Should You PAY Off MORTGAGE Early vs INVEST? or BOTH? | UK

hi guys have you ever wondered whether you should be paying off your mortgage verse or investing your money's really stock market today I'm going to give you a framework that you can use to make that decision uniquely for yourself in addition I'm going to show you what the advantages and disadvantages up of paying off your mortgage bars versus invested from the stock market or whether you should be doing both in your own personal situation my name is Ken of the humble penny and fellatio Academy and what we don't list on us to give you the tips that insights and a practical hacks to help you work towards a dream life of financial independence and money joy so let's dive straight in and unpack which way you should be going and how exactly you should be making that decision in order to suit your own personal circumstances we recently made a video called how we pay off our mortgage in seven years and that video proved to be really popular and I think it proves it popular because for a lot of people paying off a mortgage is quite a big deal but when you google on internet should you pay off your mortgage off early or invest a lot of the experts out there would be would focus on then need to do complex mathematical calculations in order to prove that investing through the stock market is exactly what you should be doing a lot of them will say things like oh you could make an 8% return why on earth would you want to be pay off a mortgage with such low interest rates you should instead be investing your money through stock market and making a load of returns okay today I want to take a slightly different view Mikael and kind of zoom out a little bit and look at this idea of paying off your mortgage versus investing from my own experience and from the realities of life which other to be honest life never carries on on a straight-line and past performance never really informs future performance okay so I'm going to now live across the side and get onto my board and kind of started unpack and was a zoom out a little bit better to kind of explain a framework that you can start to use in order to analyze or assess his decision so in order to make the right decision for your own circumstances the guys the way to decide whether you should pay off your mortgage first or whether you should invest through the stock market or do both is spot by looking at two main things so the first one is to look at what your objectives are which are your kind of long-term objectives or goals okay and the second isn't consider your personal circumstances which which essentially is where are you on a day to day basis what's life like at the moment what's your stage of have what's your job situation should lie what's your current level of savings all of that stuff okay these two combined together tell a much bigger story so let me let me zoom out a little bit and explain what I mean exactly so your objectives fit into a much bigger framework the I person refers with your post-2008 stands for your purpose objectives and these is one here feet here okay strategy I'm gonna explain in a second and tactics your purpose is the why you know so why does paying off your mortgage or investing matter okay why does it even matter at all from a Rick warmers kind of a higher perspective okay that's the white question your objectives is your what can what is the long-term goal the feeds from your current purpose or the kind of thing you're trying to aim for in your life game what goals feed from that hour give examples just to make this real okay strategy is how you're going to achieve those objectives or goals okay how it's suddenly going to do it and your tactics are how what steps you're going to take okay so it's essentially a Texas so your how exactly is your strategy is your how taxes can also review it as your the steps you're going to take in order to achieve those set goals okay so let's give a hypothetical example let's say your purpose is to I don't know live a good good healthy and fulfilling life without any money worries which who wouldn't want that most people would love that right you and I would love that imagine that was your purpose your objectives might be to financially independent or to have the option fairly retirement or to have some financial security whatever and we'll define this in a second okay like a strategy and this is we're investing in the stock market versus paying down your mortgage for example come in because a mortgage being off a mortgage for investors through stock market our levers for achieving a set goal they are strategy aspects of a strategy for achieving a particular goal ok another tactics based on what strategy you choose are then the various things you start to do such as increasing your savings rate budgeting all those things that we all find the challenge but in some ways must do in order for such goals so that framework essentially helps us almost set a scene for how we approach answering this question remember this is about you and making it real in your life ok say it's about your objectives your personal circumstances and how that fits into a much bigger picture of your why the thing you're trying to achieve so let's zoom in now and get into some acrylics real examples kind of unpack exactly how we apply this so you can use this framework in order to answer discretions for yourself [Music] okay so guys let's look at an example here simply in this example we've got a couple who are both thirty-five high festival rice and at both 35 marry two kids they've got some decent salaries and they're currently healthy okay so this is their current circumstances remember I talked about their current objectives long term objectives and their current circumstances it is that a current circumstances and let's say part of the current circumstances is that they are currently at the stage of financial stability on the money journey this is here's the money draining an extract of the money journey okay so financial stability actual security information independence and it carries on okay now and below this by the way is financial solvency is a stage where you've baited paying your bills each month and paying that spot basically you've got any savings at all so let's say this couple at the stage of financial