Wow! What a great story!
How we paid off our house in three years
Perry Goertzen as told to Duncan Hood
Thursday, July 20, 2006
Have you ever wondered what you could accomplish if you saved 80% of your pay? Well I can tell you, because I did it.
Most people have trouble saving just 5% or 10% of what they make, but my wife Tiffany and I decided that it was worth living like paupers for a few years if it could give us a huge jump start on life. Saving as much as we did was challenging, but what we accomplished was amazing - I still can't believe it myself sometimes. When we started, we had a rusty old Toyota Tercel, no house, few possessions and a crushing debt of $37,000. A few years later, we had two almost-new cars and a beautiful new four-bedroom house on a 46-ft lot in Milton, Ont. Everything was completely paid off - we had zero debt. During this time, neither of us made much more than $60,000 a year at any one job, but by working several jobs and saving almost all of our income, our net worth increased from negative $37,000 to positive $420,000 in less than five years.
I was born in rural Manitoba in my grandparents' car on Mother's Day, and my family still jokes that I came into this world fast and I haven't slowed down since. But though I was always very energetic, it was channeled in the wrong direction during my teenage years: I was basically a juvenile delinquent. I quit high school at age 15, worked odd jobs, drank and partied. By my early 20s I hit rock bottom. I realized that I was going nowhere and that I had to make some serious changes to get back on track. So I gave up my old friends and my old lifestyle, and decided to move to Abbotsford, B.C., to start over.
It was there that I met my future wife, Tiffany. After a couple of years we got engaged and then we got married in 1995, when I was 27. During this time I changed dramatically. I started volunteering for an organization that worked with troubled teens, and I loved the work. Tiffany and my family kept challenging me to go back to school, and shortly before we got married, I applied to a private Christian university in Langley, B.C., called Trinity Western, and I was accepted as an adult student. Four years later, in 1998, I graduated with a B.A. in psychology.
I was proud of my degree, but a B.A. didn't open as many doors as I originally thought it would, so we decided that I should get a Master of Social Work degree. Wilfrid Laurier University in Waterloo, Ont., offers one of the better programs in Canada, so we packed up our belongings and drove across the country. It was an absolutely crazy trip - we did it in only 49 hours with one four-hour stop at a little motel - and when we arrived we settled into a small apartment in Milton, midway between the university and a new teaching job we found for my wife. During the next two years of schooling, money was tight, and I had to borrow heavily for tuition and books. When I finally finished my master's degree in 2000, we had a total debt of $52,000 from my student loans.
This is when we made the decision that changed everything. With my new degree, I quickly found a job that paid well, but we decided that rather than rewarding ourselves for all those years of hard work, we would continue living like impoverished students for a few more years. In exchange, we figured we'd get a head start on the rest of our lives.
I got my first job as a crisis intervention worker before I even finished my degree. When I graduated, they gave me more hours, then offered me a second position doing the same thing at another location. I was just loving the work, and I took on a third job doing the same thing at the Credit Valley Hospital in Mississauga. As crazy as it sounds, I then took on a fourth position, and I saw clients now and then through my own counseling business as well.
The next few years are a bit of a blur. I worked an average of 90 to 100 hours a week, or about 14 hours a day, seven days a week. It wasn't unusual to work 22 hours straight, go home, sleep for two or three hours, get up, shower, and work another 12-hour shift. I once worked 99 days in a row, took two days off, and then worked another 60 days. Meanwhile, Tiffany began supplementing her salary as a teacher by tutoring and giving piano lessons.
In some ways it wasn't much of a life. My wife thought I was pushing it too much, and our friends and family thought we had lost perspective. But my father had taught me a strong work ethic and I felt like I had wasted a lot of years in my youth. This was my chance to catch up. With six or seven jobs between the two of us, within a few months of graduating, our combined income was well in excess of six figures. But even with our sizable new income, we continued living in our $900-a-month apartment in Milton. Most of our furniture came out of the garbage, and we rarely bought new clothes. We didn't have cable and we didn't go out much. Eventually, we splurged and bought a set of rabbit ears for our old TV.
We were able to save over 80% of our after-tax income, which amounted to over $80,000 a year. In a lot of ways, saving 80% of your income is absurd, but you would be amazed at how quickly you can pay off huge loans if you do. I obtained some loan remission from the government, which knocked my $52,000 student debt down to $37,000, and we managed to pay that off in just four short months. Paying off such a staggering loan so quickly was an incredible feeling. We realized that we had become accustomed to saving most of our income, so we decided to accomplish a few more goals before we broke the habit. We began by saving up for a down payment on a house, and it took us less than a year to save up $82,000.
