To many people, living debt-free is a lifelong dream. It’s the picture of the easy life. Retired with no debt. . .
You may be surprised to learn, however, that debt-free is not always the best decision – particularly if the choice is between paying off a mortgage or using the money more wisely to invest in a future using low-interest rate funds.
What? I Shouldn’t Pay Off My House?
Most of us don’t have that much extra cash lying around. We simply don’t have the luxury of being able to pay off our family home and maxing out our retirement contributions and investing in a side business. It’s pretty much an either-or proposition. With that said, from a financial standpoint, it is usually most favorable to make additional contributions to a company 401(k) program, if your company is matching your contributions, or investing in growing a side business, rather than using extra money to pay off the mortgage.
Putting money into a 401(k) plan has many advantages:
– Taxes on these contributions are deferred;
– Employers often max 401(k) contributions, doubling your money;
– Money can be liquidated for unexpected expenses; and
– In most cases, if you are connected to how your 401(k) is invested, investing the extra money could result in a more significant return than the interest you are paying on your mortgage, leading to greater net wealth in retirement.
Creating a side business has many advantages:
– You can create a side income stream that provides you with the kind of security a job working for someone else never can;
– You can write off business expenses for things you are already paying for already, such as using the home office deduction to deduct part of your home costs;
– You can use your creativity, knowledge, experience, and other resources gained over a lifetime of learning to help others and get paid for it;
– You can employ your children, teaching them financial principles and how to be personally sovereign from a young age;
– You can learn, grow and evolve — starting and running a business is one of the best ways to push the edges of your own comfort, bringing you closer and close to true internal liberation.
And, remember this: Mortgage interest deductions help when tax time rolls around.
After all is said and done though, the mortgage versus 401(k) versus side business decision is a personal one that you must ultimately make for yourself. Just keep in mind that if your priorities are financial, it is probably best to lean towards making additional contributions to your retirement account or starting a business, rather than paying down your mortgage.
As a Personal Family Lawyer®, I can further advise you on all your options and make things as easy as possible for your family during a Family Wealth Planning Session. If you would like to have a talk about estate planning for your family, call our office today to schedule a time for us to sit down and talk.
To your family’s health, wealth and happiness!
David Feakes
P.S. Want to get started on the most important planning you’ll ever do for your family? Give our office a call at (978) 263-6900 to get started. You’ll be so glad you did.
David Feakes is the owner of The Parents Estate Planning Law Firm, PC – a law firm for families in the Acton, Massachusetts area. David helps parents protect the people they love the most. If you would like to receive David’s exclusive, free report, “Six Major Mistakes To Avoid When Choosing An Estate Planning Attorney,” you can get it right here.
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