This story is part of CNBC Make It's Millennial Mortgage series. If you're interested in being featured, email reporter Alicia Adamczyk at email@example.com.
Editor's note 4/15/2020: Some changes have been made to this story to protect the subject's privacy
Watching extended family members and friends lose their homes during the Great Recession had a profound impact on Jack Washington. Though his own family made it through the financial crisis mostly unscathed, Washington began to realize from a young age how important it was to put money away and never owe anything to anyone.
So he started saving. His ultimate goal: Put away as much as he could, so his home couldn't be taken from him.
This savings mentality has manifested from the time Washington was in high school, when he began considering what he wanted for his future. The now-33-year-old received his bachelor's and master's degrees without taking on any student loan debt, thanks to a combination of scholarships and working as a residential advisor.
He pursued degrees in business and forged a career in human resources to ensure he would make good money right out of school, and have ample career opportunities.
In the first five years after he graduated, he saved over $300,000. His next step: buying a house. He closed on his 1,600-square-foot home at the beginning of June 2019, and paid off the mortgage by the end of August.
For Washington, owning a home outright was more important than any potential stock market gains his savings could have accrued. So important, in fact, that he paid off his $300,000 home in around three months, cashing out around $225,000 from a brokerage account rather than keeping the funds invested for retirement. He took the rest from more conservative investments, like CDs and liquid savings accounts.
Washington's decision to pay off his home decades early comes from a deeply-held conviction that it's better to be completely debt-free than owe money to anyone, regardless of if it's "good" debt or not.
His family and friends "loved the idea," he says. But the bank and his financial advisors were less than thrilled, warning that he'd potentially lose out on some serious stock market returns.
"I wanted financial stability and security. I wanted somewhere we could set down roots," Washington tells CNBC Make It. "I look at it as a utility, not an investment."
With no mortgage payment, here's how his home costs break down each month:
- Property taxes: $500 ($6,000 paid annually)
- Homeowners Association (HOA) fee: $160
- Utilities: $485 ($65 home warranty, $200 cable, $80 gas, $80 water, $60 alarm)
- Homeowners insurance: $400
- Repairs: $150
Washington's currently earns six figures, but he managed to save over $300,000 while earning between $85,000 and around $100,000. Though he lives with his wife, Washington paid off the full amount of the mortgage with his own investments and savings.
Washington was able to save so much by living a "generally frugal lifestyle" on an above-average salary: He's driven the same car since college, significantly scaled back his wedding and cuts his own hair. Each year since he started working full time at 27, he's set "mini goals" for himself to slowly scale up his savings.
He acknowledges that not having student loans gave him a "leg up," though he intentionally went to schools that would give him scholarships and worked as a RA so that he wouldn't have to take any on.
With his business degree, Washington knew he'd get ample job opportunities with higher-than-average salaries, and having a partner with a similar, though not identical, money mentality has made saving and working toward his financial goals easier.
It was this combination of strategies that worked for Washington. "That's my approach to building up wealth and money," he says. "It's not one big thing that helps you get to a good place, it's a million little things and the choices that you make every day that add up."
He credits his money mentality to his parents: His dad worked at a transit company in Chicago and his mom was a secretary. "They never made a ton of money, but they had good sense," he says. "They paid their home off in about 15 years. I make more now individually than they do collectively."
Peace of mind isn't the only benefit to paying off his mortgage so quickly. It also gives him the freedom to pursue a secondary long-term financial goal: Leaving the workplace at 40.
By having one less bill to worry about each month, Washington reasons, taking a break from the corporate world relatively early in life will be more manageable. He intends to work — and his wife has no plans to leave her full-time job — but just not continue the "grind." He's dreamed of that kind of independence since high school.
"I felt like my family and friends and older people that I knew were always talking about how hard they were working," he says. "They didn't have work life balance, and I knew that I did not want that to be me."
While he liquidated almost all of his savings to pay off his home, he's rebuilt it over the past year (not having a housing payment every month helps) and says he now has around $140,000 socked away in various accounts. That's his focus going forward.
Washington's goal is a different take on the financial independence movement, which typically evangelizes saving and investing as much money as possible in order to retire early.
Obviously, having a partner who will continue to work full-time makes taking a break from the workforce easier to manage; he will likely join her health insurance plan, and her salary will, hopefully, cover any surprise expenses that crop up. But Washington plans to save aggressively in the years to come to cover as many expenses as he can on his own. Not having a housing bill — which is the typical American's top monthly cost — gives him more freedom.
Despite the other goals Washington is now able to pursue without a mortgage payment, pulling his money out of the market was a big sacrifice. He acknowledges that most financial advisors would say he should have kept the $240,000 beyond the down payment invested in the stock market, but he's okay with what might not be considered the most prudent financial move. Paying off the balance gives him the stability he's craved, and, mentally, that is worth more than any potential investment gains.
"If you look at it from a purely financial point of view, okay, they might be able to convince me to keep it in the market," he says. "But peace of mind was the main motivation to pay the house off."
But is it advice others should take? There's no easy answer, Danielle Schultz, an Illinois-based certified financial planner, tells CNBC Make It. A major downside is that he has "completely lost the value of compound return," she says.
Traditionally, financial advisors say it does not make sense to pay off loans with interest rates lower than what you could earn in the market. That varies, of course, but a good rule of thumb is to focus on investing, rather than loan repayment, if your loan has an interest rate below 5%, says Schultz.
Another reason you're typically advised not to pay off your mortgage early: The mortgage interest deduction lets couples filing jointly deduct the interest paid on a mortgage up to $750,000, with some restrictions. Washington doesn't qualify for that tax break now.
Washington also had to pay capital gains tax on his withdrawal from the brokerage account. Had he taken the money from a retirement account, he also would have been hit with an early withdrawal penalty.
That said, there is a significant emotional benefit to having a house completely paid off, particularly for those nearing retirement, Schultz says. "If it makes you feel better, I say go for it, but only if the value of the house is no more than one-third of your total net worth," she says. "You need most of your investments to be generating income in retirement."
It's the emotional weight that Washington is happy to have lifted.
"I can't beat the feeling and security of not owing anyone anything, regardless of market performance," he says. "I always wanted to have that stability ... As long as we can scrape up $6,000 per year for property taxes, we're fine."
It makes sense for him. "It's mine," he says. "You can't take it away."
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