Financial Decision-Making: Prioritizing Goals and Debt

Financial choices are complex; prioritizing between home, retirement, debt, and house decisions requires careful assessment of goals, interest rates, and personal circumstances.

### Navigating Financial Tug-of-Wars: Home vs. Retirement, Debt vs. Emergency Fund, and More
* 💰  When deciding between saving for a home or retirement, it depends on factors like **goals, timeline, and financial position**.
* 🏠  The financial order of operations recommends having an **emergency fund (step 4)** before considering home ownership.
* 🎓  Prioritize **saving for retirement** over children's college, as adult children often worry about their parents' **financial status**.
* 💳  High-interest debt (e.g., credit cards) should be paid off before **building an emergency fund**.
* 🚗  For auto loans, consider paying off high-interest rates based on age (**20s: 10%**, **30s: 9%**, **40s: 8%**).
* 🎓  Student loans above **6% (20s)**, **5% (30s)**, and **4% (40s)** should be prioritized for repayment.
* 🏡  Mortgages below **4%** can be considered low-interest debt, especially when investments yield **higher returns**.
* 🏡  When deciding to move or renovate, consider **interest rates, house prices**, and non-financial factors like **neighborhood and commute**.

hey how to choose when your financial choices are creating an internal tug of- [Music] War. Brian I am excited to talk about this because we live in a unique environment right now. We trying to make wise financial decisions is not easy. I mean, I mean making good decisions is always been hard, but right now it seems like there are some forces at play that there are things that we want to do, and often times they're Noble things that seem to be in conflict and in tension with one another, and so we want to help walk through how do I decide what makes the most sense. So it is a tug of war because you feel like every dollar is competing on where should it go to maximize your financial life. The good news is if you go to money go.com resources, we have the financial order of operations to be your guide, but Bo let's Jump Right In. Yeah, so here's one of the first number one things that people are trying to figure out right now. Do I save for a home or do I save for retirement.

oh wow, that's a big one. We go right into the deep end, and here's the thing: both of these things are noble, they're good. So how do you know where you should start first? Well, I think the answer to should I save for a home or should I save for retirement comes down to (No Surprise) it depends. It depends on a number of factors: what are your goals, what's your timeline, what's your current financial position. You have to kind of work through each one of these to determine what makes sense for me 'cause two very similar people can be in a similar situation, and one person might buy a home and that'd be the best move, and one person might not buy a home and save for retirement. So the first thing you have to answer is: what are your goals, what are the things I'm working towards. So look, we know that personal finance is definitely very personal, so I don't like it when we just say it depends, so let's actually load them up with the questions to fine-tune these.

goals so you'll actually know what's steps to take next and you're exactly right. What are your goals? So why do you want this house? That's the first question you ought to be asking yourself. Yeah, I think so often people think that, Okay, I just, I'm going to buy a house because I'm at the age where that's supposed to happen. That may not be the case. You don't have to be a homeowner to be financially successful. You don't even have to be a homeowner to have a family. Make sure that the goal of home ownership is actually a goal of yours and not something that Society or your environment around you is putting on you. Here, here's another question to help you out. How long can you live in this house? Because this is, we've had a lot of things happen in the last few years. We had this huge inflation run-up. Housing costs are up as well as interest rates are way up. The only thing that's going to moderate this in a lot of ways is if you can live in this house long enough.

it really does kind of level out some of these unique things that happened in the last few years. And then another question you can ask is, what are my retirement goals? Okay, I've established my home goals, but am I someone who maybe wants to retire early? Do I want to travel a lot in retirement? Am I going to live in a high-cost-of-living area? If so, you may need to focus on building up your investment assets so that they can pay for your future expenses. For a lot of people, saving for a house is the first thing that gets put on pause is retirement. It's the thing that gets cut back on. And you need to recognize is the opportunity cost of that decision actually work well. It begin with the end in mind. If you think you're part of the FIRE, SL, fine movement, and you're going to be leaving the work, your peak earning years early, you probably need to make sure that you have started saving earlier to maximize that compounding growth. That's going to definitely weigh into your decision.

you have to recognize, it's like squeezing a balloon. There are going to be other financial and life goals that are going to be put on hold if you don't focus on saving and buying the house. Then that's a goal that's going to get pushed back. If you don't focus on saving and investing for retirement, then you're likely going to hit your number not as early as you would have otherwise. So you need to understand the opportunity cost of whichever direction you go in. Yeah, everything is going to have an opportunity cost. I mean, you got all of financial life is incremental decisions. You're going down this road or this road. So we ought to walk through what is your financial position because it is going to matter. It's going to change your answer depending upon where you are in your journey. So let's look at three theoretical scenarios. Scenario number one is you're early on in the financial order of operations. Well, we think that when it comes to buying a home, you must at least be at step four.

