There was a cathartic tipping point for me when I realized if I paid off the balance of my mortgage I would not only no longer be in debt, but I would never have any debt for the rest of my life. It might not have been the optimal decision, but I'm willing to take the small loss for that peace of mind.
Paying off debt earlier is a guaranteed return, even on 6-7%, everything else is uncertain and the possibility uptick on investment by 1% does not outweigh the freedom being debt free.
That's what I say, being debt free is a guaranteed saving. If u have a mortgage and car payment that can be easily $1000+ most people are paying interest. Investing claims to have a gain but in the end its still a risk and not guaranteed to make money.
I can pay off my home mortgage now but I am not sure if that is the best move to make. I have a good income and I have just opened a brokerage account so I could invest in some good Index funds. Is the right move still to pay off my mortgage and then focus on investing? I do want to buy a second home in the near future and that is the reason I have liquidity because I am saving for a second home, but I still have a mortgage on the first one and wasting $700/mo on interest.
@@IVMTAB That´s something you need to figure out for yourself - my approach would be to pay off the mortgage and than start either investing or saving for the second home. Not having any debt is a priceless feeling on it´s own.
I treat additional payments on debt as the equivalent of buying bonds at that interest rate. If I’d be willing to invest in a bond at a 4% yield, I’m also willing to pay off 4% interest debt.
@@davidatkinson5396 Right now, because I’m young with a long time horizon and a fair amount of financial security, I am pretty aggressive. I do have a 100% equities portfolio but I also pay about 20% of what I could otherwise invest into lowering some loans at a 4.5% interest rate. So in practice I view it as more similar to an 80/20 portfolio in terms of behavior than a 100/0 portfolio.
I got a 15 year mortgage and paid it off early. When I did it, I didn’t know a thing about investing. As I learned and more aggressively invested, I still kept up paying it off. Having my home paid is so much piece of mind (and I’m a very anxious person) and I wouldn’t have done it differently. If I end up buying an investment property, I’ll go with a 30 year for sure, and not pay it off early, but for my primary residence, I’m glad I paid it off earlier. If I ever lose my job, we can afford to live off a McDonalds salary. I can invest more aggressively without worry that I’ll lose in some down years and not be able to pay my bills (even with a low paying job).
For me personally, I'm choosing to efficiently pay off my debts. One big reason is I plan on purchasing a house as a single man by some time next year. Knowing that I will be the sole person to pay for the bills, and maintenance is a bit scary to think about. I'd rather have the piece of mind knowing that my only debt will be the house. I refuse to be known as the neighbor who is house broke.
@@davidatkinson5396 Um because reality. Some people buy a home because they need a place to live. Or buy a car cause they need one. Or pay an emergency. Many different reasons.
Taxes change all of this. If you don’t max out tax advantaged accounts, you lose that room forever. If you’re investing in a taxable account, you need to pay taxes on gains. Personally, I think the order should be 401k match, pay off anything over 5%, max tax advantaged accounts, invest in taxable and pay off lower interest debt in some ratio. Although, for some, the behavioral reasons for being debt free are worth more than the monetary reasons. We all have different financial goals.
For me, all of this is always framed against what I'm saving FOR, which is a moment when I can quit working out of obligation to earn my monthly expenses. Any monthly expense I carry into retirement means I have to have 300x that monthly number saved up to pay for it (4% rule). Getting rid of monthly expenses, like cars and housing or even the electric bill by putting solar up on a paid off house reduces how much I even need to save in the first place. Comparing where I was a year ago (age 45) to where I'll be at 55, we're going to have cut $5000/mo in expenses that were all debt on house/car/medical expenses/etc. That's $1.5mil I don't have to save up.
Might want to check your math on the 4% rule. Isn't it supposed to be based on having 4% annual returns on investments, not monthly. You should only need 25x your expenses in an investment account than earns a guaranteed 4% to live just off the gains without dipping into the principal. I hope this helps you.
