Don’t rush to pay off a low-interest mortgage

With inflation forecast at to augment, prepaying fixed rate mortgage debt may not make sense.

Elliot Pepper, a financial planner in Baltimore, encourages clients to consider investing extra money in investments that outperform the cost of the interest rate on their mortgage. This is especially true for those who have recently refinanced a mortgage, he said.

For example, rather than making an additional $ 10,000 payment on your 3% mortgage, you could buy a new Series I Savings Bond where the money will earn an annualized rate of 7.12% up to in April 2022, he said. Bonds cannot be redeemed for 12 months from the date of purchase.

Putting in some of the extra funds you were going to use to pay off your mortgage sooner, consider investing them in a long-term portfolio with low fees instead, said Ajay Kaisth, financial planner at Princeton Junction, NJ. are likely to be higher than the interest cost of the mortgage, he said. Those with underfunded retirement accounts generally have an interest in diverting additional funds to retirement savings rather than additional mortgage payments, Kaisth said.

Don’t overpay for items as “supplies are limited”

Consumers can normally wait for a sale, or at the very least shop around for the best price, said Bobbi Rebell, financial planner and personal finance expert at Tally, a credit card debt management app.

Now, many retailers are posting terms such as “more than a few” on their websites to get shoppers to click the “buy” button amid supply chain shortages, shipping delays and more. of rising inflation. Retailers also often follow up with targeted emails and texts warning us that the pajamas we love will be gone if we don’t buy them immediately.

Don’t succumb to the pressure.

Some specific items can really be in short supply, but panicking or snagging something “just in case” it runs out of stock later can eat into a budget, Ms. Rebell said.

“The price increase is real, but that doesn’t mean you shouldn’t be looking for the best possible price, asking for a discount, or finding a cheaper alternative,” she said.

Don’t track your spending

Keeping up with the last dollar of your monthly spending may seem stimulating at first, but it’s hard to maintain, like an emergency diet, said Kenny Senour, a financial planner in Denver.

He advises clients to focus on using a simpler approach, such as allocating 50% of their salary to essentials like rent, 20% for savings, and 30% for everything else. .

Save first so you don’t have to budget for what’s left, said Kathryn Tuggle, editor-in-chief at HerMoney Media and co-author of the upcoming book “How To Money.”

She advises finding out how much you want to save each month and setting that amount aside immediately through an automatic transfer to a high-yield online savings account. When you prioritize your long-term goals, tracking your short-term spending matters less, she said.

“It’s such an empowering feeling to know that the money that’s left in your account is yours to spend it however you see fit that month,” she said.

If you always have to stay below a certain amount to spend each month, create a “fun money” account to make automatic deposits at the same time you fund your savings account, Ms. Tuggle said.

Since you’ll only be putting discretionary funds into this account, you can spend the money on whatever you want without feeling guilty, she said.

Don’t fall prey to FOMO

You may feel a pang in your heart for not owning cryptocurrencies or the latest actions triggering conversations on Reddit, but don’t feel the need to jump in, said Scott Newhouse, a financial planner in Tucson, Ariz. It might seem like a smart move to go in, but chasing trending stocks often results in your returns underperforming because their outperformance won’t last forever, he said.

It’s fine to stick with proven investment strategies, such as a low-cost, well-diversified investment portfolio of stocks and bonds, he tells clients.

“It’s a waste of time delving into investment trends like NFTs, SPACs, and cryptocurrencies if you know they don’t suit your investment goals, or if you don’t. just don’t understand, ”Tally’s Ms. Rebell said. .

Write to Veronica Dagher at [email protected]