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133R | Should You Invest Or Pay Off Your Mortgage?

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Choose FI has partnered with CardRatings for our coverage of credit card products. Choose FI and CardRatings may receive a commission from card issuers. Opinions, reviews, analyses & recommendations are the author’s alone, and have not been reviewed, endorsed or approved by any of these entities. Disclosures.
  • Brad and Jonathan discuss a burning question in the FI community, a new budget experiment, and an update on Playing with FIRE. 

    You Need A Budget Experiment

    Jonathan and his wife have decided to give You Need A Budget a try. Although they have no consumer debt and maintain an aggressive savings rate, the luxury of not living paycheck to paycheck means that the low-level lifestyle inflation happens. As a self-proclaimed spender, Jonathan claims that his natural state is to find things to buy.

    Jonathan’s wife is really interested in finding a way to better understand where every penny goes. The family used to use Mint for tracking their spending as they paid down debt, but it is not really designed for budgeting out your money.

    Several members of the FI community have raved about You Need a Budget Full Disclosure: We earn a commission if you click this link and make a purchase, at no additional cost to you. (YNAB). With that recommendation, Jonathan and his wife have decided to give it a try. Although the subscription is $84/year, it seems to be worth a try.

    If something allows you to create a plan for your money, then I think it might actually be worth it.

    The couple will be experimenting with YNAB Full Disclosure: We earn a commission if you click this link and make a purchase, at no additional cost to you. for the next one to three months. Stay tuned for how it goes.

    Related: My Favorite Budgeting Software: YNAB Review

    Airbnb With Zeona

    Zeona provided another example that the path to FI is not linear. With her adventurous spirit, she created an experimental lifestyle that paid off in the long term. One of the biggest inflection points for her was when she had to ask for $144,000 from an investor to expand her Airbnb business.

    She had to get creative.

    Zeona told us that the worst thing that could happen is that the potential investor said no. And that is completely true!

    Hard money lenders are out there, they are just waiting for the right opportunity to invest. In order to find a hard money lender for your real estate ventures, you need to arm yourself with the right information and crunch the numbers of several deals. Once you find a good deal, then you’ll have a decent shot of finding funding. It is simply a limiting belief to think that you cannot make a real estate deal happen if that is what you want to do.

    Each of us has a limiting belief that holds us back.

    How would you reframe your thing that you say you can’t do?

    In Brad’s example, one of his limiting beliefs is that he cannot take family vacations during the school year. However, with just 15 seconds of thought, he was able to come up with some alternatives to pursue.

    Are you holding yourself back by refusing to ask the right questions? The questions that you allow yourself to ask can dictate your future. Think about your limiting beliefs, can you change your frame of mind?

    Listen to the whole episode with Zeona here.

    Pay Off Your Mortgage Or Invest

    Ariel came on the show to share her spreadsheet that helped her find an answer to this daunting question. Here’s a link to the Google Spreadsheet that Ariel provided.

    Ariel’s Path to FI

    Ariel and her husband graduated from college without any student loans, so they have been able to start saving from a young age.

    Around two years ago, she was researching ways to make extra money. However, she had an 18-month-old at the time and realized that a big side hustle was not going to work for her. During the search real estate had piqued her interest. She found Bigger Pockets, then Bigger Pockets Money and finally ChooseFI.

    Quickly, she realized that FI was a real option for her family. She knew that they needed to do something other than save their money into something better than a savings account in order to make that happen.

    On her journey towards FI, she has found a series of life hacks that have helped to lower their expenses. She teaches a paid group fitness class for a free gym membership, cuts her family’s hair, bought a gel nail lamp to cut down on manicure costs, and starting going to ALDI. With those seemingly small hacks, she has been able to put around $500 of space into her life each month.

    My life is no different but I’m saving money.

    As a family, they have decided to prioritize the time they have with their little ones. Instead of rushing to FI in seven short years, they will spend more time at home while their boys are young. Her husband has moved to part-time work and she may or may not go back to work part-time when their kids hit school age.

    The next decision was what to do with this extra money?

    Pay Down Mortgage Or Invest Spreadsheet

    Ariel came from a Dave Ramsey approach. With baby steps one through seven.

    1. Save $1,000
    2. Pay down all debt except house using the snowball method
    3. Save 3-6 months of expenses for a fully funded emergency fund
    4. Invest 15% of household income into retirement investments
    5. Save for your children’s college fund
    6. Pay off home early
    7. Build wealth and give

    Both Ariel and Jonathan agree that steps four through seven are “no man’s land.” At that point, you have choices. You can follow the Ramsey steps exactly or create a better way.

    With her love of spreadsheets, Ariel created a way to decide whether or not paying off her mortgage early made sense.

    Ariel and her husband bought their house for $310,000 with 20% down. The 30-year mortgage with a 4% interest rate would bring their total interest payments to $178,000 over the life of the loan. For a total cost of $426,000. With that high number, Ariel knew that they wanted to do something better than that.

    With an extra $500 a month to spend on either the mortgage or investments, she made some calculations. If she put the extra money towards the mortgage, then they would bring down their total interest payments to $93,000 and pay off their mortgage at 203 months.

    Next, she calculated the investment route. If they put $500 a month into VTSAX at a 6% return, then it would only take 182 months to earn enough money to pay off the mortgage which amounts to a savings of $36,000. Of course, the returns of the VTSAX are not guaranteed to be 6%.

    Ariel chose to put her extra $500 into VTSAX instead of extra mortgage payments. What will the numbers say for you?

    Related Article: Should You Pay Off Your Mortgage Or Invest

    Playing With FIRE Update

    The documentary tour is spreading across the country. Brad and Jonathan will be hosting a showing in Richmond, VA at the Byrd Theater on July 19th. With 600 tickets up for grabs, everyone is invited. Our hosts will be giving a short introduction to FIRE. Head over to Tugg to grab your tickets.

    Travel Rewards

    Our travel rewards course available for anyone that wants to get started earning points. (Sign up for our free travel rewards course here.)

    Related Episodes:

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Choose FI has partnered with CardRatings for our coverage of credit card products. Choose FI and CardRatings may receive a commission from card issuers. Opinions, reviews, analyses & recommendations are the author’s alone, and have not been reviewed, endorsed or approved by any of these entities. Disclosures.
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