In June of 2002, we purchased our first home in a new subdivision in Milton for $302,000, and took on a five-year, 5.2% fixed-rate mortgage for $220,000. At first, we intended to pay it off in 10 or 15 years. But then I began to look at what would happen if I doubled up the payments and paid an extra 10% a year. It was incredibly motivating to see how much interest you could save. So we decided to double up every bi-weekly payment, from $670 to $1,340. We also made the annual 10% prepayment, which was about $22,000 a year.
At the end of the first year, we realized that we were saving much more than we needed, even with the doubled payments and annual prepayment, so I approached the bank and asked them if we could make an annual prepayment of 20% instead. It took a little bit of coaxing and a few Tim Hortons coffees, but banks can be more flexible than you might think: don't assume the terms of your mortgage can't be changed.
At that rate of payment, it sounds absolutely incredible, but we managed to pay off the whole thing in exactly 952 days. By paying off the mortgage in less than three years instead of 25, we saved a total of $153,000 in interest charges, which amounts to more than half the original cost of the house. Meanwhile, the house had already increased in value to about $420,000.
Now we own our house, our cars, and we have absolutely no debt. We feel like a huge weight has been lifted off of us. The best part of it is that we feel like we've been set free to do many things in life that we otherwise wouldn't have been able to do. Tiffany is pregnant now, and we're expecting our first baby in July. Because we have no debt and our expenses have been reduced by 80%, one of us can stay at home as long as we want after our baby is born. I'm only working about 55 hours a week now - which after my previous schedule, feels like part-time - and we're already saving aggressively for retirement. My dream would be to retire when my father did, at age 52, so that we'll still be young and healthy enough to travel the world.
Let me make it clear that I wouldn't recommend the number of hours that I worked for most people. But was it worth it for me? Absolutely. It's been challenging and tiring, but exciting and rewarding too. Right now, I wouldn't change anything for the world. We're only in our 30s, but in a lot of ways, we're set for life.
How to get a head start on life
If you want to jumpstart your finances, you don't have to be an extreme saver like the Goertzens, but you can apply some of the principles they used.
Start early
Each dollar that you save when you're in your 30s is worth more than $3 saved in your 50s, because of money's ability to multiply when invested wisely. So saving even small amounts when you're young can pay off big. If, for instance, you sock away a mere $20 a week in your RRSP starting at 21, and it grows by 6% a year, you will painlessly accumulate more than $160,000 by the time you're 60.
Set concrete goals
Setting concrete goals is the psychological key to effective saving, because if there's no reward at the end of the journey, you won't have the motivation to keep going. It's easy to cut costs when you know you're just three payments away from burning your mortgage; it's nearly impossible to do so if the only goal is to put more money in the bank.
Live on what you were making five years ago
Once you adapt to a more expensive lifestyle, there's no going back - but continuing to live the way you live right now is relatively easy. Vow not to increase your spending by more than inflation for the next five or 10 years. You won't have to give up a thing you enjoy now, but if you get regular pay increases and save the difference, you'll soon be putting away buckets of money.
Pay in cash when you can
Another wealth-building habit you could borrow from the Goertzens is to pay in cash when you can. If you want a new living room set, don't whip out the plastic. Start up a special savings fund instead. This gives you a concrete goal to save for, and you'll get your furniture cheaper in the long run.
The savings from paying cash are larger than most people realize. If you put a $5,000 living room set on a standard 19.75% Visa card and pay it off gradually over two years, you'll end up paying $1,000 more than you would if you paid in cash. So saving up the cash before buying is like getting an 18% discount.
Pay off your mortgage faster
Andy MacDonald, president of MortgageBroker Inc. in Mississauga, Ont., points out that if you pay an extra $1,000 towards a 5% fixed-rate $250,000 mortgage during each of the first five years, you'll save $10,000 in interest over the mortgage's 25-year life. Make the same extra payments during your mortgage's last five years, and you won't save much in interest at all.
Practically speaking, MacDonald finds that one of the best ways to save money and pay off your mortgage faster is simply to make your payments weekly or bi-weekly instead of monthly. By doing so, you'll make the equivalent of about an extra month's payment every year, which would save you $30,000 off the total cost of the $250,000 mortgage above. You'll also pay off the mortgage three and a half years sooner.
(Perry Goertzen lives in Milton, Ont.)
