Last month I had a great new client meeting. I asked this couple, who were first-time home buyers, young professionals, and in a really good place financially for someone in their late twenties: “When you purchase this house, have you decided what you will do with the extra cash you’ll be saving each month?”
The Mr. answered, “I want to pay off this mortgage as quickly as possible” and the Mrs. answered, “I want to invest our money so we can retire when we are 50 and travel the world.”
The couple then looked at each other quizzically and then looked at me before saying, “I guess we need to figure this out together”. I responded, “I guess we need to figure out where you want to locate your wealth, INSIDE or OUTSIDE your home.”
From there we discussed in more detail, their goals and what was important to them. Then we discussed what I believe is the ONLY number that matters in personal finance – EPRTM, which is the after-tax cost of their borrowing.
In my book, “The Role of Liability Management in a Successful Financial Services Practice” I go into the concept of the cost of borrowing and how it affects many facets of your life. Do you use the extra cash to save on mortgage interest or do you use it to invest and have your personal wealth appreciate?
This decision can be emotional or it can be based on your goals and the numbers of your financial plan.
Back to my clients – in looking at mortgages in the high 2 to low 3 percent area range, they decided to focus on investing their extra cash flow, for now, hence creating more safety and liquidity while searching for a higher rate of return than their EPRTM. This decision also aligned with their early retirement goals. From there, we circled back to their Financial Advisor and put together an automated monthly plan to get more dollars invested.
I am here to help if you need it with this type of planning for a client or prospect of yours, just email me to set up a time to talk and we can help others get even more clarity on their personal financial world.
One last note: check out my new Mortgage Resource Center for Advisors, www.famortgagehelp.com