@@nicholasdaskalakis772 The 4% rule is about withdrawals, which is then often used to tell people that they need to save up 25x their annual expenses. That 25x multiplied by 12 gives you the amount you need for a monthly expense to have enough to use the 4% rule to withdraw that monthly expense gives you 300x a monthly expense.
I agree that paying off debts as soon as possible is generally the best approach, with the exception of a low interest rate mortgage over a 30yr period. This is why I refuse to accumulate debt outside of my 30yr mortgage at 3% (which I pay the minimum on) and I do occasionally take advantage of 1yr interest free promotions on a credit card I have (when I have to make a large purchase) in which case I set up automatic payments to pay it off in 10 months (just in case).
Great video! I think a lot of conversations on this topic miss the nuance that you're great at adding (on both sides). One thing I'd add is that if a job loss or something else happens like in your example before you've paid off a debt completely, you get essentially no benefit (in terms of cash flow) from having it mostly but not entirely paid off, while having some investments does give you a larger safety net. That being said, the behavioral changes you brought up would still help in this scenario.
Aaron, that's a good point about the lack of cash flow benefits should something like a job loss happen before any debts are fully paid off. All the more reason to make sure that you have an emergency fund in place and knock those debts out as quickly as possible (if that's the route you decide to take)!
@@NextLevelLife totally! I keep a pretty large emergency fund and no debt, it's my personal preference as it allows me to feel comfortable taking on more risk with the rest of my portfolio
But, if those investments are in tax-sheltered retirement accounts like IRA/401K, etc, and you're less than 59.5, you ALSO don't have easy access to them.
My verdict, If all things go as planned, not paying debt early does beat the other case by a fair margin. But In real world, things don't usually go as planned, for example if you lose your income stream but you have paid off the debt, you can survive for longer in your own home without the fear of debt (ofcourse losing the income stream is still big deal but having a debt on top of it is worse, because you can stop investing for that period of time if you are debt free) Another scenario I would take is, it is better to pay debt early when stock markets are hitting all time highs, because now they are already overvalued and likely to give less returns in future for some time.
One other point: paying off a, say, 6% debt is not only a guaranteed return of 6%, it is also a *tax-free* return. Funds invested instead of being used to pay off debt would have to be put into a Roth account of some kind in order to get a tax-free return.
I have a 1.99 on a car and a 2.375 on a house. I am not concerned with the interest as those rates are so low. There is virtual certainty ther my investments will exceed those rates even taking taxes in account.
Great topic! The psychology that effects personal behavior is a bigger factor than the interest rate. I would like to think that I would do the ideal thing in both scenarios but in reality working towards the goal of being debt free causes far greater life change. Great job highlighting this tendancy.
Absolutely! It's important to be honest with ourselves about how we're likely to tackle each situation when making the decision to pay off debts or to invest. You're right it can make a world of difference :)
An emergency fund saved in cash is what helps to weather an event like a job loss, to someone who takes the "invest more and pay minimum on low-interest debt" approach. Behaviorally, they are likely to have a larger emergency fund, since they didn't throw everything at the debt. If someone was aggressively paying off low-interest debt and lost their job before paying it off, they would be worse off. I take the "invest" approach, and I have a barebones budget that I could revert to and make my emergency fund stretch to almost a year if I had to. I did it before when paying off high interest consumer debt. Best of both worlds.
Great video as always. I did the same math with respect to my mortgage payoff. I’m now just a few months away from paying it off (but I was able to pay it off within 2-3 years of when I really started to focus on it, so the time period was relatively short). When I ran the math, if all went according to plan on my investments, investing rather than paying off the debt early would have put me a bit ahead, but it was very close. That was enough for us to decide to just knock out the mortgage and get all of the other benefits of being debt free. Glad you focused on this
Interesting video! I ran the numbers of the example in reason 3 since i thought the results seemed a bit too close. I got to the conclusion that John would have an investment value of 17371.45 at the end and Jane would have an investment value of 17154.97 at the end. For John I simply multiplied the previous months investment value by 1.06^(1/12) and then added 250. For Jane I added the interest (debt value multplied by (1.03^(1/12)-1)) and then removed 250+53.91 dollars from the debt. When Jane pays of the loan in the elveventh month I start the investment for her. She has 1.76 dollars in debt from month 10 which gives an investment value of 302.14 dollars in month 11. Then i do the same as for John but invest 250+53.91 dollars each month. Am i doing something wrong in my calculations?
