I received a few e-mails requesting those details so, as promised, here is the data:

February 29, 2012 Sales:
TransCanada Pipeline – $43.02
Sun Life Financial – $$21.70
Proctor and Gamble (USD) – $67.70

March 1, 2012 Sales:
Crescent Point Energy – $46.98
Fortis – $32.70
Davis and Henderson – $17.63
Power Corp. – $25.50
ScotiaBank – $55.59
Bonterra Energy – $55.59 

March 2, 2012 Sale:
Annaly Capital (USD) - $16.50

 All securities traded in Canadian Dollars on the Toronto Stock Exchange unless otherwise noted.

I am currently in the process of building the portfolio back up and am sitting in mostly cash at the moment – which is fortunate for me as the market has backed off some from when I liquidated this account in early March.

I am not going to argue that motor vehicle transportation isn’t convenient, or even necessary in some circumstances, but it certainly is a bad investment in most cases. As a site that focuses on cash flow, unless you have tens of thousands in credit card debt, having a car payment is quite possibly the worst debt you could have.

Let’s Examine Vehicle Ownership

A car loan is typically amortized over anywhere between 4-6 years. So, for half a decade you are paying off a car that also costs you money in fuel and maintenance. Even if you have a warranty, you still need to replace the tires, filters, fluids etc.

From a cash flow perspective, depending on where you live, it is quite feasible that a vehicle loan plus the additional costs of ownership could eat as much of your monthly cash flow as a mortgage payment would. Yes, there are the associated costs of home ownership as well, but with a home you are making payments on what is (in the vast majority of cases) a long term appreciating asset that will also have utility long after your precious car has driven it’s final mile.

My household does use two vehicles, both 10 year old Hondas, that are owned outright. I do commute to work from the suburbs, so I am not as hardcore as some others, like Mr. Money Mustache, who bike almost everywhere. However, I do own a functioning bicycle and view it as an excellent means of transportation when the weather allows. I digress.

If you do need, or want, a vehicle I highly suggest buying a safe, reliable used vehicle for cash and driving it for as long as possible. Limiting your vehicle expense will allow you to focus your cashflow on gathering appreciating assets like real estate, dividend paying common stocks, and businesses. Don’t concern yourself with keeping up appearances with your vehicle. If it is -30 degrees outside and someone needs a ride, trust me, they aren’t going to care what kind of car you drive as long as they aren’t walking!

Plus, imagine how quickly your investment account will grow when you put the equivalent of a car payment on top of your regular savings each month.

This advice is especially true for new college graduates. Even though you’ve done a great thing by graduating college and landing that new job, please don’t go out and get yourself committed to six years worth of car payments on top of trying to pay back your student loans and save up for a down payment on a house… it just isn’t worth it in the long run.

Remember – you can have anything you want, you just can’t have everything you want!
(At least not right away)

How Does It Feel?

In Joe’s comment, he offered up that I had missed a reason to pay off my mortgage and that is the peace of mind that it offers.

While he is correct that it does offer peace of mind knowing that as long as I pay my property taxes, my house will never be taken away from me, it honestly doesn’t ‘feel’ any different.

It isn’t that I expected to feel much different without a mortgage payment every month, but for some reason I expected to feel something. Maybe I expected to feel relief, or satisfaction?.  In any event, I do not regret the decision whatsoever, but the shift of stress now seems to have planted itself squarely on the shoulders of replenishing the investment and savings account(s).

What To Do With That Extra Cash Flow?

Because the majority of the cash that was used to pay the mortgage off came from a brokerage account, the former mortgage payment is now being directed to that account to replenish that capital.  I have automatic transfers set up and am currently treating this as a ‘bill’ that required being paid each month just like the mortgage did.

Treating the transfer of funds to my investment account as a bill is likely part of the reason that it doesn’t feel any different not having a mortgage.  I set this up on purpose to ensure that I do not fall victim to lifestyle inflation . I certainly don’t need to frivolously spend that extra cash simply because I don’t have a mortgage payment any longer.

