Recently, with what seems like the whole world, the stock markets have been in disarray. Just today, we had 200 point drops in both the TSX and the Dow. Actually, even the Nikkei is down 200 points as well. Welcome to the global economy!
Experts are predicting that the next few months or so will be pretty choppy. And of course, we all know these are just little bumps in the road. Nothing to get alarmed about. So where am I going with this?
Recently, I seem to be hearing lots of talk about where you should put your money in these ‘uncertain times’. And more frequently than usual, I am hearing experts say “Pay down your debt.”
Let’s see. I went to the MoneySaver seminar held in Ottawa and Dale Ennis said “Paying down your mortgage is a guaranteed rate of return based on your tax factor.” I got the impression that Dale believes that you should pay off your mortgage before you start investing.
I was watching Financial Fridays on ROBTV a couple of weeks back, and Benj Gallander (of Contra the Heard) was saying to take some profit and pay down your debt. Guaranteed rate of return. You know exactly what you are earning.
I did a review on a book titled “Why Swim with the Sharks?“. Heavy focus on getting yourself debt free.
I am currently reading Dollar$ to Donuts by Daniel Kesselring. He has a five step model to wealth:
1. Get out of high interest debt.
2. Build up an emergency fund ($5,000)
3. Build up a freedom fund ($20,000 - $40,000) depending on how much you earn.
Once you have this freedom fund set up, you can use this money to ‘loan’ to yourself to purchase items (car, downpayment on a home) or make principle payments on your mortgage. So no more borrowing money from the bank. You then pay yourself back to rebuild your fund. Once you have your freedom fund set up, the ‘excess’ or ’spillage’ goes into the next steps.
4. Registered plans
5. Unregistered plans
I really like this idea. It has a lot of merit. He builds up his freedom fund before he starts investing.
Where am I going with this? Well, it is very rare to hear people suggesting that you pay down your debt first. Why? Financial advisors and the whole financial industry don’t make money from people who pay down their debt. They want people to pay interest on their debt and then pay these same financial institutions to invest their money. It is a win-win for the financial industry.
I guess a few times in the past, I’ve said that paying down your debts (including your mortgage), should be a top priority. And most people tell me that I am nuts! Max out your RRSP so that I can retire a gazillionaire!! I am just glad to see that I am not the only one that sees getting your debt paid off ASAP as a good thing.
2 users commented in " Paying Down Your Debt - Back in Style? "
Follow-up comment rss or Leave a Trackback“Recently, I seem to be hearing lots of talk about where you should put your money in these ‘uncertain times’. And more frequently than usual, I am hearing experts say ‘Pay down your debt.’”
Sounds like a good idea. Although, another idea is that when the market starts to fall, it is better to buy equities (at depressed prices). Or, in other words, don’t change what you are doing because the market takes a downturn. Don’t stop contributing to your RRSP and putting money into stocks and instead put more money into your mortgage just because of “uncertain times” or a bear market.
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