Should you pay off debt or investing is a question I often see asked. And depending on who you talk to, you’ll get different answers. Investing your money will make you money work for you and help you build wealth. Paying off debt can lean to more financial freedom and peace of money. Then beyond investing or paying off debt, building an emergency fund is extremely important to your personal finance picture
00:00 – Start
00:27 – No Wrong Answer
00:54 – Types of Debt
1:16 – Build Emergency Fund
2:23 – Investing Over Paying off debt
4:14 – Pay off debt over investing
5:56 – How I manage debt
8:54 – Wrap Up
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29 comments
1st?
I was just thinking of this. Perfect timing. Thank you!!
Compounding interest is tight, compounding debt isn’t.
Have an emergency fund? But Dustin, why not just yolo on some call options on TSLA, saving the environment is an emergency!
Great advice Dustin!
Mathematically it makes sense to invest if the expected return is higher than the interest payment. But mathematically doesn't take into account the psychological aspects, which isn't something to dismiss. But a purely AI financial advisor would say it's in your best interest to invest.
If it is credit card debt, ALWAYS pay it off first! It's Extremely unlikely you will get a higher return investing that money.
Right now, with the instability of the stock market, wouldn’t the safest bet be a no risk guaranteed return debt payment? The guaranteed savings is the interest you have to pay vs the interest you could make?
Prime time to invest right now if you have the money since mortgage and car loan interest is so low.
Thanks for your content. Are you currently working as a pharmacist and using youtube as a side-hustle? Or fulltime youtube now? I may be in a similar situation as you were 5 years ago (watched the other video) and wondering what my best options are.
I’ve been getting the company 401k match and maxing the HSA while aggressively paying down debt. It’s a balancing act
My approach is anything under 3% okay with investing. Greater than 4% pay the debt off. Between 3-4% it depends. My rule of thumb I use
Yes sir! And you can borrow against your investments.
I don't mind debt if its basically an investment and has a return… For example a mortgage for a rental property
I hate having debt that locks you in and takes away freedom, so I hear you on not wanting to be chained to a mortgage on the place I live… Thats why for the place I live, I actually choose to rent. Renting instead of owning the place I live frees up the possibility to move someplace else if say we both lost our jobs, or maybe one of us had a really great job opportunity in a new city. The thing about paying a mortgage on the place I live is, you can lose a ton of money if you move too soon… Over the life of the loan, the monthly payment is fixed but it is typically structured so that the more you have outstanding, the larger proportion of the monthly payment is just paying interest, so you principle doesnt grow much at the beginning. Its mostly interest at the start, so if your monthly payment on a mortgage is significantly larger than what you would pay to rent a comparable place, you actually are losing money if you move too soon before alot of it is paid off. (of course the property value can go up which offsets that)
An alternative option is to have that debt / mortgage work for you and pay for itself… I have a mortgage but it is on a property that I rent out, and the monthly rental income pretty well covers the mortgage and expenses, and I dont ever need to worry about it, it just grows. So its an investment like stocks etc… Eventually that debt will be paid off and then I could sell that property or keep renting it out and its a passive income stream…
Meanwhile, for my own home where I live, I actually rent… which is cheaper each month than a mortgage payment and I gain the freedom to rent a nicer place for the same amount and still have the flexibility to move if I need to. Thinking ahead to how my housing needs will change over time, my kids will eventually grow up, and its unlikely that I will need as much space in the future as I do now… For this reason, I don't imagine that I will live one place for 30 years… If I were to buy, I would have to pay closing costs, and say I live only 15 years there, the majority of the monthly payments actually go to interest payments rather than principle… So the mortgage I feel kindof takes away freedom to move…
Awesome video. If Covid has taught me anything is that you had better have STRONG Plan B just in case Plan A goes away.
With so many businesses closing, folks losing their jobs and healthcare and the stock market all over the place, it’s a reminder that my next to debt free lifestyle was a much better choice than choosing investments over paying off my mortgage and student loans.
Hey Dustin. Where do you put your emergency funds in? Probably not yotta (from your recent video). I bet somewhere earning you 1% or better. Let me know or perhaps do a video since you are a maximizer!
I think paying off debt is the thing to do. I recently paid off a loan I had for almost 2 yrs, now I can finally save some money. 🙂
Damn it, D. U and the infamous Flash shirt.
Inflation is going to get bad. It's always time delayed. But think about it.
22% of all US Dollars in existence were created in 2020… and the year isn't over, yet.
Those in debt are actually profiting from loss in spending power.
Im paying off all my debts first, except for a mortgage because thats a non-depreciating asset.
Then heavy investments
It’s whatever the person feels comfortable with, it’s called personal finance for a reason. 😀. Investing is what I do, paying a mortgage or a car never bothers me since I see what my investments are doing. Great video and great addition to the channel.
Hi, Ramsey's Wallet here 😁
I'll just share what worked for me. In 1985 I started paying off debt. In 1991 I was done. In 1994 I retired at age 43. My standard of living is fine and I've put my son through undergraduate and graduate school. And I never earned more than $75k per year. Live off half your earnings and invest the rest.
I think it needs to be a balance because you cannot owe so much and be SO LEVERAGED that you have no wiggle room in your budget. Then COVID hits, or have a car accident, etc. and then you lose your job. At the same time, paying off ALL your debt before investing anything into retirement can lose some very crucial years of compound interest. Some people argue the "which pays more" based on interest returns, but caution needs to be taken here with sticking to a GOOD plan (i.e. not keeping up with the Jones) given that personal finance has a major behavioral component. I think most of us do both aspects at the same time, but the particular balance between the two extremes is what makes or breaks the particular case. There is no simple answer given the major variables to consider in any given case.
The problem with taking the investing route that you did not mention is the stock market goes down as well. And if you need cash because of a layoff in the middle of a downturn then you have to sell your investment for a loss.
Great job discussing the psychological effects! It can be so easy to neglect that and look right at the math! Great walkthrough!
I think if it was credit card debt, I would pay the debt off first before investing. If its good debt, such as an auto loan or mortgage, I would invest. We recently started a Roth IRA and paid off ALL of our debt, so we trying to save as much as possible while investing at the same time. Thanks for the video. Take care and keep the family safe Dustin.
Pay off all debts first and then go really hard in investment.
Just seeing your topic, Waller. I made a comment about this in another one of your videos, (brokerage account vs. Roth IRA)! I saw that one first. Though the math says investing will return a significant amount more I see value in paying off all debt. Sure you sink a load of money to eliminate a large debt like a mortgage, but you free monthly cash. For the opportunity cost, Can you find a guaranteed investment yielding more than a monthly mortgage payment, is an argument to pay off debt.