Making Sense of the Family Budget – Part 2

So, last time I took a look at my regular spending and the costs which make up my monthly budget. I plan to tackle each of those sections to see what savings I can make but, in the mean time, I have been giving a lot of thought to the one part of the budget I did not really touch on last time, but which eats a huge chunk of our family income – Housing costs.

I have a kind of endless debate going with myself as to what we should do with our housing situation. We are very lucky to have been able to buy a house that perfectly suited our needs and which we were, due to timing and the previous owners situation, able to buy at significantly below the market value of similar properties in the area. So, with no real skill or real estate knowledge, we have managed to make a fairly good investment. We’ve also done work since moving in to update and improve the property which is also likely to be reflected in the increase in value since we moved in. Add to that a slightly obsessional approach to overpaying the mortgage buy $200 each month as soon as we were moved in and settled, and we find ourselves in a position where we have managed to claw together a fair amount of equity which in the property we own.

We are aware that, were we to sell and downsize, we could afford to buy something outright and be mortgage free. This is an idea which constantly dances around my mind and, I have to admit, I am seriously tempted. The mortgage plus the overpayment, if it were freed up, would throw open some very interesting possibilities for us. The Mr. and I could continue working in the roles we have now, meaning that we have a significant amount of ‘spare’ cash each month. This could be invested, with a view to retiring early, or it could be used to fund a different lifestyle, with more frequent holidays or activities which we currently have to save up for. Alternatively, we could simplify our lives, and use the cut in costs to free Mr and I up to make work choices based on what we enjoy and not how much we can earn. This could be part time hours, allowing for more family time, or even a change of career. Each of us has other professions we wish we had been able to work in but either the low overall pay or the cut in pay needed to go back to the beginning and retrain in a different industry means that neither of us feel able to pursue this at the moment. Being mortgage free would take the pressure of the finances and allow us to earn less without us suffering any hardship. Being able to earn less and still meet all the bills is a pretty tempting prospect.

But, for every opportunity that I can see a mortgage free life offering us, there is still part of me which isn’t sure. My carrying on, paying of the rest of our current mortgage, we will be accruing additional equity each month. When we do get to the point where, through other pension and investment planning, we have saved enough to be able to retire, we’ll be able to downsize and release the remaining equity. By keeping a house which is bigger than we need, in a more affluent neighbourhood than we need, we may well create a buffer against any future changes in our plans which I cannot foresee.

Being disabled means that I am constantly aware that I may not be able to continue working as long as I want to. My condition is degenerative and as time goes on it is getting worse. My mobility is reducing and my pain levels are increasing. For the moment, I am able to manage this, and I don’t plan on stopping work any time soon but I don’t know when that will stop being the case and, when the time comes, I don’t know if it will be better to know that my house is paid for and we can afford for me to stop work as soon as I need to, or if it will be better to know that, whilst we may need to sell and downsize in order to manage, we will have a larger pot to do that with, due to the mortgage payments in the intervening period.

I don’t know what the right thing to do is, I suppose the coward in me feels that pulling the trigger and going mortgage free will be harder to undo, as going back to borrowing later is possible but not ideal. I kind of feel as though, even if I am putting off the decision, at least every month that goes by is another payment and over payment made and that, if we do decide to jump, the time I have faffed about trying to decide wont be wasted. That said, I am aware that the boys are growing up fast and having more family time or the free cash to go on adventures together is an opportunity which is time limited. Once the boys grow up and go off on their own adventures, the Mr. and I can enjoy things together, but we cant recreate any of the time we miss out on working whilst the boys are small.

Please don’t think that, whilst I am mulling over these options, I am not aware how incredibly fortunate I am to be in a situation where these kinds of choices are available to me. I am just trying to work out how to best make choices for us in the long and short term.

What do you think? Is it better to be mortgage free in a smaller, simple, house or to use your property as a way of accruing equity you can release later in life?