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Ask Dave

Staying Motivated is Hard

Eric asks how you stay motivated to save and pay cash for a house when you've never had the small successes of working a debt snowball.

QUESTION: Eric in Tennessee asks how you stay motivated to save and pay cash for a house when you’ve never had the small successes of working a debt snowball. Their goal is $200,000 and they’ve saved $75,000, which took them three years. Dave works some numbers to give him an answer and gives him some encouragement as well.

ANSWER: First of all, let’s say it’s hard. You can’t stay motivated if the target doesn’t have an end date. If your savings rate is $25,000 a year, that would be five more years. That’s one way to stay motivated is to set a deadline. There’s got to be a light at the end of the tunnel that’s not an oncoming train. You and I both know—or we should know—that your income is not going to be steady. It’s going to go up over that five years or it’s going to go down. As it goes up, you keep your lifestyle down and we go more than $25,000 a year. If we can assume that, then we can assume shorter than five years, but straight-line projection on this, which is not how life works, is a five-year plan. Realistically, as long as your income goes up, you’re probably looking at a four-year plan assuming you can save at least $25,000 a year.

Another thing you can do is help yourself visualize what life is going to be like when you own a paid-for $200,000 house and you make $X a year. If it took you five years, you’d be 28 years old. If starting at 28 you put a house payment of $2,000 a month into a decent growth stock mutual fund from 28 to 58, by 58 years old, this one financial transaction that you’re choosing to do—five years of sacrifice and then paying yourself a house payment from then on—that one account will be about $7 million in 30 years. Plus this house will be worth $1 million by then. There’s a 35-year program. We’ve got to live life along the way. We’re going to buy a car. We’re going to go on vacation. We’re going to go see that thing around the world you’ve always wanted to see. Whatever it is, we’re going to do all this kind of stuff but while we’re doing that, we’re going to spend the same money on housing that normal people spend on housing only we’re going to put it in our pocket and that’s going to change our family tree.

My interest rate on my home is zero because I don’t have a debt. I don’t think you can beat that rate. If you want to go the other route and put $75,000 down today on a home and put the house payment on a 10-year mortgage with a plan to pay it off in five, then that’s an okay thing to do. You would be way ahead of the normal person. That’s not a bad plan either. I don’t borrow money so I can’t tell you it’s a better plan. I can tell you that it’s a better plan than most people have. Most people are like an adjustable rate mortgage on a 30-year note and are going to be in debt the rest of their freaking lives because they don’t have any idea or way to project getting out of debt.

You’re in a position to do that and be completely debt-free in a nice home at 28 years old. You can short-circuit it a little bit if you want, or maybe you do something in the middle. You save for a couple more years and then buy. The trick is don’t be afraid to be weird and don’t fall for the culture’s input on your finances, because the culture is freaking broke. Weird is a good thing. What would happen if for every 10 23-year-olds, we could get one to do this? What we’re saying here, dude, is that basically at 30 years old, you’re already going to be a millionaire with a paid-for house and saving money like we’re talking about. That’s a pretty impressive thing to think about. We did all of this on a financial advisor and nurse’s salary.