The $8,000 Cost of Peace of Mind

Since May 2024 I’ve “spent” approximately $8,000 on a strange concept called “peace of mind”. I think it’s been an absolutely excellent 20 month trade and well worth the cost, but a lot of people would take issue with my thoughts.

My wife Suzie retired at the end of May 2024 and insisted we pay off our small mortgage balance of $70,000 before she pulled the trigger. I wasn’t fully onboard with the idea, preferring to keep the money compounding in our portfolios. The math was straightforward enough. Our mortgage rate was low, our investments were performing well, and the opportunity cost of pulling that money out seemed unnecessary. I ran the numbers confirming what I already knew: keeping the mortgage made financial sense.

But marriage is a compromise and Suzie’s need for zero debt was stronger than my desire to keep the mortgage. She’d spent her entire banking career working with various forms of debt management, and the idea of entering that phase with any debt hanging over us genuinely bothered her. So we paid it off. And here’s where it gets interesting.

It’s a strange phenomenon, although the debt was relatively small and easily manageable I really enjoyed the new situation of being totally debt free, and that’s despite the fact we could have paid it off at any time with cash. The physiological effect is something that can’t really be measured on a spreadsheet or by rational thoughts.

Consider my position of being at ease with the debt but still feeling great when it was discharged. I hadn’t expected that. I’d agreed to pay it off to make Suzie happy, figuring I’d spend the next few years quietly mourning the lost compound growth. Instead, I found myself experiencing the same sense of relief she did.

There’s something about waking up and knowing you own everything outright. No monthly payment, however small. No balance sitting there in some bank’s ledger. The mental space it frees up is real, even if I can’t quantify it. I wasn’t ever lying awake at night worrying about the mortgage before. But apparently some small part of my brain was tracking it, processing it, keeping tabs on it. And now that part is quiet.

The $8,000 represents the opportunity cost, the difference between what our money could have earned invested versus what we saved in interest payments. On paper, it’s a loss. In reality, it’s the price we paid for something that turns out to be genuinely valuable: complete financial freedom and the psychological ease that comes with it.

Would I recommend this approach to everyone? Probably not, there’s too many variables: age, liquidity needs, portfolio size, life stage. But I’d also stop short of calling it a mistake for everyone. Sometimes the best financial decision isn’t the one a spreadsheet insists upon but the one that stops your partner nagging you to death.

I used a simple thought experiment: If we had kept the money in the market and gained that $8,000, what would we have used it for? Likely, to buy something that made us happy. We simply skipped the middle step and used the money to buy happiness (via peace of mind) directly.

The opportunity cost clock stops ticking at the end of this month when the original mortgage would have been paid off anyway. At least from that date I won’t have to make any sneaky calculations to see how much earlier payment has cost…I can’t help checking, I’m a bit of a nerd 🤓