I don't think it is needed to assign a probability to cash generating returns of more than 4% or 6% or 8%. Unlike stock returns, interest rates are disclosed. So today, there is 0% chance to obtain a nominal return of 8%+ on "Cash". Unlike the 16% chance you listed at 8%+
@@priestesslucy If you have an account that pays 8% on cash, then your probability to make 8% on cash is 100%. Because rates are disclosed, there is no probability to them at that moment. Though, I recognize rates are subject to change, we can be somewhat certain that disclosed rates are what they are.
Something else that makes a huge difference is your personal cash flow situation. If most of your free cash is going to pay debt minimums, you’re probably better off paying debt first.
Selling everything until the kids think they're next is a Dave Ramsay line lol Agree with Dave Ramsay on the reverse that you would not take loans against your house etc to invest so the reverse is true that you should have keep debt to invest
I'm very close to paying off my mortgage, right as my employer is beginning to implement vaccine mandates. It's incredibly comforting knowing that, should I lose my job in this ridiculous situation we're in, I won't lose my house , and I can live on very little until I find another job with similar pay.
Paying off debt faster should always result in inferior wealth development not that's by design and consistent with the "high risk/ high return" nature of finance. Paying off debt reduces your financial risk on your personal balance sheet so that should result in lower returns. I think the decision should be based on deciding what's more important to the investor: Risk reduction or Return maximisation. This is likely going to be affected by age and stage of life. Right now, being 38 with a wife and kids, I care more about managing/ reducing risk than I did 10 years ago when I was on my 20's. Know what's important to you and what you value, as an investor. It's more important to know yourself and risk tolerance than it is to be led by the maths
I’ve always been a pay off your debts as quickly as possible person however I have no investments as a result. No job, but 4 properties owned free and clear. I can’t get a loan to buy another place or even to make repairs on the ones that I own. The rental keeps me afloat so it doesn’t make sense to sell anything. But without a job I can’t mortgage these assets . Thank God for the rental income but I would feel better if I had a nest egg to retire on and access to cash. As all my friends are retiring I will have to always be attached to these rentals.
Thank you for putting out this video! It almost perfectly articulates my position on this debate which comes up often on a lot of financial social media pages. I'm within a couple of months of paying off my mortgage (my only debt) after about 2.5 years worth of extra payments. On the investing side, I'm only contributing the minimum to receive the maximum company match in my 401k. Everything else is on hold for now. Before I started this, I ran the numbers for both scenarios but using a 4 year time period instead of 2.5 years. The opportunity cost was around $39k between the two scenarios and my mortgage balance at the time was just under $80k. It seemed like a no-brainer to sacrifice $39k to payoff an $80k debt and I still feel that way. Of course, since I was able to cut the time down to 2.5 years, the opportunity cost is even less. Please note that I already had a sizable nest egg built up before a started so I knew that a $39k opportunity cost wouldn't affect it that much. That made the decision easier.
The assumption is that you would be investing in tax advantaged accounts first, which basically makes the tax question moot since the tax advantages will always outweigh the cost of not using those investment vehicles.
If you're in the US do it within a Roth IRA and/or Roth 401k, Canada do a TFSA, in the UK do a Stocks & Shares ISA. There's many ways you can dodge taxes up to a certain amount per year, most first world countries basically just give you the option now.
A guarantee is better than poker. The currency in this game isn't money, but quality of life. If you win, you live large, but if you lose, you go down one to two financial classes. You might win the game, but you probable won't. Chances are, the house wins.
