I wrote a post back in February that tackled the question: should I pay off my house or invest? One of my favorite podcasts is Millennial Money Minutes. I shot them a tweet a few weeks back and they answered my question on their podcast last week.
I listen to Scott Alan Turner’s podcast every week (he releases three episodes each week). I’ve been listening to Scott for over a year, and I still enjoy his content. I’ve tried listening to a few other finance-based podcasts, but I wasn’t able to get into any of them.
Then, I heard Millennial Money Minutes and loved their concept of tackling one personal finance topic in five minutes. Many folks seem to enjoy this format because in less than two months they eclipsed the 50k download mark. Congrats!
In this post, I share a little more about the guys behind the scene at Millennial Money Minutes and I review their take on whether you should pay off a house or invest.
You can download their podcast here.
A little more about their Podcast
This podcast is hosted by Grant over at MillennialMoney.com and Matt at DistilledDollar.com.
Grant has built a strong business in marketing and he achieved a net worth of over $1 million as a young millennial. His blog posts on search engine optimization (SEO) are fantastic and I recommend his content for new bloggers looking to grow their traffic. I started reading Grant’s content on SEO back in December and in February I doubled my pageviews versus my December traffic.
Matt is a CPA and him and his fiance drastically increased their savings rate (60%) while tackling their student loan debt. Matt’s blog is great to follow because his content is genuine AND who doesn’t like a blog with a title about drinking 🙂 Finally, I really enjoy Matt’s analytical posts – he is always looking for ways to optimize his budget so he can save more!
Review of Mortgage or Invest
Grant’s perspective on paying off the mortgage or investing is simple. If you are a young investor you should think about investing for the long-haul. He recommends investing in low-cost index funds with Vanguard (me too!) Grant argues that you will get a better return on your investment compared to paying down the house. Reason being – interest rates are low and you can get a better return investing the market.
Matt is a numbers guy being a CPA; therefore, as an engineer, I totally dig the calculations he performs to justify his thought process. With interest rates where they are right now at just over 4%, Matt calculates you only end up paying about 3.75% after the tax deduction (paying interest on your mortgage). By investing in a total stock market index, like Vanguard of Fidelity offer, you can receive a 2% dividend.
Therefore, if you were to invest you would only need to receive a return of 1.75% (3.75% on the mortgage less the 2% dividend payout from the index fund).
Grant and Matt both agree that if you are asking this question, you are in a good position to be tackling debt. Or at least in a good position to tackle debt because you are focusing on your finances. They conclude the podcast asking what you would do with $10k right now. Grant brings up an interesting point – the psychological feeling you get for paying down debt.
Because people feel a sense of accomplishment when they pay down debt, Grant recommends splitting the money equally – throw 50% at debt and invest 50%.
Each point these guys made is valid. A few thoughts I have…
First, I can totally relate to this from my debt elimination days… I implemented a combination of the debt snowball and debt avalanche methods. The debt snowball is where you eliminate debts from smallest to largest. The idea is to get a quick win so positive psychological waves begin to flow and you start piling on the money to pay down debt.
The debt avalanche is where you pay down debts based on what is costing you the most money – generally the highest interest rate loan you have. Here is an article I wrote on this topic last year.
Second, both Matt and Grant made strong arguments that you should invest. Therefore, if you are looking at going all in on paying down your mortgage, make sure you are investing a little too. I would definitely recommend eliminating any debts you have other than your mortgage first.
Finally, you need to figure out what your priorities are. For me, I plan to continue investing significantly into my retirement accounts, while also paying down my mortgage as aggressively as I can. I really want to have the burden of the mortgage payment gone so I can do other fun things with my money 🙂