Before you start considering, will you hold the thing up? Step four is emergency reserves. If you do not have enough money to make sure that you can keep your life out of the ditch, we would not encourage you to move into Home Ownership. Because you may not know when that HVAC unit's going to go out. You may not know when there's going to be a water leak. You may not know when you're going to need to tap into that emergency fund. So you want to make sure that you've at least made it to step four before you begin considering home ownership. So emergency reserves are important. How about if you just know where you are on your journey towards retirement? Are you behind? Maybe you because there's a big difference between somebody who's 27 years of age that wants a house and probably has the next three years to kind of figure this out versus somebody who's 40 years of age prioritizing a house who has zero Assets in their retirement account. You need to pay attention to where are you.

on your retirement journey if you're behind that matters. The other thing that you can assess too is maybe I'm not behind. Maybe I've been doing all the stuff that I was supposed to be doing. Maybe I'm actually that financial mutant that's a little bit ahead of the curve. If that's the case, then it might be okay for you to take a pause, focus on building up assets to be able to buy the home. But you won't know that unless you've done an assessment. If you've never assessed where you are, a great tool you can use is it learn. Moneyguide day. Am I head behind or on the curve and how should I make my decisions moving forward? Bo earlier I said that we just came through a unique period where because of inflation housing prices are way up. The government to fight inflation has raised interest rates. Timeline has become so important because you have to live in this house long enough to kind of moderate these extreme things that have just happened. So let's talk about what do we need to know when we're

considering timeline to even fine-tune this even more. Yeah, one of the things you have to think about is when do you need a home. I mean, I'll share my personal experience. My wife and I, we sold a house in Atlanta. We moved up here. We were going to do like the rent thing for a while, kind of get lay of the land. Well, then we found out that we were pregnant, and we said, Holy cow, we're starting a family. We need to make sure that we have funds appropriately saved up to be able to go purchase a house. And so, for us in that season, it made sense to focus all of our efforts and attention on saving up for that down payment to be able to get into a house quick. If that describes you, then that's going to affect how aggressively you ought to attack this. Now, wait a minute, wait a minute. We don't need to skip some steps 'cause I think it's a pretty extreme thing to say you're going to go 100% into saving for a house. Say, I didn't say 100%.

we know, first of all, you obviously had your emergency reserves covered. CU, we said you can't even consider the house without the emergency reserves. Second thing I know about you, Bo, is that yes, for a season, you were now focusing on getting the family into this house, but wouldn't you say you were kind of ahead of the curve with all the other saving and Investments you owned your time a little bit sooner to where yes, this was not going to derail your long-term Financial life because you made this choice. And in full disclosure, I didn't shut everything down. What I did is I shifted my priority where my priority was saving for retirement and putting money in Investments. I shifted to where I had a larger portion going towards the house than going towards Investments. It was not 100 to Zer 0 to 100, and I think that you have to assess where you are to figure out which strategy most closely matches the time. And we're not giving you permission to just skip your financial life. You still have to know where you are in the

journey and kind of know what this puts you behind on so that you can actually get yourself back on track. We understand that life creates complexity naturally, and sometimes you have to veer off the track of what the financial order of operations does, but I need you to always feel that pressure to know what am I going to have to do, what sacrifice, what incremental decision am I doing to get this back on track and to catch up. But now if you're someone who doesn't need it right now, maybe you need it 5 to seven years in the future, the beauty is that gives you time to plan. You should go ahead and begin thinking, okay, I just got out of college, I know I'm maybe going to get engaged, and then maybe we want to buy a house at some point, want to start a family. If you can backtrack and you can sort of reverse engineer, you can figure out, okay, how much should I be saving towards a down payment versus how much should I be saving for the future and investing. It's not an either or if.