I have a mortgage with a 3.5% APR. I am 10 years into my 30-years loan. I save about 40% in the interest when I pay towards the principal, usually around $5-10K. Of course that's future money, in 20 years, but if I hustle I can possibly paid the loan off in 5 years. So, that future saving is only 5 years away. Seems like my mortgage shouldn't save me that much with only a 3.5% interest rate. What am I missing? If I invest in mutual funds, I am not going to get that much in interest, plus having to pay dividends tax too.
My debt will be paid off in January, I'm almost there after some setbacks. Where I'm stuck is this : I need an emergency fund to not go into debt again. How much do I save for that without any investing or should I just do the minimum in the 401k? IRA maybe? Can an after tax IRA be my emergency fund?
Absolutely! It's always important to consider the risks of each path. Even if the risk never ends up materializing the peace of mind has value in and of itself. Thanks for sharing :)
There was a cathartic tipping point for me when I realized if I paid off the balance of my mortgage I would not only no longer be in debt, but I would never have any debt for the rest of my life. It might not have been the optimal decision, but I'm willing to take the small loss for that peace of mind.
Paying off debt earlier is a guaranteed return, even on 6-7%, everything else is uncertain and the possibility uptick on investment by 1% does not outweigh the freedom being debt free.
Well said!
That's what I say, being debt free is a guaranteed saving. If u have a mortgage and car payment that can be easily $1000+ most people are paying interest. Investing claims to have a gain but in the end its still a risk and not guaranteed to make money.
100% agreed.
I can pay off my home mortgage now but I am not sure if that is the best move to make. I have a good income and I have just opened a brokerage account so I could invest in some good Index funds. Is the right move still to pay off my mortgage and then focus on investing? I do want to buy a second home in the near future and that is the reason I have liquidity because I am saving for a second home, but I still have a mortgage on the first one and wasting $700/mo on interest.
@@IVMTAB That´s something you need to figure out for yourself - my approach would be to pay off the mortgage and than start either investing or saving for the second home. Not having any debt is a priceless feeling on it´s own.
I treat additional payments on debt as the equivalent of buying bonds at that interest rate. If I’d be willing to invest in a bond at a 4% yield, I’m also willing to pay off 4% interest debt.
I never thought to look at it like that! Thanks for sharing :)
That is a really great way to think about it. Well said.
So do you then allocate more of your portfolio to equities?
@@davidatkinson5396 Right now, because I’m young with a long time horizon and a fair amount of financial security, I am pretty aggressive. I do have a 100% equities portfolio but I also pay about 20% of what I could otherwise invest into lowering some loans at a 4.5% interest rate. So in practice I view it as more similar to an 80/20 portfolio in terms of behavior than a 100/0 portfolio.
"... Selling everything until the kids think they are next..." hahaha, one of the best lines ever!!!
That reminds me of Dave Ramsey
It’s trademark of Dave Ramsey
I got a 15 year mortgage and paid it off early. When I did it, I didn’t know a thing about investing. As I learned and more aggressively invested, I still kept up paying it off. Having my home paid is so much piece of mind (and I’m a very anxious person) and I wouldn’t have done it differently. If I end up buying an investment property, I’ll go with a 30 year for sure, and not pay it off early, but for my primary residence, I’m glad I paid it off earlier. If I ever lose my job, we can afford to live off a McDonalds salary. I can invest more aggressively without worry that I’ll lose in some down years and not be able to pay my bills (even with a low paying job).
For me personally, I'm choosing to efficiently pay off my debts. One big reason is I plan on purchasing a house as a single man by some time next year. Knowing that I will be the sole person to pay for the bills, and maintenance is a bit scary to think about. I'd rather have the piece of mind knowing that my only debt will be the house. I refuse to be known as the neighbor who is house broke.
Same here!! Doing exactly this as well!!
A great reason to get those other debts paid off first! Thanks for sharing :)
Yes, buying a house is the best investment I did. You will shift some the cost of renting to the equity of the house.
