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Should You Invest More or Pay Off Your Home Early?

There's a raging debate between Ramsey followers and ChooseFI (FIRE) followers.

Should you pay off your house (no mortgage!) or should you invest that money instead?

Prerequisites to This Debate

First, if you haven't paid off all of your consumer debt (credit cards, student loans, personal loans, etc.), then work on that first.

After that, build a sizeable emergency fund (4-6 months of expenses) and then start saving 15%+ of your income for retirement, preferably closer to 20%.

This debate is about what to do after you're consumer debt-free and are saving at least 15% of your income every paycheck.

Back to the Debate: It's About Risk

So, do you save more or do you pay off your mortgage?

This question is all about risk and risk tolerance. It really depends on you.

In Living a Budget episode 10, I talk through the reasons different people choose different options.

The math gets pretty situational when modeled out over time. There are a lot of things to consider here and nobody's situation is the same as another's.

Example 1: A Stay-At-Home-Spouse and a Newly Disabled Spouse

Let's say you're in a one-income household. The bread-earner ends up disabled somehow and is drawing on 60% Long-Term Disability Insurance (LTD). That LTD Insurance will only pay 60% of what you had earned for the next 5 years, which is common.

What do you do?

Oftentimes, the answer is that the SAH Spouse will get a job. But here's the rub: the SAH Spouse hasn't had a job in the market for a long while. That usually means his or her earning potential is lower than average, maybe just above minimum wage.

That might not bridge the income gap.

If this is a scenario that you're concerned about or if you're concerned about the main breadwinner becoming disabled, then paying off your mortgage is a way to reduce risk. Another way to say that is that paying off your mortgage will lower your stress and your worry if you're worried about this situation.

The bank can't take your home they don't own any piece of it.

Example 2: Someone Wants to Start a Business

Let's say you'd like to be one of the 11 million Americans out there who own a small business, but you feel tied to your job, because it brings in the income you need.

Starting a business is a risk. It's a big, giant, hairy, scary risk. 90% of businesses fail within the first year. If you're considering opening a business, that number should be seared into your brain.

So what do you do?

Well, if you're like me, you build a big, giant, hairy emergency fund that is so grown up it should be starting college soon. Translation: it's about 12 months of expenses, you know, just in case.

You could also pay off your mortgage before you start the business, so your house isn't in jeopardy if your business fails. We did that, too. It adds an enormous sense of security knowing that your kids will be able to live in their home if their parent's bet didn't work out.

Also, get a business coach. They're invaluable. (Call me. I don't advertise this, but I've been known to do it.)

Example 3: Your Family Is Like Every Other Family

Here's what I mean: you and your spouse are either a dual-income family or a single-income family. You are stable with your finances. You have a plan, a budget, and you stick to it. You're out of consumer debt, are saving at least 15% of your income, and have an emergency fund.

Your job or jobs are secure and you DON'T want to start your own business. You have valuable skills that could easily land you a job somewhere else if you were to lose your job.

You don't see any abnormal risks coming up in your life.

Because your future life plan is low-risk already, there's no huge need to lower your risk. (Talk to your spouse first, if you're married. Ahem.) In this case, investing more money won't truly increase your long-term risk. I mean, there's always risk associated with investing in the stock market. It's a given. But, that said, your risk profile fits this option.

You Could Choose Either Option in All Above Examples

I see you, fanatics. I hear your arguments all the time.

In any of the above scenarios, you could choose either option and come out ahead.

Based on previous earnings from the S&P 500, which are never a projection for future earnings (I feel like I have to say that), you'd come out ahead financially in the long run if you invested. Every time. Yes, I get it.

But would your stress level be lower? Would you keep your house? How high is your perceived risk? How many arguments are you getting into with your spouse?

It's a personal decision and a joint decision if you're married.

It's hard to quantify stress (without a blood cortisol test). It's hard to quantify marriage harmony or life risk.

If you're in this situation, where you're completely consumer debt-free, you have emergency funds saved up, and you're already investing 15%+ every paycheck, then you can choose either option and come out on top.

Make the decision that will make you happier, less stressed, and freer. They're both great decisions.

Listen to more on my podcast, Living a Budget, at


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