How Big Is Big Enough?

Happiness is hard to measure.

It's easier to see progress against milestones. That's what lets us know that we're closer to where we want to be. Getting an undergraduate degree is a straight forward goal. Four years and you get a piece of paper that tells you "Good job, you're done!" Pretty simple stuff.

If I told you I am "exactly two units" happier this month what, exactly, would that mean? More sleep? A faster computer? More chorizo tacos? (I hope so!)

Without anything to measure up against, it's easy to get lost.

Without anything to measure up against, we find other numbers to focus on.

Net worth, horsepower, square footage...

Think.

These numbers don't mean anything, really. They're just measurements, like how tall you are. These measurements don't matter. They're something we cling onto to try and "measure" our happiness and standing.

Numbers don't make you happy.

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What's the difference between a $200,000 house and a $50,000 house?

Let's do some math.

You are 24 years old, just graduated from college, and landed a new job that pays you $50,000 a year. Let’s then say that you then buy a home worth $200,000 and use a 10% down-payment of $20,000. You secure a mortgage for $180,000 for 30 years at an 8% interest rate. Fast forward 30 years.

Mortgage Summary
$1,583.28 Monthly Payment		$569,979.44 Total of 360 Payments
$306,654.44 Total Interest Paid		Sep, 2038 Pay-off Date
$75,000.00 Total Tax Paid		$8,325.00 Total PMI Paid
Monthly PMI 111 Monthly PMI Payments of $75.00 Each		Jan, 2018 PMI Pay-off Date

http://www.mortgagecalculator.org

If you work out the math, by the time you have finished paying off your mortgage, you will have paid a total of $570,000; $306,000 of this was just in interest payments. This means you paid two times the initial mortgage in just interest.

Two times the initial mortgage in just interest.

However, assuming 5% growth, your house price will have appreciated to $740,000. Keep this in mind.

Option 2

Instead of opting for the big $200,000 house, you buy a $50,000 one. Let’s also suppose that you decide to pay this house off in 10 years instead of 30. You still put down 10% but you decide to pay the house off in ten years instead of thirty. The mortgage payment with the big house is $1,583, while the mortgage payment for the smaller house is $611.

Now we invest the difference at 8% between the two payments $927 a month or $11,676 a year. Remember, after 10 years the house is paid off.

Mortgage Summary
$611.60 Monthly Payment		$73,391.90 Total of 120 Payments
$21,785.65 Total Interest Paid		Sep, 2018 Pay-off Date
$6,250.00 Total Tax Paid		$356.25 Total PMI Paid
Monthly PMI 19 Monthly PMI Payments of $18.75 Each		May, 2010 PMI Pay-off Date

http://www.mortgagecalculator.org

You bought a smaller house and a small mortgage, but decided to invest the rest of the money into a retirement nest egg. Your $50,000 house appreciated to $205,000, and you have a retirement nest egg of $1,302,960. Your total net worth would be $1,625,614.

Big house or early retirement?

It's your choice.