You have a hundred dollars in extra cash every month — what do you do? Any responsible adult will either pay down the mortgage early or begin saving for retirement. Even with such options, however, which of the two should your extra cash go to?
First Things First
Ideally, you can pay down your mortgage and save for retirement at the same time. Realistically, when you only have limited extra cash, you may only have to pick one option. Before you pick one, however, you first must ensure that you have built a considerable emergency fund that you can live off for at least six months. Next, you must contribute to your 401(k) — if you have one — until you get your employer’s full match since that is basically free money.
Less Total Interest Payment
Once you have your emergency fund and 401(k), you can choose to pay your mortgage early or save for retirement. In the short run, paying off your mortgage early will be worth your while. By paying as much as you can early, you pay less in total interest if you look at the big picture.
More Savings in Retirement
In the long run, saving for retirement makes better financial sense. You will be left with more money when you save for retirement since you earn from your investments and gain from your contributions. Ultimately, you can save more in retirement savings than in your interest savings.
How to Achieve Both
Now, you can still achieve the ideal situation of paying your mortgage as you save for retirement. To achieve that, however, you may have to look for ways to earn an extra income such as working part-time in Salt Lake City in addition to your full-time job or some other side hustle. You can also cut down on your large expenses such as on transportation or a backyard pool.
As long as you have the motivation and the financial goals, you can pay off your mortgage early and save enough for your retirement at the same time.