you have time, there's a really good chance you could likely do both, but again you have to assess that for your unique and your specific timeline. The reality is, when we get it, buying a house is really hard right now. We're in a tough patch right now for home ownership because of those two things I mentioned earlier: big run up in prices, big run up in interest rates to battle that inflation. So I definitely think that this is a moment in time where it's a measure twice, cut once. Don't feel like you have to force the decision because I just don't think real estate is going to keep running up. I don't think there's going to be a collapse, don't mishear me, but I just don't think that you're going to see this huge run up in housing that we just came through. There's going to be a cycle, but I want to make sure you are being honest with yourself. And that's why we've actually created a great checklist that people can use to figure

out hey, how do I do this well yeah when it comes to buying a house, we have some rules we want you to follow. Number one, before you buy the house, you want to make sure that you can be there for at least 5 to 7 years. Number two, if you're buying your first home, 20% is not a requirement. You may only have to come up with 3 to 5% for your first home down payment. Now, when you're upgrading or changing homes, then you have to do the 20%, but for first homes, you get a little bit of leeway. However, even if you're only going to do 3 to 5% down, you have to make sure that your total housing costs do not exceed 25% of your gross income. If you get into a situation where your housing is costing more than that, you are putting yourself in a risky situation when it comes to your financial well-being. And that's why and look, the data shows that a lot of Americans are putting themselves in this

hard hard situation because 20% of Americans are spending more than 40% on their housing. They're meaning they're they're House. Life poor because think about this these same people likely have student loan debt. They have car debt. And where are you going to have margin to save an invest to have margin to live your life. Be careful. I know it's a very noble cause to have a house. But don't let it ruin your financial situation. And here's the bottom line. There are multiple pass to wealth. And if you're doing everything right buying a home or not buying a home is likely not going to derail your financial future. But for most folks. This is the single largest thing that you will ever spend money on. So you want to make sure that you measure 2 three 4 five times before you make this decision. But good news we have a plethora of resources available to you. If you go out to money guy.com you can check out our home buying Hub and home buying calculator that'll walk you

through how much house can I forward what are the things I need to think about what's the checklist I need to work through so that you can make sure you're making this decision as informed as you can so that you set your future Financial self up for Success. Please take advantage of these free resources money.com resources we have loaded you up because we know this is difficult so we've tried to give you everything in the world so that you have a tool to actually calculate and play with the numbers guidelines and checklist. Take advantage of all that and hopefully we'll get you through this. All right Brian let's talk about a a second tug of war that exists right now in this country and it is should I save for retirement should I build for my future Financial Independence or do I save for my kids college how do I decide I think that this is one that emotionally it seems hard but we're going to make this very easy for you and maybe it seems like some tough love but I think this is

an easier question than the housing is because I want you focusing on your retirement. Yeah, BR would use this analogy all time. When you get on an airplane, they always tell you before you put the oxygen mask on your child, you have to put it on yourself. You have to make sure that you are stable before you can help others where your finances are no different. We think that it makes sense when you're trying to decide between these two, you have to save for your future Financial Independence before you say for your kids college education. People will think that this is mean. I mean look, we love our kids, and I think if you, if you know us or you see us out, you'll know that we are definitely, we love our families, we love our children, but realize that if you think that putting all of your money and your resources into your children instead of focusing yourself is going to make them the best version of themselves, the research is not tied to that. There is actually a lot of research that people, even adult children, are very

nervous about this, yeah, absolutely, and what ends up happening is that when you get to retirement, there aren't going to be any scholarships, there aren't going to be any loans, there's nobody who's going to be waiting to hand you money to get you through retirement, and when your kid gets to college, there are grants, there are scholarships, there's loans, there are going to be mechanisms, mechanisms, and means by which they can pay, and so you have to prioritize it that way because one of the greatest gifts, one of the greatest gifts that we can give to our kids is saying, hey, I'm not going to have to come live in your basement one day, I'm not going to have to depend on you to make sure that I'm going to be able to survive, I've done okay so that you can focus on your life and only having to take care of yourselves, but unfortunately in today's world, that's not the norm, yeah, I mean, look at these stats that we were

able to find 43% of adult children say they're worried their parents' financial status for the future. I mean, so that means that they're knowing hey not only do I have to save for my retirement, I got to save for Mom and Dad's retirement too. And we saw this at the book tour, we had people asking us these questions, big stress, big stress. 55% say they are not financially prepared to care for their parents in a time of need. So here they are feeling the anxiety knowing that they're going to have to help, but then more than the majority feel like, holy cow, I'm going to have a hard enough time in my own financial life. I don't even know how I'm going to do this for Mom and Dad. And so here's what you can do. You can still support your kids. There are ways that no matter where you are in the financial order of operations, you can guide them in how they think about college and career decisions. You can give them counsel on hey, are you