I completely agree. I also think having no debt can give people a huge emotional boost and sense of freedom which in itself is worth it for me ✨
Absolutely! That emotional boost and sense of freedom can be a decisive factor for many people :)
Paying off debt early also will lower your DTI ratio for obtaining a mortgage or any other loan you need.
Not sure why you would pay off your debt so that you could incur additional debt.
@@davidatkinson5396 Um because reality. Some people buy a home because they need a place to live. Or buy a car cause they need one. Or pay an emergency. Many different reasons.
@@soapa4279 Um okay stud.
Taxes change all of this. If you don’t max out tax advantaged accounts, you lose that room forever. If you’re investing in a taxable account, you need to pay taxes on gains. Personally, I think the order should be 401k match, pay off anything over 5%, max tax advantaged accounts, invest in taxable and pay off lower interest debt in some ratio. Although, for some, the behavioral reasons for being debt free are worth more than the monetary reasons. We all have different financial goals.
This is a great order!
This is one of the most thoughtful comments I have read on the topic.
For me, all of this is always framed against what I'm saving FOR, which is a moment when I can quit working out of obligation to earn my monthly expenses. Any monthly expense I carry into retirement means I have to have 300x that monthly number saved up to pay for it (4% rule). Getting rid of monthly expenses, like cars and housing or even the electric bill by putting solar up on a paid off house reduces how much I even need to save in the first place. Comparing where I was a year ago (age 45) to where I'll be at 55, we're going to have cut $5000/mo in expenses that were all debt on house/car/medical expenses/etc. That's $1.5mil I don't have to save up.
Might want to check your math on the 4% rule. Isn't it supposed to be based on having 4% annual returns on investments, not monthly. You should only need 25x your expenses in an investment account than earns a guaranteed 4% to live just off the gains without dipping into the principal. I hope this helps you.
@@nicholasdaskalakis772 The 4% rule is about withdrawals, which is then often used to tell people that they need to save up 25x their annual expenses. That 25x multiplied by 12 gives you the amount you need for a monthly expense to have enough to use the 4% rule to withdraw that monthly expense gives you 300x a monthly expense.
Maybe its your voice, or your speaking ability, but I trust you!
It could be because it makes sense.
I agree that paying off debts as soon as possible is generally the best approach, with the exception of a low interest rate mortgage over a 30yr period. This is why I refuse to accumulate debt outside of my 30yr mortgage at 3% (which I pay the minimum on) and I do occasionally take advantage of 1yr interest free promotions on a credit card I have (when I have to make a large purchase) in which case I set up automatic payments to pay it off in 10 months (just in case).
A solid approach!
Great video! I think a lot of conversations on this topic miss the nuance that you're great at adding (on both sides).
One thing I'd add is that if a job loss or something else happens like in your example before you've paid off a debt completely, you get essentially no benefit (in terms of cash flow) from having it mostly but not entirely paid off, while having some investments does give you a larger safety net. That being said, the behavioral changes you brought up would still help in this scenario.
Aaron, that's a good point about the lack of cash flow benefits should something like a job loss happen before any debts are fully paid off. All the more reason to make sure that you have an emergency fund in place and knock those debts out as quickly as possible (if that's the route you decide to take)!
@@NextLevelLife totally! I keep a pretty large emergency fund and no debt, it's my personal preference as it allows me to feel comfortable taking on more risk with the rest of my portfolio
But, if those investments are in tax-sheltered retirement accounts like IRA/401K, etc, and you're less than 59.5, you ALSO don't have easy access to them.
@@JWynia true, that definitely further complicates matters!
My verdict, If all things go as planned, not paying debt early does beat the other case by a fair margin.
But In real world, things don't usually go as planned, for example if you lose your income stream but you have paid off the debt, you can survive for longer in your own home without the fear of debt (ofcourse losing the income stream is still big deal but having a debt on top of it is worse, because you can stop investing for that period of time if you are debt free)
Another scenario I would take is, it is better to pay debt early when stock markets are hitting all time highs, because now they are already overvalued and likely to give less returns in future for some time.
