Welcome to Monday Night Finance! Each week we review three of our favorite personal finance articles.
Housing represents most American’s largest monthly expense. For those of us who “own” rather than rent, paying off the mortgage may seem like a Sisyphean task. In fact, many retirees still have a mortgage. Prepaying your mortgage involves diverting money that could be invested in the stock market into your mortgage instead. While paying off your mortgage does have opportunity costs, it has many benefits as well. In this article, Andy from MarriageKidsAndMoney.com shares 10 reasons why he and his wife paid off their mortgage early.
In 2013, my wife and I decided to pay off our $200,000 mortgage in less than 5 years. It was an aggressive decision and one that required a lot of partnership and dedication. But we did it … together. And we’re so glad we did.
Owning your house free and clear makes saving for retirement easier in many ways. Firstly, it reduces your monthly expenses. This means both that you can save more money each month for retirement, and also that you’ll need less money to retire. Using the 4% rule, every dollar you cut from your monthly spending reduces your retirement target number by $300. So if your mortgage payment is $1,500 and you pay off your mortgage, you’ll need $450,000 less to retire than if you still had a mortgage. In addition to helping you meet your retirement objectives, paying off your mortgage also gives you more flexibility if you decide you want you update your home or take a vacation. Paying off the mortgage also has non-financial benefits as well such as having pride in fully owning your home and less stress about your financial future. For full details, check out the article.
How has the coronavirus affected your investments? Has it changed your investment strategy at all? Do you feel like you need advice on how to respond to a coworker who is mocking you for investing in equities whose values are oscillating more rapidly than an electric toothbrush? Do you just want someone to tell you it will all be okay? If so, then you should definitely check out this article by Darcy at WeWantGuac.com about how to think about your investments during a “black swan” event such as a global pandemic.
My investments are doing exactly what I planned on them doing. Taking a hit in the short-term is all part of the plan to reach a million dollars. ~Darcy from WeWantGuac.com
Darcy starts this story by recounting how a coworker was making fun of her for investing in her 401(k) the last day they were in the office before being sent home because of the coronavirus. She then goes on to explain why it is a good idea to continue your investing strategy if you’re able to do so. A “black swan” event is something unexpected that occurs that completely changes the trajectory of the stock market. Just like you can never predict when you’ll see a black swan instead of a white one. While it seems counter-intuitive to keep investing when the economy is crumbling all around you, Darcy highlights how important it is to keep investing during these times.
Shelley, from Beyond Pennies defines financial freedom as having enough income and wealth so that you can quit your day job and just do what you love. Financial freedom could look different depending on what your goals are, but no matter what, it requires planning and dedication to leave your job. In this article, Shelley breaks down a journey to financial freedom into five stages and gives recommendations on how to “level up” at each stage.
Stage 1 – Buried Alive… I was at this stage when I was a working single mom with an entry level job as a staff accountant. At Stage 1 – Buried Alive, your current income doesn’t cover your current expenses. ~Shelley from BeyondPennies.com
The first stages of financial freedom involve spending less than you earn, paying off all debt (not including your mortgage), and building an emergency fund to cover 3 months of expenses. After you build that solid foundation, you can start to focus on building wealth. Ideally, you’ll be able to build wealth both in retirement accounts, like 401(k)s and non-retirement investment accounts. The final stages involve having your money work for you, either by having the investments compound or starting/buying a business that generates revenue. For more details along with actionable items for each stage of the journey check out the article.