sure you want to pursue that degree. Are you sure you want to go to that school that cost that much money? That's going to require that much debt. You can also teach them just basic life lessons around saving, budgeting, investing, discipline, deferred gratification. You can do all of these things without having to even crack open your checkbook. And if you can teach them these foundational Financial things, you're going to set them up for future success. And I look, this is the part where we, I still remember, we were talking to that group of Engineers and, and one raised their hand and she says, hey, I, I love my kids. It feels kind of cruel that I'm saving this money. When do I get to focus on saving and investing for my children so they can do things better. And that's why we think Beyond once you get to step eight, you get to those abundance goals or prepaid future expenses. Yeah, let's load up the 529s for the kids. Let's, let's look at those custodial accounts. Let's even think about doing a dollar.

Ford dooll matching program so that as your kids start their first jobs you're pring that pump of that good behavior not only of appreciating what a strong or ethic does but actually putting that army of dollar bills to work and you're matching it dollar for doll so they get excited about saving and investing having some skin in the game and knowing how to be good with their own money when they get out there into adult life. I love it BR all right let's talk about another one because a lot of these kids that we just talked about they come into the world and then they find themselves in a situation where there is a very real tug of war that exists just because of the nature of the world in which we live and here's what they have to decide do I build an emergency fund I know I should do that I know it's important but I've got debt and fill in the blank we'll talk about the different types of debt but I've got this debt what should I do should I make sure I cover

emergencies. Or should I start knocking out this debt? And how do I figure out what makes the most sense? This is where I think life is somewhat cruel, especially with these interest rates that we have right now, is because we are setting and I and I I made in the content meeting. I said it was a Handel and Gretel situation. We have told young people that debt is their friend. We're way too comfortable now pushing, pushing. It is a trap. So that's why we've got to help you prioritize. How do you focus on having reserves so you don't make those desperate decisions, but also how do you avoid and pay down some of those debt traps that you might have fallen into. So let's start at kind of the beginning again. We have a framework that hopefully helps you make financial decisions BR. You hold the thing up. We have the financial order of operations. Well, step one, one is deductibles covered. Now, this this is different than your emergency fund, but we do advocate that like for a young person this may be a

couple thousand dollars. It may be your health insurance deductible. Or if you are a family and you have a higher deductible, maybe this is 5 to $7,000. This is not what we're talking about because we think that that is foundational. You have to have that in place. Now when we start moving along in the financial order of operations and we think about our debt, we have to think about how do we categorize our debt. Is our debt a step three High-interest type debt, or is it a step nine low-interest type debt? Because the answer to that question will then inform how do you prioritize what you should be doing with your next dollar. Well, and this question's gotten harder. It's gotten a lot harder. I mean, it's now look. It's easy. Let's talk about some of the easy ones out there is when I think about like Consumer Debt credit card debt. I was shocked when you see the data that's out there. The typical credit C interest rate now is close to 21%. It's gross. You know, we get

excited we run illustrations at 8 8 and a 12% to show you how many millions of dollars you're going to have by just saving a few hundred do a month depending upon how early and often you start saving and investing. Imagine if you could run your rate of return at 21% below every that'd be a dream plan all the way is just it it's not even realistic but yet somehow in our society it's gotten to be very com for people to be running up credit card debt and then paying back the banks at 21%. How are you ever going to own your financial life if you're falling in this trap? Yeah, Bri you have this cute little saying you say credit card use okay credit card debt no way no way right so you just cannot do that. We don't even like this is a hot take I'm going to give it to you we don't even like like 0% APR credit cards cuz in our opinion it's even just kind of like playing with

fire. So, if you have credit card debt, we want you to knock that out. That firmly would be in step three. Now, let's talk about another one that's gotten a little bit more difficult. This was a lot of conversation we had in our content meeting too. What about car loans? I mean, gone are the days of 91.9% car loans. They have even gotten a little bit higher. So, how do we think about that? Do I build an emergency fund or do I knock out the debt on my automobile? Well, look, we are known for our rule of 238. And if you just need a kind of review of this, 238 is putting down 20% on your vehicle purchase because this way we can get out ahead of that just horrible depreciation. Vehicles drop like a rock. And then we like you to pay these cars off within 3 years. Once again, this is to keep you ahead of that depreciation because most cars lose 50% of their value in the first 5 years of

