Goal Progress: Update #7, September 2016 and Life Happens

It’s been 7 months since we set a goal to pay off the mortgage by 2020 and to have a net worth of at least $1M by 2025. This is the 7th update on the progress of the goal. If you’re wondering why we set this goal, see here.

Life happens. A lot of big changes came our way this month. The two major things were that we bought a new house, and we decided to let our nanny go and put our son in daycare. I also turned 31 this month.

Why did we buy a new house? As we were buying the house, I felt a bit like a hypocrite and a bit like a fraud. I write a personal finance blog, and I’ve mentioned my uneasiness with taking on large amounts of debt. I also claim to be a minimalist, but here I am taking on more debt for more possessions. I felt like I had already turned away from the goals I had laid out just 7 months ago. I believe we can still achieve these goals. They are just going to be a little more challenging.

Here were some of the considerations we made when deciding to move from our “big enough” condo to an “only slightly bigger” single-family house.

• A little more space. And I mean just a little. The house is less than 400 square feet larger than the condo we currently live in. It does have 4 bedrooms though, which will allow me to have a separate office. I work full-time from home for my patent job, and it has been difficult having no sound privacy from my son while working. This move should be helpful.
• A backyard. As our son gets bigger and is starting to run around more, we wanted him to have a little more space to play. Also, it would be nice to grill in our backyard or just be outside when the weather is nice.
• Proximity to schools. It’s still a few years away, but the elementary, middle, and high school are all within walking distance. The elementary school is right down the street and has large fields and a playground. I remember my dad would walk my brother and me to school sometimes when we were younger, and this is something I’d like to do, at least for elementary school.
• A garage. The house comes with a two car garage. This is a luxury for us, but this will change a lot of things for the better. We’ve only had one dedicated parking space at our condo even though we’ve always had two cars. It wasn’t too difficult to find a visitor spot to park in, but now we each have a dedicated parking space. Also, our cars won’t be super hot or super cold in the summer and winter, which helps a lot since we won’t have to blast the AC to regulate the temperature in the back seat for our son.
• A quiet, walkable community. The community is relatively quiet and has sidewalks that are away from the main road. It is also within walking distance from a shopping center.
• Mortgage rates. Mortgage rates are at historic lows. We could have managed in our condo, but we decided that now was probably as good a time as ever to take the plunge.
• Possible source of future income. We were thinking about selling our current condo, but fortunately, the timing worked out where a couple of our friends were looking for a place to rent. As long as it’s feasible, we will try to keep the condo as an investment property. It could be a good source of steady income in the future.

Mortgage progress:

We are still on track to pay off our mortgage by 2020, but our pace is starting to slow down. We had to reduce our payments significantly to save up for the down payment on our new house. We made the minimum payment this month, and our principal was only reduced by $403. I plan to make minimum payments on our new house and continue to pay off our condo at an accelerated rate as they both have the same interest rate of 3.25%, but the condo is on a 7/1 ARM and the new house is on a 30-year fixed. Once we pay off the condo, we will accelerate the payoff of our new house.

Net worth progress:

Net worth = assets – liabilities, or everything we own minus everything we owe. I’m not including our cars here, which are both paid off, to keep the calculation a little simpler. I am including an estimate of home equity.

We now own two properties but also have two mortgages. It was extremely difficult trying to come up with over $110k liquid for the down payment and closing costs on our new house, but God’s grace, we just barely made it. My real estate partner and I closed on 3 transactions in the past month, and those commissions helped a lot. I reluctantly took out a $50k TSP loan to help us reach 20% down to avoid PMI. My wife got a promotion and a raise at work, and I worked some overtime at my patent job. I represented us as a buyer/agent in our transaction, and we were able to use the entire commission towards our closing costs.

Here’s what happened with our finances. Our cash position decreased by $20,779.51 to $3,657.40. We are going to have to build this up again fast. The balance in our investment accounts decreased by $47,785.86 to $144,693.57. This was due to the $50k TSP loan. The TSP loan rate was very reasonable at 1.5% over 15 years, and the interest is paid back into the account. Our net worth increased by $29,837.18 to $409,753.52. The increase comes mostly from the 3 real estate commissions in the past month.