Generation X is classically defined at people born between the years 1965 and 1979. Pretty much those of you in your early 30's to the mid 40's. However, having given personal financial advice to thousands of people, I can tell you that many of you who were born 1960 to 1964 fit within the Generation X type of financial and personal attitude. Since I am 42 and have had a good deal of financial success, I've noticed some big mistakes that I see my generation making with their money and how they think about money. Over the next five weeks, I'm going to pull one subject at a time to help those of you within Generation X get your personal finances on track so you can achieve financial independence, purpose, and freedom.
MISTAKE #1- Not paying off your mortgage (and getting it done quicker)
For many homeowners today it feels like Christmas time with thirty year mortgages available for under 4%. Many people are rushing to the checkout counter as quickly as they can to sit down for yet another refinance to lower their overall payment on their home. These all seem like very good decisions when you begin signing away the paperwork, but has it fundamentally put a long-term cloud over Generation X homeowners who are not thinking about the long term impact of these decisions?
Many Gen X'ers lost sight of the old adage to put 20% down when you buy your house. Since mortgage companies were willing to lend the money out freely, many Gen X'ers bought a property that stretched their budget purchasing a home that was slightly out of their price range that could now have a potentially upside down mortgage against the value of their real estate. For those that did purchase their first home around the age of 30, the whole idea of getting a 30 year mortgage is that you pay it off over the course of your working career so you can have a home clean and free in retirement. The math seems simple doesn't it? Buy a house at 30, get a 30 year mortgage, and pay it off at 60.
The problem is over the past decade, many Gen X'ers have been enticed with two things. Number one, if your company offered you a career promotion, you likely made a move which means you took out a new mortgage on a new home. This is true even if the company bought your house out on the move. As you moved up the corporate ladder, the likelihood is so did the size of your home. Number two, mortgage rates have declined substantially, which means you likely refinanced once if not twice over the past decade. So, what does this all mean? It probably means that you are in your late 30's to early 40's and still have 25 to 30 years to pay off your mortgage. Now, the math doesn't work. Buy a 'new' house at 40, get a 30 year mortgage, and pay it off at 70.
The problem with this thinking is that your earning power will stay at the same level even when you get into your sixties. If you have any sort of job hiccup, substantial health issues, or a major life/family change, how will affect your ability to continue to sustain making those mortgage payments? The answer is that you won't be able to do this, and now you may be starting to realize just what hold you dug yourself into by refinancing over and over in the past decade.
I am a big fan of paying off your mortgage quicker than waiting 30 years to pay it off. I have done it myself. You can run all the numbers you want on how an outside investment would do against the current interest rate on your mortgage. You can read all the articles you want about not losing that beloved mortgage deduction from your tax return. Make no bones about it, there is NOTHING like having the peace and mind and security in knowing that you own your home.
The fact is most Generation X ' ers have become slaves to their most prized possession which is the home. You work hard for that movie room, the outdoor grill, the super sized kitchen, and the workshop you always wanted in your garage. I'm not here to tell you that you should have bought something smaller (hindsight is 20/20). I am here to tell you to get it paid off while you have good years of bonus and earnings. You'll thank me when you make that last payment. Your investment advisors and brokers will likely have different advice because they can't make any money on dollars you apply towards paying down your home.
Strategy one in this special Generation X personal finance advice column is to get smart and pay down your mortgage. Wouldn't it be great to get up next Sunday morning and walk out to have your cup of coffee on your back porch knowing that everything you are walking on you own?
Go to www.oxygenfinancial.net to request a consultation with the leading financial experts for Generation X in the country.
Ted Jenkin, CFP®, AAMS®, AWMA®, CRPC®, CMFC®, CRPS®
Co-CEO and Founder oXYGen Financial, Inc
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