The Newest Status Symbol

This is guest post from my dad.  In an old post, he described his thoughts on the business of relationships.

When you get to looking back on things in your life that seem important one day and have very little lasting impact on your quality of life, the biggest one has to be the status symbol.  Advertisers, bankers, friends and others convince you that these things are something you have to have and your life will not be as good as everybody else’s without them.  I can recall many things that were at one time considered status symblols if you had them.  Vacation homes, expensive cars (Mercedes or BMW), trendy Christmas toys and clothing brands that are too many to remember have come and gone over the years.  I think even the most frugal and level headed among us will admit to falling victim to a status symbol for the value of it. Most are no longer considered to have much status as the $100 pair of jeans has been replaced by the $185 pair of jeans.  The price of attaining status has continued to go up over the years.  I think the air Jordan craze started it all in clothing.  Nobody wanted their kid in Converse all stars anymore, and no kid wanted to be wearing Converse all stars when Air Jordan’s’ came out (Jeffs note: unless you were/are an L-7 weenie)!  I think I have finally noticed a new status symbol creeping into people’s financial discussions- Paying off a mortgage!

Lasting Impact

This latest status symbol has been seen sneaking into the main steam now is one with more value and more lasting impact than your worn out BMW that now costs an arm & a leg to fix.  I believe that symbol of having a paid off mortgage on your home has come to the forefront since the aftermath of the financial crisis left people gasping for their financial lives.  The current state of the financial meltdown has upended many people’s financial life and lifestyle.  Using your house as a piggy bank and emptying out the equity that you build up propped up many unsustainable life styles. Those chickens came home to roost and now I hear people talking about having there mortgage paid off and how much better they feel.  Although the U.S. tax system makes it seem like you should always have a home mortgage (I subscribed to the theory for a long time) to get the tax write offs, I recently decided that having a paid off mortgage would allow me to pay whatever I owed as my fair share of the national tax burden.  The old fashion 30 year note is now so low that making double principle payments is within many average income peoples reach.  A 15 year loan makes the most sense for those just starting out as they will save a load of interest over the life of the loan and get it paid for just when kids’ college bills may be kicking in.  Interest rates are so low now you could easily get into a 15 year note.  My first home loan was 19% and the owner bought it down to 16%.

Jeff’s note: I agree with this.  Many people have seen family members, friends or neighbors lose their home, and I think it has rattled a lot of cages.  Once you pay off your mortgage, no one can take your home from you – it’s yours (Unless you fail to pay taxes, but we wont get into that).

Less Stress (and Cash Needed) Later in Life and Retirement

Having a paid off mortgage would make many people’s lives and retirement a much simpler and less stressful process.  I cannot imagine having a mortgage to pay going into retirement.  I think that is why they say you should have 70-80% of your pre-retirement income when you retire.  Not having a mortgage will enable you to get by on much less.  The pride that I have seen in people with a paid off mortgage note is unmistakable.  This has been a much more difficult goal to attain, but worth the long term commitment.  Having a paid off mortgage demonstrates an ability to plan and make sacrifices over the long term to attain a truly worthwhile goal. Having accomplished this, it will enable a person to make many more choices in their life and be much more financially secure. Owning your home (not living in a bank owned home) has now taken up its rightful place in the American consciousness again.  For true financial security, you should strive to pay off your home.  You will be able to sleep better at night because of it.  Time is your ally in this endeavor and getting in a hurry will almost always lead to dire consequences.

Readers: Do you have a paid off mortgage?  If not, are you working on paying it early, or are you focused on other debts?  Those of you with a mortgage, how would it feel to not have to pay that  amount every month, but instead keep it?

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32 thoughts on “The Newest Status Symbol

  1. I think it would be great if paying off your mortgage was becoming a status symbol. It’s a much better measure of whether you have your life together than whether your can put some jeans or shoes on your credit card.

  2. Yes, having a paid off house is waayy better than having Air Jordans. 🙂 And love your The Sandlot reference.

    I haven’t mapped out a plan to pay off our mortgage early but it will be coming soon. I want to build our efund more get to the point where we can comfortably max out Roths before I try to tackle the mortgage. I am thinking within the next few years.

    • Thanks nikki – I agree – while you can eventually wear out your jordans, your house will wear out as well but can be repaired. (you also cant live in a shoe). Good luck with your mortgage plan.

