“Personal Finance Is More Personal Than Finance”

Personal Finance  Financial Planning  Justin / August 2, 2020

“Personal Finance Is More Personal Than Finance” – Tim Maurer

A couple of weeks ago Morgan Housel joined The AGC™ for one of our weekly webinars. During the conversation, he shared what he called his “worst financial decision, yet his best money decision”.  The short version of this decision is he and his wife aggressively paid off their mortgage. You might initially question why he might consider this his worst financial decision–paying off debt is typically a good financial goal and milestone.

However, with mortgage rates at historical lows, spreadsheets and financial planning software would suggest investing the dollars that would be used for additional payments instead of paying off a mortgage; the long term expected return of a diversified portfolio is greater than current mortgage rates. Yes, I’m aware that past performance does not predict future returns, but even the most skeptical investor has to believe the long term return of a diversified portfolio should do better than the interest rate on a mortgage today.

Morgan admitted he knew from a financial standpoint, he would most likely be better off by keeping the mortgage and investing. He knows and understands the numbers behind the decision, but the peace of mind of not having a mortgage was more valuable than the additional dollars he could earn from investing–this is where personal finance becomes more personal than finance.

I was reminded of this last week when my friend Dasarte Yarnway posed a question on Twitter. He asked if it’s better to buy or lease a car.

My response was that it depends. The spreadsheet answer is you buy a car, pay it off, drive it for a long time, and have many years without a car payment. But, if you like to drive a new car and would be trading in every couple of years, despite knowing the numbers showing it’s not the right spreadsheet answer, then a lease might be a better option (there are other benefits to a lease as well).

To continue reading, please go to the original article here:

https://allaboutyourbenjamins.com/financial-planning/personal-finance/