stability when they've got three to six months worth of savings and that's what we've got they've got decent jobs they've got some kids and they're healthy under 35 yeah question is is should don't paying off their mortgage or should they be investing through the stock market now how I would look at this would be to say well disguise they've only got three to six months worth of sins now whilst that's really really and that's good merciful reference pass the emergency fund that's good I personally would look at this and say well actually I would say that their most the next logical goal should be to try and get themselves closer to a place of financial security when they have at least about one year worth of quit funds available there's liquid funds to be a very important they say savings accounts will invest it through stock market in the form of say index farmers or ETS for example but they have elements of liquidity because they've got kids right things could happen right but they meet those funds for all kinds of things beyond just having emergency then in some level of security now say that couple had gotten to that stage and had goals of one day becoming financially independent right they could carry on investor through a stock market or at that stage and both talked about strategy they could detour and start paying off their mortgage okay now the extent to which they choose to do this would depend on what their feelings are around what they see the future looking like and what they prioritize in their futures so the biggest example let's that added the element that this couple and now hated their jobs I want to start their own business okay let's just say right making this up right now they're working jobs are doing okay but you know these guys have their Millennials and I thinking you know what not pick a millennial spider eggs I am one of them that they're good you know what I actually want to have the opportunity to start my own thing and people want to start their own businesses and for good reason okay now at that stage they would have to rethink what that strategy is that they are pursuing should they carry on investing through the stock market you know buying up various things and remember we stock market stock market only really works for you if you have a long term horizon and depending on what strategy you pursues it for example whether you pursue a passive investing strategy we've done a video previously on how to reinvest reduced stock market for beginners I'll put a link to it below or above view to check out make sure you watch that if you want to kind of get started on that path but for this time they would have to really thinking of themselves is not current strategy that we were employing of investment for the stock markets still working for us or should we aim to pay off our mortgage such that we can gradually start maybe you know start work part-time for example or maybe starter you know one of us could maybe put on a job and start to invest in the business okay so my point to you hearing about deciding whether you invest from the stock market or pay off your mortgage is a very personal one really driven by where you are currently on the money journey ie your current circumstances as well your life circumstance and your current financial position and then also what your long-term objectives are where is it you're going and what strategy do you think is best for you to employ in order to achieve your goals I pick me for example okay we actually did both okay we did not just focus on paying off the mortgage and that's it that's all we're doing it no because we wanted to have this element of the stock market running but employing a passive investing strategy we did this what we knew we had a decent level of savings put aside so we had French security and then we said okay what you know what a big part of what you want to do really is to run our own thing pursue passions and side hustles and keep working for those to become proper businesses but we might have the option to do whatever we want because we would have complete control of our time so our strategy was that we saw the mortgage as the low-hanging fruit the thing that we could get hold of because with investors for the stock market you needed at least when you need about twenty years really start to see it really really work for you for those have rigged return rates that everybody talks about the 7% to 8% see those really coming through for you in a really decent horizon but with a mortgage we thought you know what if we really really focused on overpayments and very since I mentioned in the mortgage video again I'll put a link to below feed if we didn't catch it before earlier in the video is we knew that we could do this in about 10 years we ended up doing it in seven years and so the mortgage became the better strategy for us based on our personal circumstances okay now the choice of paying off the mortgage has many advantages and disadvantages which I'll cover and the choice of heading find a stock market and focusing on the stock market also has many advantages and disadvantages but I haven't misses giving you some perspective it's kind of how you might be able to think about this because it's not just a clear-cut oh come on of course you should invest your stock okay because that's the logical thing to do you know it's entirely down to your circumstances where do you stand and what are your goals what are you trying to achieve in your own personal life circumstances and how does that then inform what strategy you employ because you know your goals are objectives and what tactics there's how exactly steps you need to take there's daily steps you need to take in order for you to then get closer towards achieving your goals okay so just to summarize real quick you can only focus on just investment through the stock market and you can only focus on just paying off your mortgage or you can do both but all driven by the state of your current personal circumstances and the state of your long-term goals so let's now dive in and start to look at what the advantages are of paying off your mortgage and the disadvantages versus the advantages and disadvantages of investing purely through the stock market [Music] okay so let's now look at what the advantages and disadvantages are