Paying Off Debt Will Cost You Your Future
Yes, paying off debt will cost you your future. Let me show you why.
Let’s take two individuals: Cynthia and Kate.
Both graduated with professional degrees and are earning $75,000 a year.
Cynthia takes the advice of Dave Ramsey, who teaches mainly to focus on paying off debt.
After graduating, Cynthia spends the next 5 years working very hard to pay off all her student loans. Then she spends 2 years working to save for the down payment on a home.
After purchasing her dream home, Cynthia feels accomplished, knowing she has paid off all her student debt! But she forgot one thing … which is that she just signed a 30 year mortgage — which is also debt.
Cynthia then saves money, for an entire year, to buy the needed furniture and appliances for her new home.
So, Cynthia goes 8 years without investing.
Now, meet Kate.
Kate graduates and immediately begins investing 10% of her monthly income, while paying off her debt (which is what I teach).
She also saves up for a down payment on her new home, while investing.
She does exactly what Cynthia does, but invests the entire time.
Assuming they both achieve a similar return on their investments:
· Kate will have $2,038,932 worth of investments in 35 years.
· Cynthia will have $914,499.
Kate invested early, while Cynthia focused on paying off debt.
Even if Cynthia invests TWICE the amount that Kate invests every year, Kate will still be ahead, because she started investing 8 years earlier.
Paying off debt is not a financial strategy to grow money (and neither is saving).
In short, never stop investing while saving or paying off debt.
It is an expensive mistake to make.
Educate yourself on the new rules of finance — because the old rules, taught by old experts, don’t apply to our generation.
This blog post is not intended to be, and should not be considered to be, individual financial advice. The information shared by The Investing Tutor is for educational purposes only.