Should You Pay Off Debt Or Invest

Hello everyone, welcome back to Whiteboard Finance. My name is Marco and I am here to help you master your money and build your wealth. In this video, we will talk about the controversial topic:

should

you pay off your

debt

first or

should

you take? that money and

invest

, so I'm going to talk about the philosophical side of things. I'll also talk about the actual talking points that aren't really that complicated, but you'll see what they are if you don't know. You will definitely learn from them and then I will also ask you four questions that will help you understand where you are and if you should really pay off that

debt

or if you should

invest

in math. nerds, I hate to disappoint you, this video isn't going to go into depth into the math, it's going to cover a couple different things, but we're not going to go through every penny and dime in this video, okay, this is more of a video to get. you're thinking about the big picture and whether you're ready to invest or whether you're ready to pay off debt so without further ado let's get right to it so I'm going to get into the philosophical side of things here so debt sucks. everyone knows that's the worst there is definitely good debt there is definitely bad debt but in general most people don't want to have debt ok then debts I'm going to go into one of my famous drawings here one of my other viewers said My animal drawings are really good and I told him that maybe I should start drawing children's books and he said it would give them nightmares, so if it's a person who is like a big weight on your shoulder, that's fine, so it says 50, whatever 50. kilograms 50 pounds whatever, so debt is a big weight on your shoulder and it's always on your conscience too, okay, it's kind of like a never-ending thing that's always like, hey , you know, I would like to do this, but I have everything. this debt I would like to invest in this but I have all these debts I want to take this vacation but I can't I have all these debts so it's like an endless wait that's always eroding you so debt can obviously cause stress can cause marriage problems I read something that It said that 57% of divorces had some kind of financial component or financial stress and I think the rest comes from social media, but that's a different conversation for a different day that you can have. hasty decisions when you have debt, for example, if you have an offer, you get laid off and you have to take another job instead of being on the market longer and finally choosing the dream job you want, you may not have time to take it . that dream job and you have to make a snap decision and take the worst job that you don't want just because you know you have no other choice, you have this thing about impending debt, okay, so at the end of the day personal finances are obviously financial and it's personal, but it's largely behavioral rather than mathematical, so some of the common talking points that come up in this debate are typically Marco, you know?

If I want to invest the difference, I can earn 10 percent instead of paying the loan. Call it, you know, six or seven percent student loans. Okay, they're thinking they can make a margin on that four or three percent by investing in the market instead of just paying off student loan debt so everyone knows what to pay. your debt says these are student loans it's a guaranteed rate of return okay so if it's student loan debt that's six to seven percent if you pay this off right away let's say you have 20 grand that you paid today, you're guaranteeing yourself an annual rate of return on this amount because you're not paying interest on it, so you know, then you get the comment that I mentioned earlier is that, hey, I can invest this ten percent. , I can pay this debt as it arises. the minimum monthly payment and I can invest the difference instead of paying off the student loan.

I can put this in the market and make that spread yes that's absolutely true but it usually comes from people who haven't been investing for that long and I've never experienced that drop in the market so these are people who usually have They're in their twenties, watched some investing videos on YouTube and said, yeah, man, I can do this for sure and they have some experience in the market, but ultimately, they don't remember the year 2008 when everyone lost between 40 and 40. 50 percent of your portfolio practically in the course of a year. That being said, this is definitely a viable argument.

However, I would say that a guaranteed rate of return is something like a bird in the bush, since a bird in the hand is better than two in the bush, that is something I would personally consider, so another topic of conversation is whether I dedicate everything my money to the student loan and I'm not investing in my 401K I'm missing out on essentially free money or the free match my employer used would be fine, that's also a viable argument and the only thing I would say is if you still keep overhead , the debt service, the interest, the monthly cost it takes to pay off that debt, are you even moving forward with the free match?

So depending on how much overhead you have with the debt, how much interest you're paying on that debt, that may even be negating the free contribution that your job is giving you, yes, it's going to grow over time because it's your 401K and I understand all of that, but right now I'm just philosophically thinking about saying, hey, would it be worth paying this debt right here instead of worrying? matching three percent of your company, for example, so let's get into the first question I want to ask you: see if paying down debt or investing would be a more viable option for you, so the first big question I want to ask you is: which are? your financial goals, so if you don't know your goals, look at the handwriting, these new markers are smooth, they're like butter, man, if you don't know your goals, this dictates the entire path you're going to take. perfect example I know people who made four hundred thousand dollars a year and they are in their twenties they were never satisfied they never sated they were always hungry they always wanted to earn more and more they consume they consume they consume well so if you are that type of person, your strategy will have to be to invest , whether it's real estate, whether it's stocks, whether it's, you know whatever, because you'll always have that appetite.

Only you can answer this question because you know yourself better than I think most people will probably fall somewhere in between. Well, the middle class will typically be between eight and five W-2 employees, they know they need to invest, but they also have some debt if you want to be something like that. as financially independent by the time you retire and lead a stress-free life where your marriage can thrive. He knows he can take care of his children. You don't have to worry about where your next meal is coming from. It would probably be better. pay off your debt first and then invest, the reason I say this is simply because the peace of mind this gives you, especially in the economy that we may be entering, when it comes to job loss and things like that, especially the cost health care and all that, it's better not to have debt that way, you don't have to talk about the things we talked about at the beginning of the video when it comes to peace of mind when it comes to marital stress when it comes to having to worry about all your debt overhead, take the job you don't want to take, etc.

