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Dumping Debt Investing Money Motivation

Should You Pay Off Debt or Invest?

Ahhh, the age old question: Should you pay off debt or invest first? This is an often debated topic in the personal finance community and today, I’m going to unpack what I think you should consider when asking yourself this very question.

Here are 6 things to check before you consider investing over paying off debt.

If you want to dig into investing even more, I’m creating a new course on this very topic. Click here to be added to the waitlist for the course. You’ll be the first to know when it is live and you’ll snag the lowest price!

1. Does your company match?

When it comes to 401k matching, I disagree with Dave Ramsey wholeheartedly.  If you are lucky enough to work for a company that offers employee matching up to a certain percentage, you should take advantage of that match. It is, quite literally, free money in your retirement account. 

Typically, a company will match your contributions up to 4-6%. This is a wonderful way to take advantage of increasing your retirement investment… and, it’s free. 

For example:

You have a salary of $50,000. If you contribute 6% of your salary you will have $3,000 in the plan after the first year. If your employer does a 100% match, you will have $6,000 in the plan. If her employer does a 50% match (or 3% of the employee’s salary), she will have $4,500 in the plan. 

So, it makes sense to get that matching in your 401k account, even while you’re paying off debt.

If you are looking for a 401k or an IRA wealth management app, Blooom is my go-to. Blooom is a free service that analyzes your accounts and makes sure that they are invested properly. I love the fact that this app was born out of the idea that all people should have insight into what’s going on in their retirement investments, not just people who can afford an expensive financial advisor. Definitely check them out.

2. Do you want to pay off your mortgage more?

A common path to financial freedom is paying off your home early. While I commend those that have the determination and fortitude to complete this, I don’t think it’s the only way.

Paying off your home is a big, hefty security blanket. You don’t have a mortgage payment, you don’t have a lien on your home, meaning, the bank can never take away your place of residence. Making financial decisions becomes much easier when you don’t have a house note.

What are your goals?

• Do you currently have a side business that you are wanting to go full time but can’t because of the needed security from your job to pay your mortgage. 

• Could you potentially quit your job if you didn’t have a mortgage and grow your passion project into some huge?? 

• Or maybe your spouse could quit their job? 

On the other hand, as with anything in the personal finance realm, there is opportunity cost to consider. 

If you spend years paying off your mortgage, you miss out on years of investing. This is where it is a matter of personal preference and each person will deliberate what is best for them. Remember: Personal finance is personal. 

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5 Reasons Why $1,000 Isn’t Enough in your Starter Saving Fund

Dividend Investing for Beginners – Complete Dividend Investing Guide

3. Are you risk averse or a risk taker?

Investment returns are never guaranteed. You know what is? Your debt. 

If you pay off debt, you automatically see a return on that choice.

Sticking with paying off debt is the safer route. That’s not to say it’s ‘less than,’ or that you are ‘doing it wrong’ if you decide to take that route. It’s simply the risk averse option.

If you are more of a risk taker and you feel that you can get more out of your money by buying stocks and playing the stock market game, investing over paying off debt may be for you.

4. How old are you?

Age plays a big factor in investing. If I was in my 50s and retiring in the next 10-20 years, I would be more concerned about my retirement and what is going to be there for me to live off. 

Looking back, I wish I had put $200-300 a month towards investments when I was paying off debt. The reality is that age progresses despite our best efforts at delaying it and retirement should be a crucial part of your personal finance plan and strategy.

If I had invested $200-300 while I was paying off debt, my net worth would be much further along than it is right now, I’d have more peace of mind and I would still have paid off my loans early. 

My point is, that the older you get, the riskier it is to not invest. The riskier it is to solely focus on paying off debt, because, as we mentioned before, opportunity cost plays a role.

It does not have to be an all or nothing strategy. You can invest and pay off debt, just remember that your age does matter.

5. What does your interest look like?

The average rate of return for investments is 7% over the long term. Think about paying off all debt with an interest rate higher than 7% and then pay minimums on the rest and invest. 

That means, if you have credit cards, which have an average of 15-23% APR, get them out of your life first. Same goes for student loans at about 7% APR.

 6. Do you have an emergency fund?

Regardless of which side you stand on, I personally believe you should have a solid emergency fund of 1 month’s worth of expenses at a minimum before you start investing or paying off debt. 

Once you have one month saved, build it up to 6 months, or even to a full year. It’s much easier throwing money at loans or into retirement accounts when you know you have a stack of cash in case you need it.

I’m not going to tell you which side is right or which side is wrong. My goal is to get you thinking and begin asking yourself questions. 

Comment down below, which side do you land on?

Ways I save money:

Here at Freedom In A Budget, I am all about saving money! Here are some of the EASY ways that I save money:

• Fetch Rewards is a free grocery savings app that rewards you just for snapping pictures of your receipts. That’s really it. Free gift cards on groceries on thousands of products every day, no matter where you get your groceries. Just scan your receipts and get gift cards from places like Amazon, Target, Ulta, Applebees. Use code QHKBH to earn 2,000 points ($2)!

• Rakuten/Ebates: Rakuten is my to go way to earn Cash Back from over 2,500 stores like Macy’s, Amazon, Sephora, Walmart and much more. Join Rakuten today for free, and you’ll get a $10 Cash Bonus to get you started! Every three months, you’ll get a Big Fat Check in the mail or a PayPal payment just for shopping. 

• Credit Sesame offers Credit Score and Monitoring, Savings Recommendations and Identity Theft Protection. ALL FOR FREE.

• CIT Bank CDs provide a safe, secure way to grow your savings. With the CIT Bank No-Penalty CD, you get the security of an 11 month CD with no withdrawal penalty seven days or later after funds have been received. 

• M1 Finance is an easy to use brokerage platform that allows you to invest in Fractional Shares and auto reinvest!

• Webull Get 2 Free Stocks on WeBull when you deposit $100 (Valued up to $1400).

• Budget Templates: Excel budget templates with pre-populated categories and formulas to keep you on track with hitting your financial goals.

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what do you think?