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Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions.
This week’s episode begins list of money tasks to do in the new year.
Then we focus on this week’s money question from Benjamin who left us this voicemail:
“Hi, Sean. This is Benjamin from Portland, Oregon. I’m calling because I’m trying to figure out what to do with the money. I have a mortgage on a $550,000 house. I have $236,000 left on a 20 year mortgage. I pay $2000 a month and split it with my partner.
We keep getting applications for mortgage insurance and I’m trying to figure out where I should put my extra earnings. I already have a Roth IRA. She doesn’t. Our finances are not consolidated. I make the most of every year. I have about $20,000 in the bank, some stock already.
I really try to find the best bang for my buck. Should I pay off my mortgage early? Should I invest in life insurance or mortgage insurance? Should I invest in the market? Shouldn’t we go on another vacation?”
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Our money challenges in the new year
January is as good a month as any to take stock of your finances and start making changes if necessary. For those looking to adjust their budgets, conduct a spending audit to find expenses that can be cut or eliminated. You can also look into your retirement accounts and increase your contributions. Even a 1% increase will make a difference over time, as NerdWallet’s retirement calculator shows.
Checking your credit report is another financial task that can really pay off. Access your report for free at Annualcreditreport.com, then look for errors and unknown accounts—these could be signs of fraud. Detecting fraud sooner rather than later gives bad actors less time to collect charges in your name and potentially damage your credit score.
Other money matters include setting savings goals, checking your credit card portfolio, and planning vacations. You get them after careful money management throughout the year.
Our opinion on paying off the house early
For many of us, our mortgage is our biggest debt, so it’s understandable that you want to pay off your home before the loan term is up. Doing so will free up money in your budget to spend elsewhere and save you money by paying less in interest. But before you embark on an aggressive campaign to move your mortgage off the books, be aware of the potential downsides. Once your mortgage is paid off, you lose the mortgage interest deduction if you itemize instead of the standard deduction. And the extra money you put into paying off your mortgage could be better spent in other ways, especially if your interest rate is low. Keep in mind that the average rate of return in the stock market is about 10%, and saving more for retirement and emergencies is a higher priority than paying off your mortgage.
Our tips
- Think about your priorities: There may be no “right” thing to do with your money. Focus on what is important to you and will give you the life you want.
- Consider the payback: If you have a low mortgage rate, investing can get you a better return on your money than paying off your mortgage early.
- Compare insurance products: Life insurance can be useful if your death would hurt someone financially. On the other hand, mortgage insurance can be a good idea if you don’t qualify for life insurance.
Have a question about money? Email us or call 901-730-6373. Or you can email us at [email protected]. To listen to previous episodes, go to podcast homepage.