I remember in 2008 there were articles about people who were CEOs who were literally delivering pizzas for Domino's and they went from, you know, a high six figure salary to having to deliver pizzas just to keep food on the table well, so in my opinion personal opinion i think paying off middle class debt is the smart thing to do and then you can really jumpstart your wealth creation so the second question i want to ask you revolves around time okay time is very important , so time on the market is more important than timing on the market, okay, so what's your age?

How old are you? Literally, what is your age? So if you're young, everyone knows that compound. Interest is one of the eighth wonders of the world, if you want to say that's okay, so the younger you start investing, the longer you can accumulate your money. Here's a perfect example: If you invest $5,000 a year at 7% from age I. I think it's 21 to 65 guess what this five thousand dollars a year turns into okay, this is a minimal investment it's not much in the grand scheme of things you can do you can be a waiter you can drive uber you can do whatever you can make five hundred five great like this it's not that hard if you invested this basically for forty four years from age 21 to 65 you would have 1 one million, four hundred thousand, four hundred and twenty-three thousand, seven hundred and forty-seven dollars in the bank is okay, yes, it doesn't take into account inflation, it doesn't take into account many other things that can happen during this period of time, however, it has happened and many people have done this and are now 65 years old in 2019, okay, so if this is your goal, I would prefer to invest in that case. instead of doing nothing and also instead of paying off debt or you can do some sort of hybrid as long as you save something, you know something, maybe max out a Roth IRA to six thousand dollars a year by 2019, at least start doing that and then start paying off your debt if you want this to grow because compounding is a factor that you have to consider when you think about paying off debt or investing so number three and this is probably one of the questions that most of the People don't even think, let's be honest. people weren't taught finance, they're not naturally interested in markets, they're not naturally interested in real estate investing, they're not naturally interested in knowing how to invest or have that mentality, most people only know the consumer mentality, especially in the United States, so they are numerous.

Three, do you even know what you're doing? Okay, I know this is so obvious, but most people are so eager and in such a rush to get into the market that they have FOMO, FOMO is fear of missing out, okay, FOMO, oh I'm in the Leave that out. everyone is investing, everyone is doing this, so are you someone who likes buying cryptocurrency because your Uber driver recommended it instead of your bird drivers talking about it? Are you buying real estate because you bought a $3 and 95 cent book on Instagram, one of those cheesy ads and If they don't follow me on Instagram, I call these guys all the time, it's a lot of fun, so if they don't know what are doing, I would start with a small amount and pay the debt first and the next question.

You're not really going to write well on this, so if you don't know what you're doing, start small, you're going to get bumps and bruises, especially in the economy that I think we're entering, and then ultimately, you can learn to invest. You can learn to be more disciplined with your money and you're also paying off debt at the same time, which actually brings me to number four: do you have enough to invest? Well, do you have enough money to invest? I say this is because people invest all their money and what they neglect is one of the most important things you can have if you are a responsible adult and that is your emergency fund.

Well, I talked about this and many of my videos. and it's not because I'm super conservative and you know, I hoard all my money in my mattress and I think you know the recessions that are coming, you know that's not the case, everyone should have an emergency fund, whether it's or not the economy. good or bad, okay, so people invest all their money in the market and they are so concerned about making money and afraid of missing out that they neglect their own personal financial well-being, so again I always come back to the losing analogy. your job or you know, let's say, for example, you get hit by a car and you can't earn income because you're injured, you know that your emergency fund is what's going to cover you, you know, three to six months of living expenses, so that with that said, if they have an emergency and all their money is tied up in a brokerage account or a 401k, for example, this forces them to encourage fines and taxes and stupid fees or, even sillier, they are taking out loans against your 401k. because they need to use that money for an emergency, so it will end up costing you more and it will end up wiping out a lot of your return because you will have to turn to the market, perhaps at an inopportune time.

Well, then the markets will go down. If an emergency happens, you'll have to tap into that money in that account anyway, so build your emergency fund first. Okay, having enough money to invest is more important than just being in the market, that's my personal opinion, so if you don't. have enough money and if you don't have enough money to invest first, I focus on building that emergency fund and then deciding whether to invest or pay down debt, so as always, you know this wassomething transcendental. it just helps you shift the paradigm in your head and get the gears moving to understand, hey, should I really pay off this debt or should I invest?

So I know I didn't get into mathematical numbers. There are other videos on YouTube that do what I wanted. Keep this level super high because most of the people who watch this channel are people who really enjoy learning about finances and personal finance, but they were never taught that, so I think if I get into the math aspect, I'll give them a like. analysis paralysis and you won't even take action on anything, so rewind the video, look at the four questions I asked you, you know yourself better than I do and you can make a decision from that point.

Thank you all very much, if you enjoyed the video, always give it a thumbs up, share the video with a friend and subscribe if you haven't already and, as always, have a prosperous day.