Invest Now or Pay Off the Mortgage?

Dave Ramsey's Investing Minute • November 6, 2012 | DAVERAMSEY.COM | Having trouble viewing images? Click Here. | Forward This

Invest Now or Pay Off the Mortgage? Homework: Now that you're going strong with Baby Step 4, you can start thinking about Baby Steps 5 and 6. Review your budget and see if there's anything extra for college planning and paying off the mortgage. We recently asked those of you who decided not to participate in the Investing Challenge this year to tell us why. Many of you said you were delaying retirement investing to pay off your mortgages instead. While no one is more eager to see you get out of debt than we are, it's rarely a good idea to put off retirement planning until your home is paid off. Why You Should Invest First According to the Baby Steps, you should start investing 15% of your income in tax-favored accounts as soon as you've paid off your non-mortgage debts and saved up your 3-6 month emergency fund. Then, you can work on Baby Steps 5 and 6, college planning and paying off the mortgage, at the same time. There are a couple of reasons why investing takes priority. Time is your friend. The longer you have to invest, the more time your investments have to grow. For example, you could save $1 million for retirement by investing $300 a month for 30 years. But if you spent 10 years paying off your mortgage first, you'd have to invest $1,000 a month for the next 20 years to have $1 million by retirement. A paid-for home doesn't put food on the table. If you sink all your available cash into paying off your home, you could reach retirement with no mortgage and no retirement savings. You'll have to sell or mortgage your family home just to eat. When It's Okay to Bend the Rule In some cases, putting off investing to pay off the mortgage works in your favor. You have the funds to pay off your home in a regular savings or brokerage account. Never cash out a 401(k) or IRA to pay off your mortgage. You'll end up paying 35% of your money in taxes and penalties. Your mortgage balance is small enough to pay off in a couple of years. If you can treat your mortgage like it's part of the debt snowball and pay it off in a year or two—go for it! You still have plenty of time until retirement. If retirement age is sneaking up on you fast, it may be wiser to put all your available cash toward retirement savings. Examine Your Plan With a Pro If you have questions about investing versus paying off your home, talk with a financial advisor you can trust. Each of Dave's investing Endorsed Local Providers (ELPs) is an experienced professional with the heart of a teacher. Your ELP will help you decide the best path for you. Contact your ELP now! Share this: This message was intended for: ignoble.experiment@arconati.us Update your preferences | Unsubscribe © 2012 Lampo Licensing, LLC. 1749 Mallory Lane, Brentwood, TN 37027 - 888.227.3223 Privacy Policy