After a short break, I'm back with the next step in your financial plan.  This step is about getting to the point where you can host a mortgage burning party.  Unfortunately, a mortgage burning party has almost become a thing of the past.  Simply put this type of party is held when you own your home free and clear without any outstanding mortgages.  How does this happen?  Well, pay off any and all mortgages on your home!  This is the step that will most likely take the most time, and most people should be able to pay it off in 15 years or less.

So, Why pay off your mortgage?  So you can run through the grass barefoot in your backyard and know that it is all yours baby!!  Okay, more seriously, can you imagine owing absolutely nothing to anyone.  No debt payments period.  What could you do if you were able to sock your mortgage payment into a mutual fund… How wealthy could you become?  How much could you give away to all of those charities you believe are deserving?  How much could you pass on to your children and your grandchildren?  How would it feel to be able to do almost anything you wanted?  Remember, when you don't owe anyone any money then you can do almost anything you want! 

Paying off the mortgage takes that last bit of risk created by debt out of your life.  It frees you in so many dimensions.  Paying off the mortgage means you get to keep more of your money.  It means the banker will have to find his next Porsche payment somewhere else.  Now some of you are going to ask, "What about the deduction?".  Let me break it down for you.  A deduction means that you get a small portion back of a much larger chunk that you gave to someone else.  Notice the words "small portion" and "larger chunk".  The numbers typically look like this.  You send the bank a large check and the government gives you about 25 to 30 cents on the dollar back to you in the form of an income tax deduction.  Without a deduction, you get to keep the money you would have sent to the bank, and only send the government the 25-30 cents per dollar.  Here are some more concrete numbers to illustrate:

Current interest payment : $1,000 per month (this goes to the banker's Porsche payment)
Deduction from government: $300 dollars back to you.  Notice that you paid 1,000 dollars to get 300 back.

NOTE: The above sounds like a really bad idea as a long term strategy to build wealth.  Why would I ever want to intentionally give one thousand dollars away for the sole purpose of getting three hundred dollars back.  By the way, you can still get this deduction if you really want to.  Just give the $1000 to your local church or non profit organization and you will still get 300 dollars back.  Imagine that!

Using the above numbers, if I pay off my home and the interest of $1000 goes away.  I will have $1000 dollars in my pocket.  For taxes I will need to send the IRS $300 dollars.  However, I still am $700 dollars ahead of the game versus $300 that I had under the first plan.

I'm paying off my mortgage as fast as possible in this step. And when I'm done. I'm going to host a big mortgage burning party.  We'll probably cater in some food, invite a bunch of friends and throw a huge party.  We'll also burn a copy of the mortgage (always good to keep the real thing around). I can't wait.  It's going to be a while before we get to do this.  Probably about 10-15 years. 

Can you imagine what it would be like to not have any debt, have a full emergency fund, fat retirement accounts, college for the kiddos and no mortgage payment? Do it!  What are you waiting for!

UPDATE: 03.05.2008 - Corrected typo, added a sentence, and corrected another sentence.