 Since I already max out my retirement accounts, have no other debt and an emergency fund, the replenishment of the brokerage account will be the top priority. Some of those funds will also be earmarked for a few things that have been neglected in the quest to pay off the mortgage. The earmarked funds will be directed to the following categories:

1.) Vehicle Replacement Fund – Although both 2003 Hondas are still serving us well, replacing one of the vehicles in the next few years is likely inevitable.
Disclaimer – I absolutely hate buying vehicles. I believe that they are the worst use of money and generally cause people more financial troubles than housing debt. More on this in an upcoming article.

2.) Home Maintenance – While major repairs such as a new furnace or air conditioner would be covered by the Emergency Fund, a more general home maintenance fund will take care of deferred maintenance such as new paint, upgraded finishes, shingles etc. A home should maintain or increase its value over the long term, especially if it is well maintained. And, a well maintained home is more efficient and comfortable to live in.

3.) Vacation Fund - It was important to my family not to sacrifice too much in the quest to become completely debt free, so we did take vacations every second year. However, with the additional cash flow from paying off the mortgage, some of the funds will be earmarked to increased vacation time. This doesn’t mean frequent air travel and/or all inclusive luxury vacations, but simply more time with friends and family. Spending from this fund could include local camping, visiting friends and/or family in their homes, or destination vacation travel. The idea is to invest some money and time in fostering relationships with others – including the immediate family. Often, being away from the distractions of home life allows people to focus on just being together.

 As you can see, there are plenty of places to direct the additional cash flow from what used to be the mortgage payment.   Due to all of these different competing priorities, it doesn’t feel like there is extra money to go around. That said, regardless of which account the funds get transferred to now, the net result is the accumulation liquid assets.

Did I miss anything that you feel is important?  What is the first goal that you will focus on when the mortgage is paid off?

Because I was paying just 2.5% on the mortgage proceeds, it was a very difficult decision to sell off some of my equity holdings and liquidate some of my savings to pay the mortgage out completely.

At the beginning of March 2012, I started selling off some stocks and finally paid out my mortgage on March 16, 2012.

Why Paying Off The Mortgage Was Right For Me

The one constant that we have in personal finance is that everyone’s situation is different. That is, in effect, what makes personal finance “personal” after all.

In my particular situation there were a few things that seemed to align, leading me to the conclusion that paying the mortgage off completely was the right thing to do.

1.) Variable Rate Mortgage

While I was paying just 2.5% on my mortgage, it was a variable rate mortgage (Prime – 0.50%). This means that the rate could change in the future, and at this point, rates really have nowhere to go but up!

That said, I had paid down the mortgage enough that even a sharp increase in the rate wouldn’t make or break my ability to service the debt. However, any increase interest rates would result in me sending more money to the bank – I think we can agree that sending more money out is not the ideal situation.

2.) Cash Flow Analysis

Cash flow is the ticket to play the game!

You may have heard me say that before, but it is absolutely true. Regardless of your balance sheet, if you are not generating enough cash to service your expenses (liabilities) then you are drowning.

In this case, it wasn’t that I was not able to service my expenses, but the fact that the amount owing on my mortgage balance required more in cash out-flow each month than the corresponding savings/investments were producing. Put another way, my monthly mortgage payment was higher than my average monthly income stream from my savings and equity holdings.

3.) Emergency Fund

As you know, it is very important to have an Emergency fund. Many financial gurus suggest 3-6 months of living expenses.  I am more conservative than that and preferred to wait until I had an emergency fund of 12 months of living expenses.

What is important to note is that my mortgage payment was my largest monthly expense. Once I had amassed enough to pay off the mortgage and still have 12 months of living expenses covered (not including the mortgage payment, obviously) I felt I would have enough liquid cash available for emergencies to pay the mortgage off completely.

4.) Stock Market Rally

Over the course of the previous several months, the stock market had been rallying without any signs of retraction. Many of my holdings had been reaching 52 week highs or all-time highs and the metrics did not seem to justify that kind of steep advance in price.  In addition, any rally of several months without a pause or retraction is generally unsustainable.

Note: I am far from a successful technical analyst or market trader, but the length of the rally and the fact that I was finding it hard to justifying adding to existing positions or entering in to new ones, led me to believe that the market may be over extended and it might be a good time to cash out and pay off the mortgage.

As you can see, it wasn’t just one factor, but a number of factors that came together at the same time that led me to believe that paying off my mortgage was the right decision.

