Home ownership: It’s a big part of the American dream!
But for most Americans, “home ownership” involves a mortgage. Technically, that means the bank owns the home. And that’s no way to be living the dream.
Enter Baby Step 6: Paying off your mortgage for good.
Once you’ve paid off all consumer debt, saved up a full emergency fund, and are fully funding your retirement and your kids’ college educations, you’re ready for the home stretch (see what we did there?). You’re ready to pay off the house as quickly as possible.
You’ve already gained a ton of wisdom on your journey through Baby Steps 1–5, but there’s still more to learn. Here’s what Baby Step 6 teaches you!
1. You learn what it feels like to be truly debt-free.
Sure, you celebrate debt freedom when you finish Baby Step 3. And you should! Paying off consumer debt is a huge step!
But if you have a mortgage, you’re not truly debt-free until it’s paid off too. Completing Baby Step 6 gives you a totally new (and way better) sense of debt freedom. That’s because it creates security in your finances that didn’t exist before. As long as you pay those property taxes—sorry, we can’t help you with those—then no one can take your home from you.
Once you make that last mortgage payment, the grass in your yard won’t ever feel the same under your feet.
2. You learn to prioritize.
When you reach Baby Step 6, you’ve come a long way. You’ve learned to save, to budget, to live within your means—and you’ve set into motion the ongoing investments you’ll need for your retirement and your kids’ college educations. Those are all things that need to be in place as soon as possible to make them effective.
But Baby Step 6 is a great time to pause and re-evaluate. Are there other big expenses you’ve been putting off that you need to address before they become emergencies? Maybe a car is on its last leg or the roof is rotting. Or maybe you want to celebrate a milestone anniversary with a special vacation. Now might be the time to set up savings funds for those things!
Another consideration might be the remaining mortgage balance. Just $20,000 might mean picking up an extra job for a few months to finally burn that note. After all, you’re so close! But $200,000 might mean going ahead and paying extra toward it when you can—while still putting money into savings funds for those other expenses.
At Baby Step 6, lots of variables enter the picture. But having already worked through Baby Steps 1–5, you’ve become a seasoned pro at learning how to prioritize your needs so you can win with money!
3. You learn how much a mortgage really costs you.
You’ve probably been paying down your mortgage for so long that you’ve forgotten what it’s like to have that money stick around in your account every month. But once you do, you’ll realize just how much you were paying to the bank—and how much you can do with your cash now that it stays yours!
You’ll also realize that all the sacrifices you made to get to this point just weren’t that big a deal. Yeah, you may have passed on the new car, the beach vacation or the fancy dinners out—all things that you’ll be able to do again someday—but your mortgage is paid off! And that’s a forever thing! How cool is that?
All that money you threw toward it, and the sacrifices you made in the process, have set you up to win with your largest wealth-building tool—your income—for the rest of your life.