Whether you are getting a nice paycheck working at one of the tech giants or have recently sold your own startup for millions of dollars, invest first.
Before paying off your student loans or buying a home to live in, the most important thing to do is invest.
The Old Versus New Economy
We aren’t living in the 30s, 50s or 80s anymore. Old ways of thinking and money management won’t cut it today. They won’t help you secure the future you crave.
There are absolutely some timeless money and investment principles. Like invest first, make your money work for you, and diversification.
Yet, the dynamics of the economy we live in now also require some new approaches to learning, work, investing and money management.
So, why not pay off student loans? Isn’t getting out of debt good? Yes, but paying off your student loans off the top of your paycheck may not be the most efficient route. It can come at a great cost.
For example; if your student loans are being charged at 5% interest, and you pay them off, you may feel good for a moment, but all that money is gone. Now, if you would have invested it in income-producing real estate instead, and got a 10% return, you could use those gains to pay off your student debt and keep the surplus. This strategy also means you are investing in an equity building asset now, can enjoy more tax breaks, and are able to compound all of these benefits and gains starting now.
Isn’t A Home A Good Investment?
It can be. For some, it offers some peace of mind. It is nice to one day not have a mortgage payment. The American Dream of homeownership is still in pretty healthy condition. Even though there are probably a billionaire or two out there who don’t own the homes they live in most of the time, and many millennials are still renting.
What they don’t tell you about buying your own home is that you will still effectively be renting for the rest of your life. You’ll always be effectively renting by having to pay property taxes to the government. Plus, you’ll have maintenance and insurance costs.
Worse, you will have locked up a lot of equity and capital. That home will be a drain on your income, because you are living there, not making usable money with it.
It’s true that 90% of millionaires have made their money in real estate. They do that by investing in real estate first. Then using the income and capital gains to pay for their own housing. Other people are paying their mortgages.
Use your earned income and capital to invest first. Make that money work for you. Use the returns to pay for everything else, and you can have the best of all worlds.