Frugality is about being frugal, thrifty or prudent in consuming resources such as time, money or even food. At it’s heart it’s about not necessarily spending zero money, but I think at least, getting great value for the time and money you put in. So how does being frugal to your home loan apply exactly?
Not Cheap, Frugal
To start with I just wanted to note that frugal and cheap aren’t the same thing. A cheap person simply always buys the item that’s lowest in price. This can sometimes be fine if you’re not buying anything that’s important like post it notes or a bag of chips.
However once you’re buying important things that should last a long time and perform their duties well, such as hot water heaters, cars, clothes etc buying the cheapest item usually ends up costing you more money. This is because the car or water heater will break down more often than the slightly more expensive product costing you more in the long run.
They can also often cost more to run or just not last as long as the more expensive variant. A good pair of shoes can easily last you 10+ years with no problems and still not cost that much. Meanwhile a $10 pair will fall to pieces after a few months. You then have to waste your time, money and effort going and buying another pair all over again.
The Most Effective Way To Mutilate
So to detail the most efficient and effective way to Mutilate Your Mortgage I’m going to break this down into two tiers. One covers what will give you the most bang for your buck while the other deals with paying the least amount of interest to the bank.
To get the most bang for your buck (including spending the least amount of time) I recommend aiming to reduce your mortgage pay off time from 30 years to 15-10 years. As interest on loans is an exponential function, once you get closer and closer to the 0 years mark the effort required becomes far higher.
As such, cutting your mortgage in half to 15 years is pretty damn easy. Paying it off in 10 years rather than 30 is a little harder… but still quite simple. Doing it in 5 years takes a lot more effort and below 5 is usually impossible
While paying a mortgage off in 5 years will obviously save you more interest than taking 10 years to pay it off, getting to that 5 years mark will take a huge amount more effort. So if you want the best results and the least amount of effort aim to pay it off in 15 years.
I’ve covered exactly how to do this “least amount of effort” process in a previous post: How To Pay Off A Mortgage In Half The Time.
If however you want the other side of things where you pay the least amount of interest then you’ll need to set things up a it differently. Doing things this way means you don’t have a fixed time period where you pay your mortgage off in x years. Instead, you simply plough as much spare cash you have into your mortgage at all times.
This is efficient and effective because it maximises the amount of interest you save and minimises how long you’re stuck in debt for. While this takes a lot more effort to constantly cut expenses, try and earn more income and so on, it’s frugal to the heart as you’re saving all the money you can.
It’s the path we took to obliterate our $400,000 mortgage in just 6.5 years and I’ve also gone and completed many use cases for all the different types of incomes, loan sizes etc so everyone can have a clear example of how to do this.
Don’t Go Too Far!
While being frugal is a must when paying down debt, being thoughtful of what you’ll be doing in the future is also really important. Whether it’s next year or 10 years time, make sure your quest to be frugal or kill that mortgage doesn’t cause you problems down the road.
For example you don’t want to be working two jobs and 120 hours every week just to pay off your loan quicker but then have a huge mental breakdown. Buying the cheapest clothes you can find might save you some money to put towards your repayment, but how long are they going to last? Would you have been better off buying slightly more expensive ones that lasted five times longer?
Clothes are also a tricky point as it contributes to how others perceive and react to you. Dressing cheaply can not only be uncomfortable and not save you money, but can also mean people don’t take you seriously, notice you for various opportunities and can even cause rashes or back problems if things get really bad.
Frugality and continuously ensuring you’re not inflating your lifestyle is fantastic. Just make sure you don’t take it too far, even when your mortgage is involved.
The benefits include: 1) How to pay off your mortgage faster than 99% of people with one hour a month of work 2) How to get rid of your debt and have the freedom to spend money on the things you love, guilt free 3) Clear outline of how to setup your expenses, mortgage and general finance 4) How offset accounts work and how to get the same result without being gouged by the big banks 5) How to cut through the crap and focus on the things that truly matter when taking down a mortgage 6) How to adjust the strategy so it works for you, even if you have kids, even if you only have one income 7) How to do all of these things and maintain a normal social life (and never be cheap).