Financial Planning, Millennials

The Most Debated Personal Finance Topics (And My Opinions On Each)

I’ve spent over 1000 hours creating personal finance content.

These are the most debated topics:

  • Rent vs buy
  • Payoff debt vs invest
  • Credit cards vs not
  • Term vs permanent life insurance
  • ETF’s vs Mutual Funds
  • Emergency Fund vs Pay Off Credit Card Debt
  • 15 vs 30 Year Mortgage

This is the framework I use to address these topics (and my opinions on each):

1. Rent vs Buy

I think we all grew up hearing about home ownership. I mean it’s the American dream right? And It’s the best investment we will make in our lives apparently.

Except it’s not. Home ownership IS EXPENSIVE. I don’t care what anyone says, a home is an investment in your family. It’s not a great investment long term (not talking rental properties). Homes appreciate at around 3.8% annually. A current $400,000 mortgage at 6% would cost you $866,500 just from that, taxes, and insurance. This does not include other costs that come your way which we estimate to about 2% of value/year. Point being, it’s expensive. It might be slightly better than renting but not a massive difference & the shorter you hold the worst it is as you build very little equity early on with interest being front loaded on mortgages.

Own if you want to, you have no problem taking care of it, you want to build a family there, set down your roots, for a school district, etc. And rent if you want to!

2. Lease vs Buy

All the fintwit people will tell you only to own a car, pay in cash, and drive it till the wheels can’t go anymore. And to be honest, that would be the best overall financial decision mathematically. But sometimes, leasing can still make sense. It’s definitely not an always or never thing. Maybe you are going to live and work in a big city in a couple years and want a short term lease. Maybe you really value cars and would buy new every few years anyways. Maybe the convenience is worth it to not have to handle big expenses.

I side way more with buying a car, but I do still think leasing can be right in the right situation.

3. Pay Off Debt vs Invest

This one can’t be broken up by all debt vs all investing. You have to classify high and low interest debt.

To me, high interest debt is above 6%. If I have any debt above 6%, I am prioritizing this and getting rid of it. A 6% guaranteed drag is costly.

And debt below 6%, I am prioritizing investing. For risk averse people, this may be slightly different. This is just how I think of it, but I still would always do my 401(k) to the match regardless of rate.

We all time in the market is key, so I want to get as much in as I reasonably can now when I am young.

4. Term vs Permanent Life Insurance

For 99% of people, term satisfies the need For most younger people with spouses, kids, etc. Especially since you need a lot of insurance to protect your family. Term covers you while you build up assets and it comes at a very affordable rate. Permanent insurance is full of extra fees, is not a great investment, etc. The goal is to have insurance when you are young and healthy, build up assets, and self ensure over time.

5. ETF’s vs Mutual Funds (MF)

If you are thinking about these 2, at least you are headed down the right road. Both are good ways to buy into a diversified group of companies. But here’s the differences between the two:

MFs orders are executed once per day, with all investors on the same day receiving the same price. ETF’s trade like a stock all day. The biggest difference, ETF’s typically are lower cost and also help shelter more taxes.

ETFs often generate fewer capital gains for investors since they may have lower turnover & can use the in-kind creation/redemption process to manage the cost basis of their holdings. MF’s spit out more gains and can lead to taxes even in years with losses (something to watch out for).

I am a way bigger fan of ETF’s in general and typically find myself using them since I Love the tax sheltering (important for taxable brokerage accounts).

6. Emergency Fund vs Pay Off Credit Card Debt

A lot of people start attacking credit card debt right away before any savings. I get why, but this not what I teach. Why? The next emergency just sets you right back into credit card debt. This oftentimes kills momentum. And as humans, we need this momentum to keep charging forward.

I like to get $1,000 for low income people and $3,000 for higher income people saved first. Then attack the credit card debt. This builds momentum, stops them from having to go backwards, and sets it all up for a rebuild. I Have found this to work best!

7. 15 vs 30 Year Mortgage

A lot of people who are debt averse focus on 15 year mortgages. I mean you pay the least amount of interest this way so why not? A 15 year mortgage comes with a lower interest rate but obviously way higher monthly payment since you are paying it off way quicker. This can make unforeseen times in life way harder. What if you lose your job? What if you want to take a sabbatical? This will also significantly decrease what you can invest now.

With a 15 year, you can’t choose to pay it off slower. With a 30 year, you can always pay it off in 15 .There is still a cost since the interest rate will be slightly higher, but I like to think of it as the cost of flexibility. Plus, if I have a lower interest rate mortgage, I am for sure not rushing to pay it off.

8. Use Credit Cards Or Avoid Them

I can see why people tell others to not use a credit card. If you are bad with spending and will rack up debt, avoid credit cards like the plague. And then spend some time learning how to manage your money and not overspend.

Credit cards are a great tool. You get cash back or rewards. You get added safety. This is why I am a huge fan of using credit cards for those who can use them like a debit card. Never go into credit card debt, track your spending, and use those points to your advantage.

Thanks for reading! I hope you learned a thing or two from this.

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