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Making Hay & Some Thoughts on Risk and Pre-Paying the Mortgage

June 16th, 2007 at 09:33 pm

1. Making Hay: For the past couple weeks, DH has been making hay while the sun shines ... and before the sun comes up ... and long after the sun has set! DH owns his own business and he has a "peak season" that lasts for a couple months each year. During his peak time, sleep is a rather precious commodity. This year has been especially busy (which is a good thing when you're self-employed). I've always helped him out a bit here & there with the business when he needs it, but a couple days ago he admitted that it's all too much to handle on his own right now, and so I basically jumped on-board as his assistant. [Fortunately, I used to work in the same field, so I know the business.] For the past couple days, I've been helping him out 5-6 hours a day with office work (on top of running my own little business), and even got his "looked-like-a-tornado-hit-it" desk in order. And I've been taking extra special care to make sure he gets nourishing & healthy meals, encouraging him to go get some sleep whenever he can, and covering for him so he can go hit some golf balls at the driving range (that is where he does his best thinking). Normally I don't "mother" him, but this time of year is different and this year especially so.

It has been great working with him so closely. I have always known he's a REALLY smart guy, but I must say I never fully appreciated what a nimble business mind he has until now.

2. Some Thoughts on Risk: I've been looking for a way to explain my stance on risk and investments. I'm sure some of you on these boards have thought I'm extremely conservative when it comes to investing. And you're right. If you looked at our financial "books" without knowing our whole story, you would probably think that we are invested WAAAAAY too conservatively for our age (plain vanilla index stock & bond funds, Treasuries, and a percentage in boring FDIC-insured deposits that doesn't make sense for most people). But the fact is, where we do take a tremendous amount of risk is with our business.

A couple weeks ago, at the start of DH's peak season, we had a conversation which perfectly illustrates this. One guy DH sells to just left "Financially Rock-Solid Major Corporation XYZ" to go to work with one other guy we know (they're a little 2-man operation now). We have a 20-year history with this guy, going back to when he used to be my colleague (he even came to our wedding), and we know he is a man of tremendous integrity; we trust him as much as you can another person who is not your own family. Nevertheless, any time you extend credit to someone you are taking a risk, especially when it's a new company. Big companies that have "risk assessment / credit departments" (or whatever they are called) probably would not give this guy the time of day. But what DH & I did was sit down and have a brief conversation. I asked DH "Worst case scenario ... How much $$$ could we lose and still survive?" In just a minute or two, we came up with an amount, and that's how much credit we are giving the guy. Ten years ago, hearing that amount may have made my heart stop beating, but now it's not even something I lose any sleep over. Do you think we're insane? I don't. It's a calculated risk, and without taking a risk like that we would have lost a valuable customer and an opportunity to expand DH's business. Besides, we remember what it was like when DH was just starting his business and people took a chance on him ... He has not forgotten what those guys did for him and he and is still extremely loyal to them. [It probably won't surprise you to hear that the guys who took a risk on DH are also self-made guys who started small.]

Having risky financial investments on top of the risk involved in DH's business would just be too much. We have to balance things out in a way that works for us.

3. Pre-paying the Mortgage: Maybe this is also a good time to explain why for us it made perfect sense to pre-pay our mortgage. Whenever DH had an especially good year with his business, we kept our expenses the same, continued maxing out our tax-deferred retirement savings, kept our cushy EF plus whatever was needed to ensure the business could keep running smoothly, and then took anything extra and paid down the mortgage. The alternative would have been putting more in those previously-mentioned ultra-conservative investments. So, for us, paying down the mortgage made sense for 2 reasons: 1) The return on the alternative investments probably wouldn't have been any better than the mortgage interest rate, and 2) Given the amount of risk you take when you're self-employed, there is something very reassuring about being able to say, "No matter what happens, at least we'll have a roof over our heads!" It gives you a certain amount of courage to take the business risks that you need to.

Well ... I know this is probably much more than any of you ever cared to know about me, and I should go get some sleep so I can get back to making hay tomorrow!

4 Responses to “Making Hay & Some Thoughts on Risk and Pre-Paying the Mortgage”

  1. LuxLivingFrugalis Says:

    I think it is helpful to write out why you did/do things the way you are. When times change you can always reassess, but writing it out sometimes brings clarity & certainty to the surface or finds the places where the greatest tension/problems/opportunities for change lie.

    It sounds like you two are a great team and have your heads screwed on extremely straight! Appears to be a good plan for you guys at this time and place in your lives. YEAH YOU!!

  2. Ima saver Says:

    I find your post extremely interesting. My husband has been self employed for almost all of the 30 years we have been married. A lot of people think we are crazy for keeping so much cash in banks, but we need it to buy land and build spec houses. we have never had to pay any interest on loans because we pay in cash.

  3. monkeymama Says:

    Makes sense to me. I feel like the odd on out on the not pre-paying crowd usually, but mostly because it makes no sense where we are at today. If I were where you are at I would prepay the sucker too. Everyone's situation is different!

  4. Amber Says:

    I agree with Lux reviewing the past makes a better future. I don't understand why people who have mortages who can pre-pay don't becuase they get a tax break

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