120: Investing vs. Debt: Which Path to Financial Freedom?
Are you expecting a little extra cash in your pocket this tax season? Or just extra cash in general? 🤔🤔
Finding yourself with extra cash can be a tough decision, similar to choosing between a “G-Wagon” or “Model X”. Should you pay off some of all of your debt or invest for the future?
Both options can be beneficial depending on your individual situation, so we aren’t going to tell you what to do because obviously this depends on your unique financial situation.
Here’s what we ARE going to do – we are going to share why it’s important to weigh the pros and cons and make a decision that works best for you.
➡️ Knowledge is power, so make an educated decision!
Debt vs Investing
The main difference between investing and debt repayment is the purpose and outcome.
Investing is a way to save for the future, usually by putting money into assets that will appreciate in value over time. ☝️
On the flip side of that, debt repayment is about paying off money that has already been spent and where you are getting those nasty interest charges from your lender.
If left unpaid, debt will continue to grow due to interest charges and can spiral out of control. 😖😖
Those who will usually advocate for choosing the investing route will typically say that if you can earn more from investments than the cost of your debts, it’s worth investing.
For example, if you have a 5% interest rate on your mortgage and an investment returning 10% annually, you’ll gain more by putting your extra cash into that investment.
Sounds pretty good, right? 🤩🤩
These decisions are almost never so clear-cut.
Remember that investing can be risky as the value of the investment can fluctuate, especially if you are investing in the stock or crypto markets which by nature have major up and down swings.
The pendulum of investing can be pretty wild; an investment that gains 10% one year might lose 50% the next year.
And while there are low-risk investments such as bank CDs and treasury bills, they often have low returns that may not be greater than the interest rates charged by credit card companies and other lenders. 👀
If you do choose the investing route, maybe you should take a first or a second look at investing in multifamily apartments.
🏢 Multifamily apartment investing can be a great way to use that extra cash because it offers several advantages over other types of investments.
One of the biggest benefits is the predictable, stable income that multifamily properties can provide.
Unlike 〽️ stocks or other market-based investments, rental income from multifamily properties is generally not affected by market fluctuations. 🤓🤓
Keep in mind too that multifamily apartment properties are less correlated to the stock market which means they can provide a more diversified investment portfolio.
In many cases, a major advantage of multifamily apartment investing is the higher yields it can generate.
For a lot of deals, you can potentially see 20% average annual returns during a 5-year investment hold period, which is higher than the average index’s performance in the last 20 years.
In fact, The National Apartment Association (NAA) states that multifamily properties have relatively low volatility, which means that the income streams from these properties are relatively stable over time. 😉🙌
The overall economic outlook for 🏢 multifamily apartment investing remains strong and optimistic as well, making multifamily investments an ideal choice for investors who are looking for a steady income stream.
Choice of Paying Down Debt
Now that you know more about the investing route, let’s take a look at what paying down debt can do for you. Advocates of this choice often argue that paying off debt can be a smart financial move for several reasons.
1️⃣ One of the main benefits is that it can help to improve your credit score, which is definitely a win. 😊😊
When you pay off debt, it shows lenders that you are responsible and capable of managing your finances, which can lead to better credit terms and lower interest rates in the future.
2️⃣ Another advantage of paying off debt is that it can help to reduce your monthly expenses. Interest charges on debt can add up quickly, making it difficult to make ends meet. By paying off debt, you can free up more money each month to save or invest in other areas.
Perhaps the best part is that paying off debt can also provide peace of mind and a sense of financial security. Carrying a large amount of debt can weigh heavily on your mind, causing sleepless nights, weight gain, stress, and even acne. Paying off debt can help to reduce that stress and allow you to focus on other financial goals. 🤟
Think about it this way, paying off debt can also be a way to reach financial freedom faster. Having less debt will put less pressure on your budget and you’ll have more disposable income to save, invest, or even enjoy life. ✨
Permutation, let’s do both!
The great news is that paying off debt and investing does not have to be mutually exclusive.
It’s totally possible and sometimes actually advisable to do both. For example, if you don’t have an emergency fund, it would be wise to use some of your extra cash to establish one, while using the remaining funds to pay off debt.
It’s important to have a balance in life and your finances are no exception ⚖️ – between paying off debt and investing for your future, you should have a financial plan that incorporates both.
In the end, having extra cash is a good thing, but what you do with that money is up to you.
It’s like choosing between “go big or go home” and “play it safe”, and it’s important to weigh the pros and cons of using the money to pay off debt or invest.
But what’s MOST important is that you’re taking a step in the right direction, whether you choose to pay off debt or invest, you’re making a move that will improve your financial situation. ❤️️✨
Well, that’s it for us today, thanks for tuning in! We absolutely love hearing from you, so click like, follow subscribe, and tell your friends.
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