Should I save first, or pay off debt first?

chicken or eggby Cory Schmelzer San Diego Wealth Management

This is the “Which comes first, the chicken or the egg?” question for the financial services industry.  Whichever way you answer, you’re right… and wrong. 

In fact, if you ask a group of Financial Planners, you will likely get a 50/50 split.  The reality is that it depends on the specific savings vehicle, debt to income ratio, life stage and future plans, among many other factors, in question.

Often, mortgage debt is considered as “good debt” by wealth managers.  The rule of thumb in the financial world is that mortgage debt is retained, rather than paid off due to its low rate of interest, and tax benefits.  However, I sometimes advise my clients to break this rule by paying off their mortgages early.

Here is why:  I feel that by eliminating mortgage debt, my clients can sometimes free up cash flow and may be able to retire earlier with the goal to make different and better choices with their monthly income. Simple as that.

After all, why are we saving in the first place?  Is it to reach a certain number on your bank statements?  Of course not.  We save to make a better life for ourselves and our loved ones in the future.

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