Nest Egg or Debt Reduction? - Page 2
Your Fund’s goal is systematic saving for irregular, predictable items such as: down-payment for home, buying a vehicle, furniture, appliances, and special vacations. To achieve this goal, work with spending plans; otherwise, you will get lost. Build savings for these items before moving to the next phase.
Repay Mortgage Before Investing
In stage one, you saved down-payment and bought a home with a mortgage that fitted your operating budget. Phase two’s goal is accelerating mortgage repayment, while maintaining phase one’s goals. In Canada, you spend $100,000 interest on a $100,000, 25-year mortgage at 6%. Repaying an extra $3,000 yearly cuts 11 years and $44,000 from the mortgage!
Phase two starts when you are confident you saved for most identified items. So, if you plan to replace your car in two years, save needed amounts before moving to phase two.
After repaying your mortgage, start phase three, retirement savings based on specific goals and plans. But, if your employer has matching savings or retirement plans, take advantage of them earlier.
Your mortgage-free status signals access to significant discretionary funds, and the start of phase four. Before jumping there, seek the Lord’s guidance as you prepare specific investment goals and plans. If you don’t have clear investment goals, you will drift from investing to gambling, especially with stocks.
This staged savings and investing process isn’t easy; it needs tough choices and patience. Think about the interest spent when you borrow to buy consumer items! If you start investing with borrowed funds before you pay off consumer debt, or if you jump too far out of sequence, you will be destined for a lengthy period in deep debt.
Throughout this journey, be alert to God’s call and give as He directs. For more Christian Financial Advice, visit Managing God’s Money.
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