One other point: paying off a, say, 6% debt is not only a guaranteed return of 6%, it is also a *tax-free* return. Funds invested instead of being used to pay off debt would have to be put into a Roth account of some kind in order to get a tax-free return.
I have a 1.99 on a car and a 2.375 on a house. I am not concerned with the interest as those rates are so low. There is virtual certainty ther my investments will exceed those rates even taking taxes in account.
Great topic! The psychology that effects personal behavior is a bigger factor than the interest rate. I would like to think that I would do the ideal thing in both scenarios but in reality working towards the goal of being debt free causes far greater life change. Great job highlighting this tendancy.
Absolutely! It's important to be honest with ourselves about how we're likely to tackle each situation when making the decision to pay off debts or to invest. You're right it can make a world of difference :)
An emergency fund saved in cash is what helps to weather an event like a job loss, to someone who takes the "invest more and pay minimum on low-interest debt" approach. Behaviorally, they are likely to have a larger emergency fund, since they didn't throw everything at the debt. If someone was aggressively paying off low-interest debt and lost their job before paying it off, they would be worse off.
I take the "invest" approach, and I have a barebones budget that I could revert to and make my emergency fund stretch to almost a year if I had to. I did it before when paying off high interest consumer debt. Best of both worlds.
I only have mortgage debt. Three rental property mortgages and one on our home.
Great video as always. I did the same math with respect to my mortgage payoff. I’m now just a few months away from paying it off (but I was able to pay it off within 2-3 years of when I really started to focus on it, so the time period was relatively short). When I ran the math, if all went according to plan on my investments, investing rather than paying off the debt early would have put me a bit ahead, but it was very close. That was enough for us to decide to just knock out the mortgage and get all of the other benefits of being debt free. Glad you focused on this
That's awesome, Marc! Well done :)
Did u use the heloc or velocity banking strategy to achieve this?
@@bonbons525 What are these strategies?
Interesting video! I ran the numbers of the example in reason 3 since i thought the results seemed a bit too close. I got to the conclusion that John would have an investment value of 17371.45 at the end and Jane would have an investment value of 17154.97 at the end. For John I simply multiplied the previous months investment value by 1.06^(1/12) and then added 250. For Jane I added the interest (debt value multplied by (1.03^(1/12)-1)) and then removed 250+53.91 dollars from the debt. When Jane pays of the loan in the elveventh month I start the investment for her. She has 1.76 dollars in debt from month 10 which gives an investment value of 302.14 dollars in month 11. Then i do the same as for John but invest 250+53.91 dollars each month. Am i doing something wrong in my calculations?
I don't think it is needed to assign a probability to cash generating returns of more than 4% or 6% or 8%. Unlike stock returns, interest rates are disclosed. So today, there is 0% chance to obtain a nominal return of 8%+ on "Cash". Unlike the 16% chance you listed at 8%+
That's the US and EU.
There are countries where you can get to 8-10% on cash
@@priestesslucy If you have an account that pays 8% on cash, then your probability to make 8% on cash is 100%. Because rates are disclosed, there is no probability to them at that moment. Though, I recognize rates are subject to change, we can be somewhat certain that disclosed rates are what they are.
@@bastiaanvandervossen4280 I didn't disagree with that....
Something else that makes a huge difference is your personal cash flow situation. If most of your free cash is going to pay debt minimums, you’re probably better off paying debt first.
Good point!
Selling everything until the kids think they're next is a Dave Ramsay line lol
Agree with Dave Ramsay on the reverse that you would not take loans against your house etc to invest so the reverse is true that you should have keep debt to invest
I'm very close to paying off my mortgage, right as my employer is beginning to implement vaccine mandates. It's incredibly comforting knowing that, should I lose my job in this ridiculous situation we're in, I won't lose my house , and I can live on very little until I find another job with similar pay.
It is ridiculous that you'd quit your job before you'd get the vaccine.
