Should I Pause Investing to Pay Off My Home by 40?

Question from Dan is up next. I’m 33, and the only debt I have is my mortgage. I calculated it, and if I stopped retirement contributions, I could pay off my mortgage by the time I’m 40. Is this a good decision?

Ready for some spicy takes? Dan knows what we’re going to say. Sure, yeah, I think this is a genuine question. That’s great, but there is a part of me that’s like, is he just trying to, you know? Dan, I’m going to assume you’re new here. Welcome! We’re so happy to have you. So, so happy to have you. Is this you softening them up before I come in and just, yeah, superman punch? That’s it. Dan, I’m going to say the first thing I want to do, and Brian’s going to tell you, I’m going to tell you what to do. Ron’s going to tell you why to do it. And once you go to moneyguy.com/resources, I want you to go download this deliverable we have called The Wealth Multiplier because we have this idea, here, this concept Brian is a koozie and show you, and then for a 21-year-old or a 20-year-old, one dollar that they invest can turn into 88 by the time they turn 65. Well, as we age, that decreases. By the time we get to 40, one dollar turns into seven. I want you to go to moneyguy.com/resources, download The Wealth Multiplier, and I want you to look at what a 33-year-old’s dollar can turn into.

I want you to go see that every dollar that I take and invest for the future can turn into this by the time I retire. Now, I want you to think about that mortgage that you have. And unless you bought the house recently, and I’m guessing if you could have it paid off in seven years, you’ve owned it for a couple of years, I’m going to argue, I bet you got a pretty attractive mortgage rate. Maybe you’re at two and a half, three, three and a half percent. And I want you to think about if I’m going to be the captain of these dollars and I’m going to deploy them to be the most effective for my circumstances, is it most effective for me to send them at two and a half to three and a half percent interest to pay off debt or to money multiply them and send them to go out there and grow and expand and grow and expand and grow and expand?

So, what I want to do is I’m going to go download the Wealth Multiplier. Run, what would you tell? Well, I think, Dan, there are a few clarifying things here. First of all, Dan, you’re on the path to figure out if you’re on the get wealthy path. It’s not guaranteed right now. I mean, when you’re in your 30s, every dollar that you put to work has tremendous potential for the long term. I know a dollar for a 30-year-old has the potential to turn into 23 dollars by retirement. That’s exponential growth. To have a 20-fold growth of your money is pretty powerful. And by the way, even the people who advocate for paying off your mortgage early, I’ll just say it, this is Davis because Dave wouldn’t even want you to pay off your mortgage early until you’re saving and investing 15%. The thought that because you’ve set this up as an incremental, I’m either going to do this action in a binary decision, it’s zeros and ones. I’m either going to be paying off my mortgage or I’m going to be investing. I don’t like that because that’s why we have created the Financial Order of Operations. It kind of lets you do it all in the most efficient way to maximize your dollars, to shut down what your Roth IRA could be doing, to shut down what your employer money could be doing, to shut down the wealth-building process, just so you can get that feel-good moment of paying off your mortgage early. It just feels premature and inefficient. And, um, because remember, I’m all about paying off a mortgage. I tell people all the time that I think that’s what makes us unique. But you have to balance out the element of risk. Right now, in your early 30s, there’s a risk you won’t be wealthy. You’re going to end up like the typical American, where you’ll work your whole career and then you’ll just scrape by because you didn’t get enough of your money working as hard as you do with your back, brains, and hands. So get that money to work for you so that it has the potential to have the 20 years plus of compounding growth to actually turn into something for you.

Now, I think that when people get into their mid-40s, there are several things going on. They don’t have the compounding growth like they did when they were in their 20s and 30s. Now they’re in a situation where their money is still growing, but it’s just single digits. Yeah, it’s in single-digit territory versus 20, 30, 50 times growth models that you can achieve. And that’s why it’s so valuable to save and invest as early and often as possible.

So I think, and you’re also at this stage where, probably hopefully by your mid-40s, because we know the typical millionaire is occurring and being created in that 47 to 49 range on a research study. So if that’s the case, if you’re probably not just getting wealthy, you’re actually trying to stay wealthy. You’re trying to cut risk in a different way. Instead of the risk of not being wealthy, you are already wealthy. You’re more worried about the risk of how do I take factors off the table that could take me away from being successful and wealthy. And that is paying off your mortgage, being where you have nobody you owe money to. And I’m all for it. But also, likely what’s going to happen when you’re following the Financial Order of Operations, you’ll realize step nine, which is where the low-interest mortgage is. That’s paying off. That’s after you do saving and investing in Roth IRAs, maxing out the employer plan. You’re reaching a savings and investment rate of 25 or greater.

So yeah, then it seems like a no-brainer. Now let’s figure out, you’ve already made it past the get wealthy behaviors. Now let’s do some behaviors that can take risk off the table and help you stay wealthy. But for a 33-year-old, you’re cutting off some steps, and I think you’ll feel good in the temporary. But I think if you look at it over the long term, you left a lot of money on the table from an opportunity cost. Because right now, also from a contrarian standpoint, we’re in a lot of volatility, and a lot of people get very nervous. And they think, “Well, you know what? The safe, smart play is actually, because there’s so much volatility, I ought to go do the safe thing and pay off this mortgage right now.” When I’m telling you, if you look at the cycle of market emotions, the maximum point of opportunities is usually when there’s volatility, scarcity, fear, and all kinds of other things going on. Don’t blow it. I mean, this is a decision where I think if you go do your research, you really look into opportunities, you’ll find that if you do it the way we’re talking about, there’s a good chance you’ll not only be able to pay off your mortgage sooner but you’re also going to have lots of an army of dollar bills working in the background.