ownership. We got to get out ahead of that. And we also want to keep you from expanding your eyes of what you can afford with these huge amort rates that you see people taking their loans out six and seven years in the future. And then the 8% that that 238 is making sure your car payment doesn't exceed 8% of your gross income. This is also to keep you restricted. And then this is for affordable Transportation, not luxury Vehicles. If it's luxury Vehicles, you got to pay it same as cash and pay it off within the first year. And this is another rule that we always say. And this is going to help shape this bow because we really put a lot of discussion. I never want your car payment exceeding what you're already investing in your Roth IRA, your 401k, 'cause you need to be saving and investing more than your car payment. Well, now we have this unique Moment In Time. Interest rates are up. I'm hearing about people who have car loans that are around

15%, so you're like, Well guys, what do you do? Do you do 238, or do I just throw every dollar at this car debt because it's 15%? We kind of came to the conclusion if you're paying more than what you can even make on your money, that's not a joint effort anymore where you're saying save, you know, just as much in your investment account as you are with your car payment. If you're paying 15%, we got to get that taken care of. Yeah, even inside the context of 238. High interest does exist. I said, Okay, well let's put some numbers to this. Based on that, if I need my dollars working for it, maybe Steo got me rolling and my interest rate is through the roof, how do I think about paying this off? And here's the metric that we came up with. If you're someone in your 20s and your auto loan is above 10%, you're going to have a really hard time out there investing your dollars making more than

10%. So, we think you should prioritize paying off that auto loan. If you're in your 30s and your auto loan is higher than 9%, we think you should probably prioritize paying off that auto loan. And by the time you get in your 40s, if it's above 8%, we really think you should prioritize paying off that auto loan. Because as your wealth multiplier decreases, your dollars are going to work less and less hard for you. Well, you don't want your dollars working against you. And at these high interest rates, that is exactly what debt will do. It will force your dollars to begin working against you. It is worth repeating 238 is for people who come into this whole wealth-building journey with zero assets and zero ability to pay cash for a car. Paying cash for a car is the ideal always. I just know in my own journey, I graduated college, had zero to my name really, um, so I bought my first car, financed it for 3 years so I could get

to my j o consistently and reliably and start that we wealth-building journey but I'd love if you can pay cash for your cars. Let's rock and roll and do it but we want to make sure you give you the guidance so you don't fall into a debt trap. Now one thing that you have to keep in mind is that not all debt is created equal and not all debt secures the same type of asset. So we've talked about you know credit cards noo we've talked about auto loans which you know there's some Nuance there let's talk about another one that gets even a little more Nuance it's even more prevalent in common today student loans and we know that this is a real issue and if you've listened for any amount of time we even have some guidance around student loans and this is similar to the guidance around Auto based on the equity risk premium but here's what we would encourage you if you're in your 20s and your student loans are above

6% then perhaps you should begin thinking about prioritizing paying off your student loans. If you're in your 30s and your student loans are above 5%, perhaps you should prioritize. And by the time you get in your 40s, if your student loans are above 4%, we think that you should begin to think about prioritizing paying these off because you want to make sure, again, that this debt is not working against your future financial building potential. Yeah, and if you have children that are in high school and you're trying to help them shape them on what their college years going look like, remind them about return on investment. That's why we're trying to keep your student loan debt below that first year salary out of school because you do want to have the ability to pay this debt off. And it really frustrates me. We had a lot of conversations about student loan debt in our content team because I feel like we've got this huge disconnect where it's just not fair to what's going

on young people and I did want to give one clarifier because you know I feel like I I don't know if the colleges are doing everything they can but at least like the government is out there trying to create some plans where you didn't hear these horror stories that were happening for the last decade or so where people were making payments on their student loans for 10 years and owed more insane than than when they came out of college. So there are programs that you might want to consider and look into like if you're part of that save payment plan that at least lowers based upon your income your effective interest rate to where you won't have that issue where the loans are growing upon themselves where the interest exceeds your principal payments. So take that into account this is a very complex multifaceted issue but we at least want to give you some facts to consider. All right BR let's talk about one other type type of debt that you people have to think about how I prioritize paying this off it's.

