There is always the underlying question of whether you are spending your money in the most efficient way possible. When it comes to any extra money, liquidity should be one of the first places you look.  And I want to respond as a financial advisor to a question I hear quite frequently.

That question typically comes from people who are in their homes, they have mortgages, and they find that they have extra money that they want to save.

“Should I take that extra money and should I invest it? Or should I use it and reduce my mortgage?” 

Show me the numbers

Well, we can always show you the numbers side of that alternative because it is very specific to your situation. Many people are quite surprised to find out how much better they can do, if they have time, by investing that money rather than paying down their mortgage.

And if you’re paying your mortgage in hopes of an earlier retirement, you still need to take a look at what would those extra dollars in your retirement fund mean to you? There’s still another issue when you ask that question.

Think about liquidity

And that important question is, what about your liquidity? If something happened to your job, if you got sick, if you had an accident and you were not able to earn your income, do you have enough liquidity set aside that you could make your mortgage payments.

You know, if you’ve paid down your mortgage, they’re not going to give you any grace or give you that money back. So that’s another issue I find as an advisor. We like to make very certain that our clients have adequate liquidity before they make that decision of investing or paying down the mortgage.

Finding the answers

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