  3. I definitely believe having a paid off house is a great thing, especially before retirement. So, maybe in the wake of the housing crisis, this is becoming a status symbol; especially since so many people lost their homes to bad decisions. Maybe this will become a trend – paying off a mortgage sooner than later.

  4. Who cares what your house payment is if you have passive income that can pay for it?

    To me, “making it” is having enough passive income that you don’t need to show up at a job to pay all your bills, no matter how expensive those bills might be.

    You just need more passive income with more bills, but the concept applies to any amount of spending.

    • Interesting point kevin, but how much harder would you have to work at one point in your life to acquire enough passive income to cover a mortgage?

  5. It will be interesting to see if the current push towards paid off mortgages, less credit card debt, and less materialism will persist after the economy returns to normal.

    I hope so, but I’m already reading about car sales jumping because credit is becoming more available. Not a good sign.

    • It’s not a good sign for those with poor finances, but it is a good sign for detroit. I’m afraid that some people will continue spending and going into debt after the economy heats up again, but I think there will be quite a few deep scars left after this one, which hopefully changed the habits of at least some people

  6. I completely believe that paying off a mortgage is a great feeling. When I was in mortgage, I could see customers beam in pleasure and satisfaction on pay-off day, and I have always dreamed of that day myself. Which is why we have a 15 year mortgage with a 12 year payoff plan for all of our debts, including the mortgage.

  7. The mortgage is our only debt and now that we have our emergency fund nicely funded (accomplished that goal this week!!) we plan to pay the mortgage off as quickly as possible. I have a 10 year plan to pay it off. It will be the biggest weight off my shoulder to have it paid off before I’m 35

  8. When I refinanced 7-8 years ago, I replaced my 30 year mortgage with a 15 year mortgage. As I get closer to retirement (5 years to go), I started accelerating my payments so I would have it paid off.

  9. Given that all the prior status symbols were mistakes, I would venture to say that paying off your mortgage at this point will be one too. Currently I have a 30y mortgage at 3.875%. After taxes, that is an interest rate below 3%. It doesn’t make nearly as much sense to prepay for 3% than it does for the 19% on your first home. My wife and I (after refinancing to this rate recently) agreed that we could probably never sell the house now, as it would make more sense to keep it as a rental. Additionally, with rates where they are, it may be possible to pay less than what you owe on your mortgage in the future. By this I mean when rates go up, the bond that is your mortgage will go down in value.

  10. I think this would be a great status symbol. It would be a genuine measure unlike other things people have which could be paid for on credit. We have no debt right now apart from our mortgage so we are lucky in that sense. However it would be awesome if we didn’t have that payment per month. We are working on it.

  11. As with any status symbol, also here, seeking status may lead to irrational decisions. In case it makes sense for you to pay of your mortgage, the promise of more status won’t hurt making the right decision. But if your mortgage is only costing you 3% on annual basis as someone earlier mentioned, you might have better ways to invest that money. I would first explore those alternatives before making a decision. Paying it off is of course always better than unnecessary consumption.

  12. Hi Jeff,
    I am currently writing a paper on the economics of happiness discussing: “is it better to be the richest of the poor or the poorest of the rich”. Essentially it’s a look into how important it is to be relatively richer than your peer group and how that affects your happiness.
    There’s a term used in the literature: “hedonic treadmill” refers to the need of people to keep up with the Jonuses, requiring bigger and better things to keep ones happiness levels sustainable and growing. From my research I’ve found that it’s more important to keep out of the rat race as best as possible and most importantly, don’t follow these trends. Try not to buy things for status purposes, that way you never get on the “hedonic treadmill” and your want do not continuously grow. That way you lead a happier more sustainable life.
    Incidentally, I have just written an article advocating long term renting on my blog. I would really appreciate if you could check it out and let me know what you think? All criticism welcomed.

  13. To Father SLB – great post!

    I agree completely. People think they need X million dollars to retire when they would probably do better with a paid-for house, a smaller nest egg, and some chickens, goats and a garden.

    Every time I see someone with a BMW, I now assume they are poor. I used to think the opposite.

  14. Your Dad is a smart man.
    I have noticed a trend amongst my friends and I (all in the 25 – 35yr old category) that paying off mortgages is becoming a huge priority.
    Luckily none of us are too concerned wether the other is wearing Air Jordans or the lates jeans. We’re all rather concerned with being debt free and independant.
    Now to focus on building passive income.

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