Why Paying Off Your House Early Will DESTROY Your Finances!

Описание к видео Why Paying Off Your House Early Will DESTROY Your Finances!

The rich don't get out of debt as soon as possible... They do this instead!

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People like Dave Ramsey preach to their listeners to pay off debt as soon as possible. For LOW INTEREST debt, this makes ZERO sense, when breaking down the numbers logically... Paying off low interest debt as fast as possible, can actually keep people in the poor and middle class, not allowing them to actually growth their wealth and become financially free at a younger age. Here's why...

If you have a low interest rate on your mortgage - let's say 3%. The inflation rate just looking at the consumer price index (CPI), has far outpaced your interest rate in the trailing 12 months, coming in OVER 5%! That's insane... The federal reserve and the US government print money like it's their job to prop the economy up and fund the government's new initiatives.

So what happens when inflation occurs? There are new dollars circulating through the economy, which decreases the purchasing power of each dollar in your bank account. It literally makes things more expensive - gas, groceries, housing, etc. So, by paying off a low interest mortgage early - yes you will save money you would have paid in interest to the bank, but borrowing money at a 3% rate is essentially free money, so long as the fed prints new money at the rate they have been.

Take it one step further. How do you achieve financial freedom? You HAVE to invest your money into assets that grow over time to a point where you don't have to work another day of your life and you have enough money to pay for your living expenses every month til the day you die. Similarly, if you invest in cash flowing assets, such as real estate - that pay you monthly cash flow, you can become financially free at a much younger age. This is because your monthly cash flow has built up enough to pay for your living expenses and beyond, on a monthly basis!

So if you pay off your low interest debt sooner, you limit how much money you could have invested, therefore lengthening the time it takes you to achieve financial freedom or financial independence!

My general rule of thumb is this.... If investing the same amount of money you plan to pay off your debt, provide you a higher rate of return than the amount you'd be saving in interest would by paying off debt first, then invest your money! It's simple math and logical. Although debt feels uncomfortable, you can actually leverage GOOD debt to purchase cash flowing assets, such as rental properties or Airbnb properties. The cash flow you make each month could actually offset your mortgage cost completely... Have your assets pay for your liabilities in your life! This is what the rich do. This is what is NOT taught in school or by most financial advisors.

The same logic applies to car debt or student loans. If you can invest your money and achieve a higher rate of return than the interest rate on the loan, invest your money first.

Instead of chasing this dream of being debt free, we should all be chasing financial freedom! Chasing debt freedom keeps you in the rat race longer and prolongs your journey to achieving financial freedom!

I often get asked when I plan to pay off my investment properties. And the answer right now is definitely not in the near future. Instead of paying off one of the houses in full that I have a 3 or 4% interest rate on, I could invest that cash flow into another house that produces a 25%+ cash on cash return! Remember... let you assets pay for your liabilities!

So if not now... when does it make sense to pay off your house completely and become truly debt free? That is a really hard question to answer... I think it depends where you are at in your life, both financially and age wise. It doesn't really make sense for someone who is financially free, retired and age 70, to do a cash out refinance on their primary residence to invest in the stock market. The reason we invest when we are young, is because we have a much longer time horizon to let our investments grow and weather the economic storms that are bound to come and go over time. I think when you are far beyond financial freedom, and you have financial abundance, you can then begin to pay down your debts to become truly debt free.

The key to debt is to never be overleverage in a risky scenario. Leverage GOOD debt to make investments. Pay off high interest debt ASAP

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