Never Retire: Keep Cash Saved Or Pay Off The Mortgage?

Don’t think like an economist. Think like a person.

Don’t think like an economist. Think like a person.

When you remove emotion from the equation, you run the risk of making money mistakes that might cost you more than refusing to make the seemingly logical choice based on nothing other than math.

After years of trial and error and fits and starts, these two thoughts guide how I manage my money and live life. In both areas, we don’t give emotion enough credit. Going forward we’ll dig deeper into the psychology of money. Today, we continue the debate over carrying a mortgage or using savings to pay it off. Because, on the general subject of savings versus no or a low housing payment, I have received interesting feedback.

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I hope you’ll participate in this friendly, though spirited debate in the comments.

To kick things off, a few thoughts and pieces of feedback from readers and subscribers on the idea of having a housing payment versus having no or a low housing payment.

Here’s my plan, alongside a thought from a reader via a recent Medium article—

Why do my partner and I plan to do it this way?

Because—

• The cost of homeownership where we live now (Los Angeles) is prohibitively expensive.

• The cost of homeownership in most places we’d be willing to live in the United States is prohibitively expensive.

• We don’t want to stretch ourselves financially or overwork ourselves to afford homeownership in the United States.

• We want to keep our monthly overhead—individually and as a couple—as low as we possibly can while still having a fun and vibrant life where we’re able to spend money—within reason—on things we want, but don’t necessarily need.

• If we had to service a mortgage and the attendant costs of home ownership—today, in the US—we could not live this way. And that would suck.

• We intend to move to Spain or Italy as we approach and enter relative old age. In the places where we might like to live, small apartments are inexpensive. So, the plan is to save enough money to pay cash or close to it for a small apartment in a Southern European city, resulting in an ultra low monthly housing expense.

All of this because we value cash security.

Cash security means different things to different people.

Of course, to some extent it means cash in the bank.

But it also means—

• Ongoing cash flow that gives you the confidence of knowing you can pay for your needs, spend freely on your wants and continue to save along the way.

• Low overhead. Because the less money you’re obligated to put out each month, the less stress you experience and, assuming ongoing cash flow from work or some other source(s), the more money you have to save.

Or, if you have paid a large chunk of cash for a place to live or used it to pay off a mortgage, the more money you have to replenish your savings.

That’s my logic. Thinking like a person.

The economist calls bull shit. They run seemingly irrefutable math that brands you a fool for not making a black and white decision based solely on numbers.

You can read about that way of viewing the situation in this recent installment of the newsletter.

Part 14: Thoughts On Savings After A Subscriber Hits Back On Paying Off A Mortgage

I was surprised by the comments I received on that installment.

So I present them to you in a moment and request additional thoughts on the subject.

Because—

• Within this context, I’d like to hear more about how you view, value and (attempt to) achieve cash security.

• There must be more than a few subscribers who think like economists.

To that point—there’s nothing wrong with thinking like an economist, as long as it does not ignore who you are as a person.

In other words, if you naturally tend toward running blunt calculations and making your financial choices and decisions based on the numbers these calculations spit out, it’s all good. This is who you are. However, if you suppress your emotion and how you feel about money just to make the apparently logical choice, you might be setting yourself up for a world of personal financial stress and hurt. You ignore who you are as a person in favor of putting on an economist hat that doesn’t fit you nearly as well as it does others.

With that in mind, here are the aforementioned subscriber comments on the matter. I hope reading these will elicit more.

These comments speak to me with the focus on low monthly overhead as the top priority.

And one more…

As much as I love when people agree with me, it’s just as valuable to receive pushback and see opposite or dissenting points of view. So feel free to bring them. We all tend to have passionate opinions on this broad subject, brought to life by a specific hypothetical. The subsequent debate helps me—and hopefully you—bring the way I think, feel and act into better focus. It helps me optimize my thoughts, feelings and actions.

Apartments in Barcelona, Spain