It should also be noted that none of the equities or savings that I liquidated to pay off the mortgage came from retirement accounts or my retirement pension/employee savings accounts.  It is of the utmost importance that those accounts stay in tact.

As with all decisions related to personal finance, everyone’s situation is unique. This post is not advice for you to pay off your mortgage, or follow the same path that I took. The above set of circumstances just happened to come together for me  and led me to the decision to pay off my mortgage.

If there is enough interest, I will provide a follow up post with the dates, prices and names of the stocks that were sold to pay off my mortgage.

If you have paid off your mortgage, or are planning to in the near future, I would love to hear your story in the comments!

Cheers!

These are the tried and true money management rules for traders, given to us by the greatest trader of all time.  I felt obligated to share these points as I read through them- even though I am more of a long term investor.

I have always said that there are many ways to make money in the market and that you can always learn from others.  That said, please take these words of Mr. Livermore and figure out what they mean to you and your investing or trading plan.

1) Don’t lose money.

Don’t lose your stake. A speculator without cash is like a store-owner with no inventory. Cash is your inventory, your lifeline, and your best friend. Without cash, you are out of business. Don’t lose your line.
There is no place in speculating for hoping, for guessing, for fear, for greed, for emotions. The tape tells the truth.

2) Always establish a stop.

A successful speculator must set a firm stop before making a trade and must never sustain a loss of more than 10 percent of invested capital.
I have also learned that when your broker calls you and tells you he needs more money for a margin requirement on a stock that is declining, tell him to sell out the position. When you buy a stock at 50 and it goes to 45, do not buy more in order to average out your price. The stock has not done what you predicted; that is enough of an indication that your judgment was wrong. Take your losses quickly and get out.

Remember, never meet a margin call, and never average losses.
Many times I would close out a position before suffering a 10 percent loss. I did this simply because the stock was not acting right from the start. Often my instincts would whisper to me:J.L., this stock has a malaise, it is a lagging dullard. It just does not feel right, and I would sell out of my position in the blink of an eye.

I absolutely believe that price movement patterns are repeated and appear over and over with slight variations. This is because humans drive the stocks, and human nature never changes.

Take your losses quickly. Easy to say, but hard to do.

3) Keep cash in reserve.

The successful speculator must always have cash in reserve for exactly the right moment. There is a never-ending stream of opportunities in the stock market and, if you miss a good opportunity, wait a little while, be patient, and another one will come along. Don’t reach for a trade, all the conditions for a good trade must be on your side. Remember, you do not have to be in the market all the time.

The desire to always be in the game is one of the speculator’s greatest hazards.
When playing the stock market, there are times when your money should be waiting on the sidelines in cash waiting to come into play. Time is not money “ time is time, and money is money.

Often money that is just sitting can later be moved into the right situation at the right time and make a fast fortune. Patience is the key to success, not speed. Time is a cunning speculator’s best friend if it is used wisely.

4) Let the position ride.

As long as the stock is behaving normally, do not be in a hurry to take a profit. You must know you are right in your basic judgment, or you would have no profit at all. If there is nothing basically negative, then let it ride. It may grow into a very large profit. As long as the action of the overall market and the stock do not give you cause to worry, have the courage of your convictions, and stay with it.
When I was in a profit on a trade, I was never nervous.

Of course the opposite is true as well. If I bought a stock and it went against me I would sell it immediately. You can’t stop and try to figure out why a stock is going in the wrong direction. The fact is that it is going in the wrong direction, and that is enough evidence for an experienced speculator to close the trade.
I do not and never have blindly bought and held a stock.

To buy and hold blindly on the basis that a stock is in great company or a strong industry, or that the economy is generally healthy, is, to me the equivalent of stock market suicide.

Stick with the winners. Let them ride until you have a clear reason to sell.

5) Take the profits in cash.

I recommend parking 50 percent of the profits from a successful trade, especially when the trade doubled the original capital. Set the money aside, put it in the bank, hold it in reserve, or lock it up in a safe-deposit box.

Like winning in the casino, it’s a good idea, now and then to take your winnings off the table and turn them into cash is the single largest regret I have ever had in my financial life was not paying enough attention to this rule.

More great information on Livermore can be found here.

Have an awesome day!