Exercise Equipment or Extra Mortgage Payment?
Interest rates are low. Investment returns are low. Should I finally buy a kayak with unplanned money or just make an extra payment on my mortgage?
When unexpected money shows up I’m often tempted to treat it as “free money” and spend it. Fortunately, at least some of the time, I have constrained myself and used it for something that has long term practicality:
· Added it to my rainy day emergency fund,
· Paid outstanding bills,
· Invested it for retirement, or
· Made an extra payment on my mortgage principle.
Now that I’m retired and my finances are reasonably settled, the choice is not always obvious.
The impractical side of me wants to do something fun with the money:
· Buy a new toy (I’ve been thinking about kayaks lately),
· Take a vacation (even with the pandemic going on, renting an RV and taking a trip in a warmer climate seems not too dangerous),
· Buy my wife something nice (she has put up with me for 23 years and definitely deserves it!)
The practical side of me wants to do the “right thing” whatever that is.
What to do, what to do?
Okay, what are the pros and cons of each?
1. Do something fun (and healthy):
Pros:
· It will create a great memories.
· It will make my wife smile, always a plus!
· I’m not going to live forever and now that I’m retired I should enjoy life while I’m healthy and active.
· This pandemic is getting old! A change of pace would be nice.
Cons:
· The money will be gone. What if a serious, unexpected financial emergency shows up?
2. Do something practical:
Pros:
· During this pandemic, who knows what the future holds. Having the mortgage paid off would be a good safety net.
· A bigger emergency fund is never a bad thing.
· My mortgage includes a line of credit function that would permit me to either skip a payment now and again or to borrow and add to the principle. Even with some extra payments against the principle, I would still have access to a larger than planned emergency fund.
Cons:
· The stock market is extremely high right now with risk of a crash if the pandemic continues or the US election gets too contentious, so investing doesn’t sound great.
· I could end up waiting until I’m too old to have fun.
· Being practical can be so boring.
Hmmm, still no obvious answer. I guess I have to answer the question, “At this point in time, what do I fear most?”
That’s easier:
· Runaway inflation due to all the easy money in recent years.
· Runaway interest rates in order to curb the inflation, leading to a huge mortgage payment when the mortgage is renewed in a few years.
· The COVID-19 pandemic continuing on for a few more years with no reliable vaccine and no good way to deal with the medical fallout from overloaded hospitals and unknown long term health issues for those who survive the virus.
· A major civil collapse as a result of the US elections.
Oh well, given all that I guess I need to be practical. The emergency fund is in good shape. There are no outstanding bills. The stock and bond markets are looking kind of shaky.
So I guess extra mortgage payments it is.
But I would really like that kayak! Sigh.
