Uncover the Surprising Answer to the Invest or Debt Debate!

Welcome back to We're Talking Money. I'm Dustin Hocken, wealth advisor. Today we're gonna be talking about two very important financial topics: paying down debt or investing, and what should you do? Stay tuned to learn more.

Before I begin with the mathematics of paying down debt versus investing, I think it's important to note that some people view debt from an emotional standpoint and not a mathematical standpoint. In this viewpoint, it doesn't matter what the net worth will be in the future, you just want to pay down the debt. So if debt gives you anxiety, causes sleepless nights, affects you personally, it doesn't matter what the net worth looks like in the future, you should pay down the debt.

What the math is going to tell you is that the longer you can have compounding interest working for you, the more powerful it's going to be. Paying down debt versus investing isn't really all that much of a comparison when you look long term. But don't take my word for it, let's do the math.

So let's assume that you can save a thousand dollars a month, and you can save that thousand dollars a month for 40 years. Now let's also assume that you can earn eight percent return for that 40-year time period. How much money do you have in the bucket? 3.1 million dollars. That's an incredible amount of money.

But let's assume that instead of saving or investing, we're going to use that thousand dollars to pay down debt. Now let's assume that we focused on that for five years. So after five years we've paid off our debt, now we're ready to start saving. So the only difference from the above calculation is we still save a thousand dollars a month, still get the eight percent rate of return, but instead of 40 years we have 35 years to save. How much do we have in the bucket now? 2.1 million dollars. What does that mean? It means that five years of paying down debt cost you a million dollars of future value.

You shouldn't put off paying off debt just so you can invest all of your money, just like you shouldn't invest all of your money and not pay down any of the debt. There needs to be a balance. You should be doing both at the same time. I'm not going to calculate the exact amount of interest you'll pay, because debt has different amounts of interest, but I can probably bet it's not a million dollars over a five-year period.

The other important aspect to think about is when you invest or save, you earn compounding interest in that account forever, not only for your life or your children's life, but for your children's children's life. With debt, we're paying interest, but we're only paying the interest for a finite amount of time, however long the loan is. A very large difference long term.

Balance is the key. It's not one or the other, it's working investing and debt management together. Please like, share, subscribe, all that good stuff. It really does make a difference for our channel, and we really do appreciate all the support. We'll see you next time on We're Talking Money.

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