mortgages. Now here's what I think: like when people think about mortgages, they think about present day. They think about the 6 and a half 7% mortgages that exist today. But in reality, 59% of Americans have mortgages below 4%. Well, if you happen to be one of those Americans and your mortgage rate is below 4% and your cash in your savings account is making 5%, we would have to argue that that counts as low interest debt. But we look right now, the average mortgage rate today is something like 7%, so very different than the below four. I still don't know, Brian, I'm curious if you agree with this. I still don't know if I'd be in a huge hurry to pay off 7% mortgages because I think that realistically at some point in the future, whether it's next year, year after, year after that, there's probably going to be an opportunity to refinance that Mortgage Debt down into a lower rate from 7%, and I think it's going to be

okay, to not prioritize a 7% mortgage. Continue building your army of dollar bills, because I think there's going to be some future opportunity to alleviate that. I don't mind sharing my own experience. Share is that my first mortgage was 6 and 3/4, and I was still focusing on trying to fund my retirement accounts and other things. So, I've walked in this journey, and the reason is, there are get wealthy behaviors, there stay wealthy behaviors. I do have a feeling that in the coming future, there will be an opportunity to refinance these mortgages down, but you will never get that opportunity to put that $7,000 into that row. So, you have to know, are you on the get wealthy journey, or are you on the stay wealthy part of your journey, because those things do matter when you're making these type of decisions. Okay, so we listed out all these different debts you have to think about. Well, maybe you said, hey guys, I just my bingo card just got filled out, I got all of them. How do I think about

attacking these how do I think about approaching these well there are two common strategies. Two common ways that we think you should look at debt and frankly both of them work just fine. You have to determine what is the best for you. There's a debt snowball which is incredibly popular where you want to pay off your balance based on the smallest to largest. And so this is a behavioral technique to let you build some momentum. Or maybe you're a financial mutant. Maybe you understand the mathematics. You say hey I'm disciplined. I don't need the behavior solve for. I can do the debt Avalanche. I can arrange all of my debts by the largest interest rate to the smallest interest rate. And I'm going to pay it off from largest interest rate the smallest. That is fine too. What we want to see you doing though is if you're in the financial order of operations. If you have high interest debt. If you have that step three debt. We want you to employ one of these strategies to begin getting that debt.

knocked out. Here's the big thing: know thyself. If you're a very you have trouble, you get distracted. You don't have as much discipline, but you're still good with money. Maybe this snow the debt snowball works for you, 'cause you get that momentum. You get to pay off the small debts first, and it gives you the adabo. Hey, we're doing this well. But if you're a person, you're a financial mutant, a lot of you guys are out there, and you're looking at like, hey, I just know interest rates being at this level, they're much higher than they have been historically. I'm a financial mutant, so I'm going to focus on the debt Avalanche so I can pay this off that much faster. Just know thyself so you can make the right decision. So then that knocks out the high interest de. What about low interest debt? Here's some reasons why you might want to pay off low interest debt. Maybe you're at step nine and you're thinking about stay.

wealthy behavior. So it's less about optimization, and it's more about uh preference, maybe and drisking, and drisking. Maybe you're someone who's preparing for retirement, you're entering into retirement, you want to get rid of those fixed costs. Maybe you're someone who just needs to free up cash flow, so you want to free up that, pay off that low-interest debt so that you have more cash flow coming in. Or maybe you just want peace of mind. Maybe you just don't want debt. Maybe you just want to simplify. Maybe you just want one less thing to think about. All of those are very viable and reasonable reasons to pay off low-interest debt. But that's step nine, not step three. Yeah, I, I, I. One of the things I always tell people, this is the part where I want you that peace of mind really has a powerful thing beyond step nine because we talk about financial independence, how do you have an unencumbered life, meaning you carry a bunch of debt and consider yourself truly financially independent.

take that into account. Now, with that said, I'm not a hypocrite, but I'm just good with math. And you and I fight about this. I have a 22% mortgage, and I have enough cash to pay it off. But since I'm making close to 5.3% on my cash, I just have not been able to go fully into the peace of mind. I justify this in the fact that I'm still working. I'm nowhere near thinking I'm walking away from the workforce. So it's okay. But everybody's going to have their own calculus or math that they're going to do, you know. So, focus on those key elements and don't play mind tricks with yourself. If you can pay it off and you know all the lines point to the fact that you should because you're in that state wealthy phase, it's okay being completely debt-free. All right, Brian, let's talk about a fourth tug OFW Financial tension that exists. And again, we hear this one a lot.

