Why You Should Focus On Paying Down The Mortgage Over Investing

John's with us in Chicago hey John welcome to the Dave Ramsey show hey thanks for taking my call sure what's up I got a question I have been able to save up quite a bit a decent stash of savings and the only that I have is a mortgage I've always been a avid investor and I was lucky enough to get locked in at a low rate about three and a quarter so just curious your thoughts having a difficult time convince myself to pay off more see off my mortgage with such a low rate how much do you owe on your mortgage about 180 okay and how much is the non retirement nest egg about 90 okay and so you don't have enough to pay it off correct so I've been trying to decide does it make sense to just store that chunk at that I gotcha even though it doesn't pay it off okay and the what's the home worse no 520 good okay and how much you have in retirement 401 K about 150 IRA and Roth of about 100 okay how old are you 35 oh good you got a great start what do you make of your household income oh I'm going on just 140 well great yeah you're in great shape you're doing great man okay well here's what we teach and then more importantly why we teach it okay what we teach is a thing called the baby steps where you're debt-free everything but the house and have an emergency fund that's one two and three you've done that then we suggest that baby step four that you start investing in retirement fifteen percent of your household income are you doing that yeah so you got something you got twenty twenty five thousand dollars going into retirement accounts a year two thousand bucks a month yeah 10% in my 401k and then about another 10% just goes into savings okay but it's not going into retirement well yeah member since going into the fire okay that's your time so we suggest um just trying to clarify where you were on what we teach and then I'll go back on to walk okay so 15% of your income going into retirement is what we would recommend and so that would mean you would put 10% your 401k and 5% more into Roth IRAs in good mutual funds and in your 401k you be in good mutual funds that's baby step four five is kids college do you have kids I do and you need to say for the college right right is there something independent of what we've talked about that's covering that that I don't know about 529 plans how much is it knows about seventy five between the two of them and they're how old the kids five and eight okay so you've got a really good start there good so that's we can kind of check that box and you just keep adding you've been adding systematically to that it sounds like and you keep doing that six is pay off the house early so above 15% going into retirement and above kids college check we would say throw everything at the house which is the $90,000 that's in discussion here unless you don't have an emergency fund if you do don't we do some of the 90,000 for that and throw the rest at the mortgage why would I do that okay and the reason is it's very simple as we've studied millionaires over the last 25 years and we just completed the largest study of millionaires ever done over 10,000 of them we find to start with that somewhere in the neighborhood 79 percent inherited nothing and somewhere in the neighborhood of 90 percent inherited not enough to make them millionaires so 90 percent of millionaires in other words are not millionaires because of inherited money but because of their habits and what they do with their money and the two primary things we see that those habits that caused them to be successful meaning hitting a million dollar net worth and above is the primary initial level of wealth the first million or two million is 401k and a paid for house now the paid for house not only is going up in value and stabilizers but we do not find them saying I'm gonna borrow as much three and a half percent money as I can borrow because I can invest it and make a better rate of return we do not find them doing that we find them getting the house paid off and using the increased cash flow of not having a house payment - then go bananas on their investing and their 401ks and non 401k investing starts to go through the roof but if we fast forward your situation like five to seven years and you're sitting in this house by then it's worth seven hundred and by then you'd have five hundred in your 401ks probably seven hundred in your 401k you'd have about a million and a half net worth million seven net worth of which seven hundred thousand is your house you would be typical in the case study that we've done you'd be a typical case study of the representative statistically of the typical millionaire if however you didn't pay off the house you might still reach millionaire status but you would be very unusual among that group so the data points tell us that the millionaires are paying off their house now why would they do that because of risk because 100 percent of foreclosures occur on the house with a mortgage and when you have zero mortgage and you walk in the backyard and the grass feels different under your feet it's mine by God you know kind of thing it changes the way you operate the rest of your money because you're standing on such a more solid foundation to live your life you don't you know you don't a lot of people change jobs because they're no longer worried about losing something they we're in a job they hated just to pay bills they they changed careers they they take a little bit a more calculated risk or something and we see their incomes go up overall and so it's more than just a three and a half percent mortgage versus mutual funds return there's risk in there there's life in there there's stability in there and and that's why we're seeing these millionaires do that so all of that to say I would pull enough out of here 90,000 if you don't have a separate emergency fund to fund an emergency fund of three to six months of expenses I throw the rest of it at that I would adjust your saving by up five percent in two so you got a total of fifteen going into retirement five percent more going into roth iras and good mutual funds I think you kids colleges on track I keep doing that throw the rest of it the mortgage and then anything else you find in your budget that you were saving above that fifteen percent I thought if that mortgage still that mortgage is gone I think your mortgage will be gone in about three years and you would never borrow on a paid for home to invest and so you wouldn't keep a mortgage a good question thanks for letting me walk through it with you

Channel: The Ramsey Show - Highlights

Views: 1,988,172

Rating: 4.8192711 out of 5

Keywords: the dave ramsey show, budget money debt cash, real estate, insurance, how to make money, dave ramsey, save, credit card, compound interest, buying house, buy, snowball, Why You Should Focus on Paying Down Mortgage Over Investing, debt, money, investing, mortgage, retirement, personal finance, invest

Id: yrCP3IEKVLE

Length: 7min 20sec (440 seconds)

Published: Sun May 05 2019