MONEY DO’S AND DON’TS: Stop managing your money like it’s the 50’s!

ESTIMATED 2MIN READ

You Can’t Eat Your Home.

In my last editorial, I began making the case about why a person might NOT want to pay off their home and how I believe that equates to “1950’s thinking. In effect, becoming the bank…

In the 1950’s, coming off the heels of WWII, jobs were plentiful, GIs had some nice education benefits with the early GI Bill to level up their skills, and a person could work their way up in a corporation for an entire career. That led to extra cash that could be spent on “consumerism” and a more comfortable lifestyle, especially since the company generally provided a pension. Paying off the home meant those pension dollars could be used to live on.

Also, life expectancy in the 1950’s was about 66.5 years for men, and 71.8 years for women ⁽¹⁾ so the need to fund twenty years or more beyond retirement wasn’t common. Today life expectancy is estimated between 77 ⁽²⁾ to 84 years depending on the data source, and likely difficult to accurately predict due to COVID-19’s impact. It’s safe to say though, that we are living longer after retirement.

That being the case, let’s practically explore what paying off a home might mean:

• The median home price today is about $400,000 ⁽³⁾
• With 20% down, that requires a $380,000 mortgage ($1,817 monthly payment) ⁽⁴⁾
• In 30 years, one would pay $334,000 in interest ⁽⁴⁾
• Sending $1,000 a month extra would shorten the mortgage to 14 years

As I mentioned in my last editorial, the average American family lives in a home for about 13 years. If that is the case, does it make sense to send savable, SPENDABLE (in retirement) dollars to the bank, or accumulate that $1,000 into your own savings? I. effect, becoming the bank yourself while “renting” your temporary home from the bank.

Consider the extreme: You put all your resources into paying off your home, either in the full 30 years, or by sending extra payments each month, instead of saving the extra money into a retirement account. You reach retirement with your home paid in full, but have little-to-no spendable dollars to use for food, fun, medical expenses etc. When you stop working, how will you fund your living expenses, especially emergencies that require larger lump sums?

Next time, I’ll go deeper into the actual numbers that support this theory, and how they could impact you.
EXPLAINING DIVERGENT OF LONGEVITY IN HIGH INCOME COUNTRIES (FREE PDF)
MORTGAGE CALCULATOR LINK
MORTALITY IN THE UNITED STATES STATISTICS
AVERAGE HOUSE PRICE BY STATE 2021