of actually paying off your mortgage okay so cuz I've been there I can tell you right now I'm a bit what's the word I'm looking for a few moments later yeah except my buyers because I invested by paying off the mortgage whilst course are doing the stock market why have this huge kind of preference for the mortgage and I'll tell you why I don't know anybody who's mortgage free who is not happy right listen that's why we're happy here as part of the pros right overall and I explained he's a line-by-line they even raw be mortgage free feels good right if it was good right setup price freedom and peace right you just enjoy freedom because you just feel like you just got this massive weight away from your life you know Smith for me for example as a family man my wife or my kids just nice to know you've got your own home place ik and corner home you can do all the traveling you want we love to travel but we have a home right so we can come back to that home whenever we want okay I got that piece on freedom next risk takings when your mortgage free you know people don't muck about with you anymore you know like you know you can take a bit more risks in your life you ki can move on from one employment to another if you wanted to you know you can take some more time off work if you wanted to because if you take a bit more risks you know you can cover this below as well your goal for financial independence is a lot lower because think about in most people's expenses and typically made up I see at least thirty to fifty percent of its typically made up of their housing costs okay so if you haven't got housing costs anymore then your typical regular essential expenses are a lot lower and if you go by say 4 percent all even for example then target unit to here to become financially independent a lot lower if you haven't seen our video on how much money is enough ie how you can work out your financial independence number look in the link below or above and make sure you watch that's kind of understand one minute so the barrier for becoming fi is a lot lower if you don't have mortgage costs because all you typically that would be housing related costs such as lighting heating the internet and what-have-you okay now you can pursue your passions and businesses if you have an interest in these things I'm huge depression about business site hassles have a huge interest in these and see them as massive levers for helping anyone accelerate this journey or becoming financially independent if that's what they want okay but getting rid of that mortgage really gives you the real opportunity to do that because you've got no other excuse you've got ki not you're not having to worry about being kicked out of your home you just go out there and make things happen okay they can pursue your passions and goals and altogether you know you have the opportunity to create more wealth because you think about if you're still working all your income can then go towards other asset classes liquid asset classes such as investing through the stock market or even investing in a business asset or investing in other property assets who they generate some passive income for you okay cause or disadvantage would be liquidity because you've got the great deal of your money invested in your property you would then be you know you have all your eggs in one I guess in one basket in a sense but that's not necessarily true so you remember in the previous sections of this video I mentioned to either you know my preference with always bids can get to a decent level of financial stability so gonna have at least one to two years worth of expenses saved and then faker's a great deal of your disposable income on perhaps over paying your mortgage if you saw that to be incredible strategy for your own personal life circumstances so the core of paying off your mortgage is that you've got where of concept Frenship okay now this last one here because just for fun right because what happens when you get to a point where you know people know that you might have paid off your mortgage so you start to get a lot of people just just get it just kind of interested in asking you for money okay I got think that's probably the most polite way of putting it the way they start haters I just put that definitely bit of fun but essentially you have people who either love what you've done people who kind of dare I say just slightly slightly jealous or people might not quite like it or something might look at it and say wow so inspiring okay so we've had the opposite which is that we thought people have said to us wow that's just so mind-blowing how on earth did you do it which is why we're making all these series of videos kind of show people what we've done okay yeah yeah there are way more pros than there are obviously cons of paying off your mortgage and let's not forget you also get an investment return officer because you're saving a ton of interest you're saving so much more which I've covered in a mortgage video before I just do want to go into that in this one because you've focused on paying off your mortgage now let's look at the stock market and look at what the pros and cons are of focusing on investing purely through the stock market okay so that I'm a fan of investing and I talk about investing a lot and I'm an investor myself now but there are pros and cons that a really important figure to make sure that you fully understand if this is gonna be your chosen path okay so it's a good at price first pros are the depending on what you're vesting you're more likely the investor to stock market you're more likely to have a lot more liquidity compared to if you invested in property so if you paid off your mortgage okay you're more like to have liquidity but again it depends on where you investing because there are complex areas of investing that don't have as much quitting okay so for example if you invested in non allistic companies or if you invest in a venture capital trusts or or whatever okay they might not have quite as much liquidity as you might do if you invested passively so through index funds or ETFs or via passive investing strategy okay but let's just call it pride that you do have a lot more liquidity compared to say investing by paying off your mortgage okay now wealth growth potential is a lot higher if you