Paying off debt faster should always result in inferior wealth development not that's by design and consistent with the "high risk/ high return" nature of finance. Paying off debt reduces your financial risk on your personal balance sheet so that should result in lower returns. I think the decision should be based on deciding what's more important to the investor: Risk reduction or Return maximisation. This is likely going to be affected by age and stage of life. Right now, being 38 with a wife and kids, I care more about managing/ reducing risk than I did 10 years ago when I was on my 20's.
Know what's important to you and what you value, as an investor. It's more important to know yourself and risk tolerance than it is to be led by the maths
I’ve always been a pay off your debts as quickly as possible person however I have no investments as a result. No job, but 4 properties owned free and clear. I can’t get a loan to buy another place or even to make repairs on the ones that I own. The rental keeps me afloat so it doesn’t make sense to sell anything. But without a job I can’t mortgage these assets . Thank God for the rental income but I would feel better if I had a nest egg to retire on and access to cash. As all my friends are retiring I will have to always be attached to these rentals.
Thank you for putting out this video! It almost perfectly articulates my position on this debate which comes up often on a lot of financial social media pages. I'm within a couple of months of paying off my mortgage (my only debt) after about 2.5 years worth of extra payments. On the investing side, I'm only contributing the minimum to receive the maximum company match in my 401k. Everything else is on hold for now. Before I started this, I ran the numbers for both scenarios but using a 4 year time period instead of 2.5 years. The opportunity cost was around $39k between the two scenarios and my mortgage balance at the time was just under $80k. It seemed like a no-brainer to sacrifice $39k to payoff an $80k debt and I still feel that way. Of course, since I was able to cut the time down to 2.5 years, the opportunity cost is even less. Please note that I already had a sizable nest egg built up before a started so I knew that a $39k opportunity cost wouldn't affect it that much. That made the decision easier.
The figures are really US / EU centric. Mortgage rates in developing countries are more than 4%.
Why do taxes always get ignored in RUclips videos? The effect on the outcome is MASSIVE.
The assumption is that you would be investing in tax advantaged accounts first, which basically makes the tax question moot since the tax advantages will always outweigh the cost of not using those investment vehicles.
If you're in the US do it within a Roth IRA and/or Roth 401k, Canada do a TFSA, in the UK do a Stocks & Shares ISA.
There's many ways you can dodge taxes up to a certain amount per year, most first world countries basically just give you the option now.
Because not everyone has the same tax situation. Is your mortgage deductible? Can you invest in a tax deferred account? So many variables.
A guarantee is better than poker. The currency in this game isn't money, but quality of life. If you win, you live large, but if you lose, you go down one to two financial classes. You might win the game, but you probable won't. Chances are, the house wins.
Sacrifice and deprivation trains your mind to hate spending money on stupid things. This frugal mindset almost guarantees success with finances.
Post of the month!
It does wonders for your financial "floor" so to speak, that's for sure :)
I have a mortgage with a 3.5% APR. I am 10 years into my 30-years loan. I save about 40% in the interest when I pay towards the principal, usually around $5-10K. Of course that's future money, in 20 years, but if I hustle I can possibly paid the loan off in 5 years. So, that future saving is only 5 years away. Seems like my mortgage shouldn't save me that much with only a 3.5% interest rate. What am I missing? If I invest in mutual funds, I am not going to get that much in interest, plus having to pay dividends tax too.
My debt will be paid off in January, I'm almost there after some setbacks. Where I'm stuck is this :
I need an emergency fund to not go into debt again.
How much do I save for that without any investing or should I just do the minimum in the 401k? IRA maybe? Can an after tax IRA be my emergency fund?
Don’t spend what you don’t have!
I want to get out of debt because the job isn't guaranteed.
Absolutely! It's always important to consider the risks of each path. Even if the risk never ends up materializing the peace of mind has value in and of itself. Thanks for sharing :)
This is a nice video to watch after Everything Money's recent video on Ramsey/debt
All this bs to say pay off the mortgages?