too right now especially in this unique environment that we're in. Hey, our current house is not perfect. So do I move? Do I go buy a new house? Or do I renovate and upgrade my current house? How do I decide which is the best decision? Well, I want to warn you about the Mirage that is sitting out there. It's kind of a financial trap too. Is that a lot of people will have houses, even if it was just a normal house that was $300 or $400,000. Now that house in certain markets could be worth $700, $800,000 'cause we've had this huge run-up. And you're like, Wow, look at all this money I have on my net worth statement right now. I'm rich in a lot of ways. Or maybe this is the time I should upgrade to that nicer house. This is why I say it's a trap. Is that yes, you have on paper a lot of net worth that has been built up because of this huge inflation period that we just went

through. But what are you going to do? What do you if you move? First of all, you're going to walk away. We just had a stat that showed the lion's share of mortgages are below 4%. Your new mortgage is going to be 7%. That's right. Also, if you go to upgrade your house, you're going to be yes. Your house might be worth $700,000 now, but the upgraded house might be $900,000 in certain markets. This thing is dangerous, so we better walk you through so you don't fall into a trap on something that seems on paper to be such a win-win, and you're like, Oh my gosh, there's a lot more going on here. Yeah, and this is one that there's not a definitive right answer for everyone. Personal finance is personal, so what you have to think through is how do I go about making this assessment, and frankly, this is probably going to be like a spreadsheet exercise. You're going to have to put pen to paper and figure out what makes the

most sense for you, but what we can walk through are the variables to consider. Brian, you already hit on the first one: interest rates matter. They are important. If you have a 2 and a half percent interest rate right now on your mortgage and you go to buy a house, even if you paid the exact same price for the exact same house but now you have a 7 percent mortgage, it is substantially more expensive, so you have to factor that into the equation. Yeah, we even, we look at this case study, this one, this one blew my mind. We said, hey, let's take into account somebody who's just got a $2,000 a month payment. You know, when interest rates were 3 percent for the mortgages, you could afford close to a $47,000 house. Sounds great, but let's now look at the rest of it. Now with interest rates being at 7 percent, that same $2,000 only affords a $276,000 house, same monthly payment, yeah. And there's, like I said, the unfortunate thing. This is just looking at the

interest rates. Sadly, we know that not only did interest rates go up, but housing purchase prices went way up as well. So the purchasing power, plus what your payments go for, how far they go. They're we got, we got hit both ways. Yeah, you just said it. The second variable is the cost of new home. I mean, frankly, can you afford it if you bought a house for 300 and now it's worth 700? When you sell, if you have to go buy a $900,000 house, can you afford that? You have to buy a million doll house. Is that inside the realm of affordability? Do you have enough cash to be able to keep it within 25% of your gross income? Do you have the down payment? You have to figure out just because you can move, just because in theory you can sell your house, just because it is a seller's market, does that mean that it's actually what's best for your financial situation? You have to factor in what you're moving to. Well, and this is why we, we put another option in.

there and I think this is where a lot of fin Financial mutants are are leaning in this direction if you are with these higher interest rates. How higher purchase prices a lot of people are saying looking at their house and they're looking at their current mortgage. They saying I think I'll just renovate yep but look at the return on investment and let me give you an experience here. The house behind me right now they're finishing their basement. I mean I could go home right now and I guarantee you it's loud because they got a whole crew out there. I didn't think to the house to the right of me they have completely redone their back landscape plan in their yard where they put a Hardscape they screened in their back porch and then over on the hill here is another and I'm like holy cow it's like every house in my neighborhood now look. The houses are getting close to 10 years old so it makes sense that people are investing but I really can't help but think that

people are looking at the return on investment that they could get, Plus versus if they upgraded their landing on renovate versus move, and so you have to look at the cost of that. But there are also some other non-quantitative metrics you have to think about. I mean, is your current house in a neighborhood that you love? Do you have a really uh convenient commute for school or for work? Are you in the right School District? Does it satisfy the lifestyle needs that you have? Even though it's hard to put a dollar figure on those things, those things matter a ton, so you want to make sure when you're deciding, do I move to a new community, do I move to a new house, or do I just stay and renovate and upgrade and improve this house, you factor in all of the financial metrics as well as all the non-financial metrics. It's a big life decision that's going to affect you and your family for years and years and years and years to come, and that's why I would encourage

