off in ten years. Check back with me on August 31, 2027 to see how we’ve done. We might not get there, but there’s no harm in trying.