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September 18, 2023

Pay Off The Mortgage Or Invest? Here’s How We Did Both

young family by home

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There’s a hot debate between paying off your mortgage or investing. 

Paying off your mortgage allows you to significantly lower your expenses today and potentially create more time freedom in your life. 

Meanwhile, investing has the potential to build wealth, security, and eventually an income you can use when you don’t want to work anymore. 

As our family worked on improving our financial situation, we decided that both paying off our mortgage early and investing was the smartest path forward. That way, we could enjoy more of our lives today and build wealth for the future. 

With some bumps along the way, the plan eventually worked. We became mortgage-free millionaires in 10 years. Here’s how we did it. 

How We Created A $500k Portfolio And A $500k Paid Off Home

Built A Budget

If we wanted to create financial freedom for our family, we knew we needed a plan. Our budget became our place to store that plan. 

We started out with a simple spreadsheet and that worked well for us. Using an automated online budgeting tool would have made things a lot easier. But we realized that done is better than perfect. 

Inside our budget, we laid out our income and our expenses. When we started our journey, my wife and I were making around $130,000 combined as a couple. This was a healthy income to help us make some smart money moves for our future. 

Invested Early

One of those smart money moves we were happy we did was investing for our retirement. We invested through Roth IRAs and workplace 401(k)s. 

The matching contributions we received from our employers definitely helped to amplify our investment portfolios. There was a point in my career where I maxed out my 401k at work and received around $3,000 annually from my employer. Free money is hard to pass up!

Over time, our investment portfolios grew from 4-figures to 6-figures. This became a lot easier through automation and dollar cost averaging – simply setting a monthly fixed amount and contributing regularly no matter what. 

Increased Our Income

My passion for mortgage freedom was fairly intense after making some major first-time homebuyer mistakes. I wanted to own my home and not feel like my home owned me ever again. So when my wife found our next “forever home”, I knew it was time to increase my income. 

Over the four-year period of us paying off our mortgage, our household income averaged around $170,000. This higher income came from working our way up the corporate ladder, earning salary increases and bonuses when possible. 

Outside of growing our income as employees, we took time to sell things we didn’t need anymore on Craigslist and Facebook Marketplace. Bikes, clothes, baby gear, purses, and much more were sold and that extra money went toward the mortgage. 

Lived On Half (Sometimes)

During our investing and mortgage-free journey, we lived on around half of our income. This varied as in some years we saved 60% of our income and in other years we saved 20%.

Overall, this willingness to live on a lot less helped us to throw thousands of dollars at both investing and paying off our mortgage early. 

This wasn’t always easy. 

Money fights definitely happened and those money fights eventually lead to marriage counseling. We both learned a lot about each other during this time and, as a couple, we’re better from it. 

Relaxed When We Needed To

During this mortgage-free millionaire march, fun wasn’t always at the top of my list. I was working in a career I didn’t enjoy so I thought building wealth fast was my way out. 

But I quickly discovered that running on empty when you’re working most of your day and taking care of toddlers for some of your day is a recipe for burnout. 

Through some important conversations, my wife helped me realize that living for today is just as important as planning for tomorrow. I was so fixated on finding my way out of my present situation that I wasn’t focusing on how I could enjoy my present situation. 

Vacations became a way for both of us to relax. Getting away during our cold Michigan winters was something we both loved (and needed). 

After paying off our mortgage, we traveled together as a family more than we ever had before. We hit up Disneyland, Mexico, California and Northern Michigan all in the same year. At the time, it was the best investment we could have made for our family.

Gained the Courage to Redesign Our Lives

After reconnecting with my wife and prioritizing relaxation, we both started to realize that it might be time to make some bolder financial moves. Not with investing in stocks or real estate, but with our careers. 

We had both been playing it safe in careers that we did not like and, at times, straight-up despised. 

What if instead of saving 50% of our income, we just decreased our hours working so we enjoy more of our lives today?

That radical idea helped both my wife and I leave our traditional career paths to experiment with adventures in part-time work, going back to school and entrepreneurship. 

Today, we both work part-time in completely different careers than we previously had. 

While we are both in the midst of these adventures, we agree that staying stagnant doing the same thing that makes you unhappy is not the path we wanted anymore. 

Lowered Our Savings From 50% To 10%

The housing market has been good to us over the past few years. Our paid-off home is now valued at over $500,000 and we’re planning on staying here for at least another 15 years. 

Our investments have grown to over $500,000 as well. With time and compound interest, that $500,000 could turn into around $2.5 million by the time we turn 65 without any further contributions (this assumes a 7% real rate of return and 24 years of growth). That will be plenty for us to live on in retirement.

Compound Interest Chart

With no house payments and no need to invest anymore for our retirement, we’ve dropped our savings rate from 50% to 10%. The extra money now goes toward things that make our family happy and secure. 

  • Giving: We’ve increased our giving to 10%; 5% to charities and another 5% to family, friends and neighbors in need. 
  • Vacations: Travel now take up 10% of our annual budget
  • Fun Money: Random fun money (for each of us) is a must each month
  • Kids Activities: Money for our kids' summer camps and sports activities makes the list too

It’s amazing how your mindset can shift from “stuck to free” when you’re not worried about paying the mortgage or investing for your retirement. This financially free situation is very new for us, but we’re excited to see where it takes us. 

Final Thoughts On Paying Off the Mortgage Or Investing

In the end, we’re happy we invested and paid off our mortgage. The key takeaway we learned was to be flexible and have lots of conversations if you’re going to do both. 

Everyone’s income and cost of living situation is different. We had the ability to live on half for a period of time, but now we’re happier saving less and living more. 

As you’re making this decision, craft a realistic family budget, pick a savings rate that works best for your situation and adjust as needed. There’s no race when it comes to investing for retirement or becoming mortgage-free. As long as you have a plan and a will to make it happen, you’ll get there eventually.

Where do you fall on the pay off the mortgage or invest debate? Which of these goals are you working on right now?

Please let us know in the comments below.

This article was originally distributed on Forbes and written by Andy Hill, a Forbes contributor.

Andy Hill

Andy Hill, AFC® is the award-winning family finance coach behind Marriage Kids and Money - a platform dedicated to helping families build wealth and happiness. With millions of podcast downloads and video views, Andy’s message of family financial empowerment has resonated with listeners, readers and viewers across the world. When he's not "talking money", Andy enjoys being a Soccer Dad, singing karaoke with his wife and relaxing on his hammock.

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