Now that I am 63 years old and there are fewer days ahead then there are behind, I can see the results of a lifetime of work. And I wondered, what advice would I give my kids who are just starting out so that they could be sure of success? So I boiled it all down, and this is what I would tell them.
Your biggest expenses are housing and taxes. Without a plan to deal with both of them you will reach the end of your life broke, which is what most people do. Happily, that doesn’t have to be you or your kids or grandkids. If anyone follows this simple plan they will retire pretty well-off, not at the mercy of others, and able to make their own life choices.
This plan does not require any skill, know-how or good luck. It simply takes the rules of the game and makes them work in your favor. Choose not to follow this plan and the rules work against you and in favor of others.
I think of all the things I did throughout the years to try to better myself, to be smarter than the average guy, to make a windfall profit and get ahead of the game, and I kick myself. I could have done just as well by following this simple plan and not trying to overthink it.
And what is this amazing plan? Here it is – buy a house, live in it 30 years and pay it off. It’s as simple and as difficult as that.
Most people don’t do this because they move up as their incomes improve and they start the 30 year clock over. They take out equity for their daughter’s wedding, or a thousand other reasons. But to follow the plan you must not take equity out for any reason. If you move, you must get a loan that will be paid off at the same time as the old one. You must not let anything derail you, you must guard this plan like your financial life depends on it because it does.
The rules are set up so you can win if you follow this plan. Buy a house and you solve the housing and the tax problem both at the same time. Your taxes will be lower because the interest and real estate taxes you pay on your home are deductible from your income taxes. And after 30 years your housing expense will disappear when the house is paid off.
If you don’t like this plan, then tell me what is your alternate plan? If you decide to rent, then in addition to paying the rent you will have to put something into savings every month so that you have a large nest egg at retirement. Most people can’t do that, there isn’t enough money to go around.
You might think you can make a ton of money with company stock options, starting a business or making a shrewd investment. Go ahead and do those things, but not at the expense of the plan. The plan is guaranteed to work – everything else may or may not go your way.
If you follow this simple plan, when the time comes you will be able to retire easily because your total living expenses will be so low. And you will have many interesting options at that point.
You could sell the house, downsize, and invest the rest in another income property. Or you keep the house, rent it out for income and go live where the grandkids are.
Now when I say “downsize” don’t automatically think that’s a negative thing or that you’re going backwards. Just think of it as a vehicle to get you where you want to go and to live the life you choose. You could downsize to a smaller place when the kids are gone or to a house the same size in a less expensive town since the school district doesn’t matter anymore. There’s always a way you can downsize and lower your expenses. Carlsbad to Oceanside. Vista to Temecula. Temecula to a manufactured home in Hemet. Or to an RV and travel. Or build a guest house on your property and live in it yourself while renting out the main house. So many people I know have followed this plan and now are living the life they want. How about spending time with family in different parts of the country while collecting vacation rental income from your paid off house?
The point is, no matter what happens to interest rates, the stock market, the economy or house values, I know this one thing – if you pay off your house in 30 years then you will have almost free housing for the rest of your life and an asset that can generate income forever. Will your house be worth more in 30 years? Probably, but I didn’t even consider that in the plan. The point of the plan is to have a place to live that’s completely yours, not to make a fortune in real estate. But if you do, all the better!
The alternative is to get to the spot 30 years from now where you are too old to work and are scrambling to pay the mortgage payment or the increasingly high rent each month. Please don’t be that person! Follow this sample plan and take charge of what your life will be like when you retire.