you, I would we, we have, we we always say, stay within our our understanding of what the house buying rules are, and this is something we we share this on every one of our shows. Where we talk about the the down payment, we talk about the 25%, but I think it can go beyond that. I would encourage you, go to money.com resources, look at our house buying Hub, because this is going to let you really put your numbers in, go through our checklist, and turn the personal finance personal towards you, so you know all the things you have to deal with. Here's the thing, we're living in a unique economy right now, and there are a lot of financial decisions that create tension in our life. Hopefully we've given you the tools and the techniques and the things you need to know to be able to navigate those as well as you can. If you've not been to our website, go to money guu.vn. We say this often, money is nothing but a tool, it is not the goal. We have covered a lot of just Financial tug of wars that

every one of you guys are dealing with we want to be your resource so you can make the best decisions. Go to money.com resources. I'm your host Brian Preston, Mr. Bo Hansen, Money Guy team out.

How to Choose Between Competing Financial Priorities (Determining the Winner)

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Navigating Financial Priorities: Homeownership vs.

Financial decision-making can feel like a tug of war, especially when deciding between saving for a home or for retirement.

The decision depends on individual goals, timeline, and financial position, as well as the opportunity cost of each choice.

Before considering homeownership, it's crucial to have emergency reserves and to assess where you are on your retirement savings journey.

Managing Your Timeline and Priorities for Buying a House

Assess whether you are behind or ahead in your financial journey to determine your house-buying strategy.

Consider the timing of when you need a home and adjust your savings and investment priorities accordingly.

Follow the rule of ensuring that your total housing costs do not exceed 25% of your gross income to protect your financial well-being.

The Financial Burden of Housing on Americans

Many Americans are struggling with housing costs, with 20% spending over 40% of their income on housing, impacting their ability to save and invest.

Prioritizing saving for retirement over saving for children's college education is crucial, as adult children are often unprepared to support their parents financially in the future.

It is possible to support children's future without sacrificing one's own financial stability, by providing guidance on education and financial literacy.

Teaching Financial Responsibility to Young Adults

Ford offers a dollar-matching program to encourage young adults to save and invest their money wisely.

The program aims to help them prioritize building an emergency fund and paying down high-interest debt, such as credit card debt.

Ford also provides guidance on managing car loans, advocating for a 20% down payment and paying off the loan within 3 years to minimize depreciation.

Guidelines for Prioritizing and Paying Off Debt

It is recommended to keep car payments below 8% of gross income and prioritize paying off high-interest car loans.

For those with student loans, it is advised to prioritize payment if the interest rate is above 6% in your 20s, 5% in your 30s, and 4% in your 40s.

The goal is to ensure that the debt does not hinder future financial potential, with a focus on return on investment.

Strategies for Tackling Different Types of Debt

There are government programs available, such as the save payment plan, that can help lower student loan payments based on income.

When it comes to mortgages, prioritizing the payment of a 7% mortgage may not be necessary, as there could be future opportunities to refinance at a lower rate.

Two common strategies for paying off debt are the debt snowball, which focuses on paying off the smallest balance first to gain momentum, and the debt avalanche, which prioritizes paying off the highest interest rate debt first.

It's important to know your financial habits and discipline to choose the right strategy for your situation.

Reasons to Consider Paying Off Low-Interest Debt

Paying off low-interest debt can help with retirement preparation, freeing up cash flow, and providing peace of mind.

The decision to pay off debt is a personal one and should not involve mind tricks, but rather a clear assessment of individual financial situations.

The choice to upgrade or move to a new house should consider the potential financial trap of inflated net worth and higher interest rates, requiring a careful evaluation of variables such as interest rates and monthly payments.

The Impact of Rising Interest Rates and Housing Prices

Rising interest rates and housing purchase prices are affecting the affordability of homes for many people.

This has led to a growing trend of renovating current homes instead of moving to a new house, with a focus on the return on investment.

When making the decision to move or renovate, it's important to consider both the financial and non-financial factors, such as neighborhood, commute, and lifestyle needs.

It's crucial to carefully evaluate all the metrics and consider using resources like the house buying Hub to make informed decisions in the current economy.