Whether we want to admit it or not, we all make mistakes. From dating that girl our parents told us not to, to eating one too many rounds of food at the buffet, mistakes are simply a part of being human. Now, while I can’t magically erase the mistakes you’ve made in the past, I can help you dodge some costly ones in the future and as such I want to share with you 5 personal finance mistakes that will make you broke!
Mistake #1: Paying off your mortgage before investing
Sometimes in life, it’s not what you do but the order you do them in. We learned this lesson pretty quick in life when we came to realize that your pants need to go on before your shoes. Then, we were reminded of it when we added instead of multiplied and failed our middle school math test. I’m sure there are a million other examples but the point is that it’s great to do the right things in life but the sequence that said things take place is of the utmost importance. One pertinent example of this relates to your mortgage and investing.
Now, I know for some people the question of whether you should invest your money or pay off your mortgage first isn’t even up for discussion. Not that you have already determined what is the best approach for you but because you are miles away from being able to afford a house of your own. That’s fair. Home prices have been breaking orbit faster than Elon Musk’s rockets making the homebuying process even more challenging than it already was. But, I know at one point or another you will be making the leap into homeownership so as such you need to know in what order you should prioritize paying down your mortgage versus investing.
To put it bluntly, it seldom makes sense to wait until you’ve paid off your mortgage to start investing and this is primarily due to how compound interest, most people’s main wealth generator, works. You see, compound interest relies on two key factors: time and capital. Time is incredibly important when trying to invest your way to wealth and the more time you can let it work for you, the better. However, if you put off investing to pay down your mortgage, a liability that typically comes with somewhat low interest rates, then you are literally missing out on thousands of future dollars. Let me share…