Why did you pay off the mortgage early?

Chris:  Intuitively, it just felt right.  For a few years there, we were a bit flush with cash, with two of us working and zero to one kids.  Looking forward, I knew eventually the economics would dictate that one of us should stay home.  I like to keep things relaxing, and counting on the market to grow our wealth while carrying debt was calculus that made me uneasy.  Maybe you can boil it down to a low degree of confidence in corporate America, which I knew pretty well.

Marta:  The plan originally was to pay off the mortgage while we still had two incomes, before our first child was born.  That way I could quit and be a stay at home mom and with the loss of income we would also have less debt.  Yes, I grew up with Depression era parents who always encouraged saving, and I’ve never liked any kind of debt hanging over my head.

How long did it take from the time you decided to do it and when it was paid off?

Chris:  It’s a bit hard to remember, but I’d guess about the 5 year mark, we started to see that we could do it if we really wanted to.  I think we had it paid off by the 8 or 9 year mark.

Marta:  I bought our first house in 1992, on just my income, even though we knew we were getting married soon.  We didn’t want to have too much of a house to pay off.  We got married in 1993, and every month put extra on the principal.  Also around that time my mom gave me a sum of money from my late father’s estate that I put on the principal and we refinanced to a 15 yr mortgage.  We continued to pay a good amount on the principal every month and in January 1998 we paid that mortgage off.  John (Marta’s first child) was born in April 1998 and I quit my job.

Did any friends or family members think you were nuts?

Chris:  There were probably people who thought we were nuts.  But if they knew me well, they knew I was nuts already.  I think after the fact when people found out (and we didn’t really advertise the fact) they’d say ‘man, wouldn’t that be nice.’

Marta:  My brother-in-law especially thought we were nuts.  He thought we should invest the money we got from the other house.  But then we would still have had a house payment.  And also he doesn’t have any kids and I tried to explain how my situation was different from theirs, and that the peace of mind from no mortgage was priceless when you want to stay at home with your three kids.  I also told him that if, for some reason, Nick (Marta’s husband) lost his job, it wouldn’t be so devastating financially.  Ultimately he didn’t understand my point of view.  My mother was very supportive, she thinks it’s what everyone should strive for, since they never had a mortgage!

Would you do it again?

Chris:  In my mind, life without debt is a better life.  So yes, we’re always going to be working to lessen or eliminate our debt load.

Marta:  I would definitely do it again.  It made it easier for me to stay at home.  And we were able to save for the kids college and retirement and just in general, because we didn’t have a house payment.  I’m very glad for my parents influence.

Themes From Their Answers

Chris and Marta touched on so many themes with their responses.  I think they’ve covered all the major topics on this blog just in one interview with me!  Debt, paying cash for things, savings, living below your means and more.  Some highlights from Chris and Marta:

“I like to keep things relaxing”  – I interpret this to mean that Chris does not like unexpected, financial disasters.  Neither do I.   By being mortage-free, few emergencies in life could really “rock the boat” too much.

“low degree of confidence in corporate America”  – I interpret this to mean that Chris or his wife could be out of a job at any random point in today’s economy.  By having no house debt, he didn’t have to worry about dragging himself into a job he disliked just to pay the mortgage.  Ultimately,  Chris did quit his job to be at home with the kids, but that’s a whole separate story.

“grew up with Depression era parents” – Marta implies that she knows the importance of living life with no debt, paying cash for purchases and other habits we learned from her parent’s generation.  Today’s youth could learn more from Marta’s parents (and Marta!) than any personal finance book anywhere.

“John was born … and I quit my job” – well how many of you out there *wish* you could do that?  Quit your job to be at home with your kids.  It’s a positive step for nearly all families that do it.  Sadly, most couples think they need two incomes to get by today.  My wife and I took a 50% pay cut for her to stay home with the kids and we never looked back.  Smartest thing we’ve ever done.

“My mother …. never had a mortgage”  – this is totally incredible that Marta’s mother never had a mortgage.  Do you hear what I’m saying!!???  Her parents paid cash for every home they owned.  That is truly remarkable.  And although it may have occurred more  in the 1930s, 40s and 50s it’s still an impressive feat.  I would not say it was a common thing to pay cash for your home then or now.

“Life without debt is a better life”  -  Chris could not have said it any better.

“I would definitely do it again” – Marta knows where she stands in this hyper-materialistic society in which we live and she still would do it again.  But, Marta, what about you driving nicer, newer cars or taking more exotic vacations?  I already know her answer:  this plan works for her – her family and financial future.

Thanks, Chris and Marta, for letting me profile you on MattHutter.com!

• He was Johnny Carson’s announcer for 30 years (1962-92) on The Tonight Show
• He was host of the talent show Star Search from 1983 – 1995
• He became the well-known pitchman for American Family Publishing arriving at your doorstep to announce your winnings in the sweepstakes
• He has co-hosted the Jerry Lewis Labor Day Telethon
• In the 70s and 80s he helped anchor NBC’s coverage of the Macy’s Thanksgiving Day Parade

So, in essence, he’s had more career success than many folks experience in ten lifetimes. I enjoyed watching Ed on television and I like him as much as any other regular American. However, seeing this recent coverage announcing that he’s $644,000 behind on his mortgage payments on a $4.8 million house made me wonder quite a few things. (He did break his neck 18 months before the home foreclosure problem so that certainly affected his income generating ability.) According to one source, Ed was once worth $200 million in real estate holdings in Malibu, but the same source neglects to mention one key fact: how much did he owe on that real estate? At age 26, financial phenom Dave Ramsey had $4 million worth of real estate but he owed $3.5 million on it and ultimately went bankrupt. OK, back to Ed. He peaked with a potential net worth of several hundred million dollars. He was beamed into our living rooms for over 40 years. He was arguably one of America’s best emcees and announcers and co-hosts. But when you take away all the glitz and glamor and career success he’s experienced, he’s just another Joe Six-pack getting pinched in a foreclosure mess. Although his mistakes have a couple extra zeros on the end of them in size.

Lessons Learned from Ed McMahon’s money problems

• If you have no savings, all your material possessions are useless when your income stops
• Massive financial success in your career does not guarantee financial success managing your money (see M.C. Hammer, Michael Jackson, Mike Tyson, Burt Reynolds, etc.)
• Relying on future income exclusively is not a financial plan (see Ed’s broken neck)
• Having multiple divorces destroys net worth real fast

At the end of his career and life, will Ed wish that he had done things differently? Would any of us trade his life for ours? For some, the cost of a huge income is all of the huge problems that sometimes go along with that huge income.