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Smart money: cash flow in January and mortgage repayments

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Welcome to the NerdWallet Smart Money podcast where we answer your real money questions.

This week’s episode starts at a list of money tasks to complete in the new year.

Then we move on to this week’s money question. from Benjamin, who left us this voicemail:

“Hi Sean. This is Benjamin from Portland, Oregon. I’m calling because I’m trying to figure out what to do with my money. I have a mortgage on a $550,000 house. I have $236,000 left for a 20-year mortgage. I pay $2,000 a month and share it with my partner.

We keep getting mortgage insurance applications and I’m trying to figure out where I should invest my extra income. I already have a Roth IRA. She is not. Our finances are not pooled. I maximize mine every year. I have about $20,000 in the bank, some stock already.

I’m really trying to find the best value for my money. Should I pay off my mortgage early? Should I invest in life or mortgage insurance? Is it worth investing in the market? Should we just take more vacations?”

Watch this episode on any of these platforms:

Our approach to money tasks in the new year

January is the best month to take stock of your finances and start making changes if necessary. For those looking to retool their budgets, audit spending and look for expenses that can be reduced or eliminated. You can also check your retirement accounts and increase your contributions. As the NerdWallet Retirement Calculator shows, even a 1% increase will make a difference over time.

Reviewing your credit report is another monetary task that can really pay off. Access your report for free at Annualcreditreport.com and then look for errors and unknown accounts – these could be signs of fraud. Early fraud detection gives scammers less time to bill on your behalf and potentially damage your credit history.

Other money matters include setting savings goals, reviewing your credit card portfolio, and planning your vacation. You will earn it after managing your money carefully throughout the year.

Our approach to early repayment of a house

For many of us, our mortgage is our biggest debt, so it’s understandable to want to pay off your home before the loan expires. This frees up money in your budget to spend elsewhere, and you save money by paying less interest. However, before you launch an aggressive mortgage deregistration campaign, be aware of the potential downsides as well. Once your mortgage is paid off, you will lose your mortgage interest deduction if you list the itemization instead of getting the standard deduction. And the extra money you save to pay off your mortgage is better spent elsewhere, especially if your interest rate is low. Keep in mind that the average rate of return in the stock market is around 10%, and saving more for retirement and emergencies is a higher priority than paying off your mortgage.

Our advice

  1. Think about your priorities: There may not be a single “correct” way to manage your money. Focus on what’s important to you and that will give you the life you want.
  2. Consider return: If you have a low mortgage rate, you can get more bang for your buck by investing than paying off your mortgage early.
  3. Compare insurance products: Life insurance can be useful if your death causes financial loss to someone. On the other hand, mortgage insurance may be a good idea if you are not eligible for life insurance.

Have a money question? Write or call us at 901-730-6373. Or you can write to us at [email protected]llet.com. To listen to previous episodes, go to podcast homepage.

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