didn't buy your pension because in the UK for example you get top ups whether you're a basic rate taxpayer or higher in tax payer if you're a higher a tax payer for example you might get 40 P for every ATP that you put it with eighty pounds for example you get a top-up of 20 pounds through government yes you can then claim another 20 pounds via your tax returns for example okay so the same applies of basic rate taxpayer but except you only get 20 percent 140 percent okay so that means that if you did invest through your pensions for example via a self invested pension plan virus if you have the potential actually of almost given yourself is this leveraging power because you're getting a lot more bang for your buck and then if you invest in that money you have great potential for it to grow over time but remember obviously you don't get taxed on that immediately bond your way out when you come to have access to that money which we'll talk about as a con later on you will pay taxes obviously pay 25 cents we get 25 cent tax free and the rest you pay tax on depending on what your tax rate is at that time when you come to withdraw at the age of 55 based on today's kind of rules okay saying next is that it's tax efficient you can do tax efficient investing for the stock market either through your icer or you through your sip and stuff like that there are other accounts as one that you can use but those are just two of them so you can have tax efficient investing and you have potential for great returns okay so we have people talking all the time about 8% return 7% returns typically we kind of pre inflation and so on those rates of returns on average monthly they are averages typically over a period of time you know do can happen you know it can happen but they are not guarantee has will cover in a second okay so you can generate good returns provided you've got the long enough horizon okay so I'm talking here 15 years 20 years got really good horizon is far more likely probability wise that you might hit those returns if you have a long temper item but remember to the columns it's not guaranteed and this is where it really matters okay because we're the property if you become mortgage free your mortgage free you've got it right but it's not guaranteed with the stock market and I have to tell you that as much as it's great for me to tell you to invest your money it's not guaranteed but a strategy pursued for example in passive investing strategy makes you far more likely that you will be ahead rather than behind or losing money when it comes when time passes okay assess this is important right so this liquidity point I mentioned with property earlier also can apply to investing through stock market if you do it through a pension for example kurz with a pension and 3536 very soon I can't access my vengeance till I'm 55 okay but you know I want to live a particular life already and you know I'm kind of thinking that's got a money just parked away okay so the same would probably apply to you you can't access that money for quite some time although you can invest through say your stocks and shares icer and have a lot more access to your money doing it that way now you need a long term horizon as I mentioned before require for you to see those returns okay and it can be potentially expensive depending on how you invest you know since today you and I have a lot more transparency because their technology lets us do that and because innovators have created products are a lot cheaper for you and I to investing but fees remain a really big burden to investors stock market okay because you have to generate a return the far exceeds the cost of investing your money set of fees on various things you have to pay out okay in order for you to start to see those potential returns okay we're rats with a property you're getting your returns as you are paying off that mortgage okay so you can see that as much as there are really good advantages for investing your money through stock market there are also some disadvantages that you must consider okay so there you have it now just to summarize what we've discovered paying off your mortgage and investing through the stock market at both forms of investments one is through property and one is through investing through the stock market into companies okay typically now both will generate you various forms of returns and the path you choose depends on your personal circumstances your day-to-day circumstances and your long-term goals both options are not mutually exclusive ie you don't have to just choose paying off your mortgage only or choose just investing it's really stock market only you can actually mix and match them and that's what we've been able to do on our own personal journey of not just paying off our mortgage but also continually investing consistently in an automated fashion through the stock market I hope that's been really helpful in helping you decide whether you should be investing through stock market or paying off your mortgage or a combination of both I'd love to hear from you in the comments below all you focus you're not just paying off your mortgage or are you doing a bit of both how did you come to that strategy for your own personal circumstances if you are completely new to deciding which way to go please let me know also in the comments if this video has helped you to clarify where you should be going please like this video if you really enjoyed it and subscribe if you're new to this channel we publish every Tuesday at the first plane hit the notifications button and you'll be notified as soon as I feel it's got a life thanks again for watching it and take up when I will see you on our next video bye bye

Channel: The Humble Penny

Views: 28,421

Keywords: pay off mortgage early or invest, how to pay off mortgage early, how to pay off mortgage faster, how to pay off mortgage early uk, mortgage payoff, how to invest in stocks for beginners, stock market for beginners uk, how to invest, how to invest in stocks, how to invest in the stock market, UK, Mortgage UK, pay off mortgage or invest uk, paying off mortgage early pros and cons, should i pay off my mortgage completely, investing vs mortgage payoff, Uk investing, The Humble Penny

Id: 80b5SFnZgoM

Length: 27min 6sec (1626 seconds)

Published: Tue Oct 22 2019