[MUSIC PLAYING] Brought to you by the Every Dollar App. Start budgeting for free today. Well, I'm new to the show, and I'm sure you get this question a lot, but I've never heard the answer. I'm trying to figure out why I should pay off a 2% mortgage with money that's making 5% or 15% or whatever. I mean, I can pay it off. But man, 12 years left on a 2% loan, I can't-- What's your balance? Find the reasoning. $92,000. OK, all right. So I understand your question, and as a math nerd, I used to make all of my decisions through the math lens as well. The more I've developed at teaching this stuff and learning about it over 30 years and working with very, very wealthy people, a couple things that come to mind. And I completely grasp your concept. It seems ludicrous in the way you're looking at it to do that. But let's first break down and say, what are you really making? OK, so at $92,000, I rounded up for your benefit to $100, so the math is real easy. And so if you're paying out 2%, and let's just say you're making 7%, you're netting 5, agreed. Yes. OK, and so that's $5,000, right? Yes. OK, what's your household income? It's about $140. OK, all right. And-- Well, it's actually more than that, because I collect a pension as well. How old are you? I am 63. OK, so am I. OK, so can we agree that $5,000 a year, $400 a month, is not going to make substantial difference in your wealth. I mean, we can agree that, yeah. Yeah, it's $400. A lot of families spend that on pizza. Great. OK, so I mean, it's not a lot of money we're talking about, so more than anything we're talking about, a concept than an actual fact. And the reason I know that is, is that we ended up a few years ago studying millionaires, because I became very interested in what makes people wealthy. And we did the largest study of millionaires ever done. We studied 10,167 of them. And we found, by the way, that 89% of them were like you, their first generation rich, because I've got a feeling you're a millionaire, are you? No, not yet. I got a feeling you're pretty close, though. How much equity you got in that house? I got where I'm at right now. I probably got about 150. Now, what do you got in your nest egg? I got about, I don't know, 400. So I'm not there. OK, you're about a half, about, half, about, half way, then. 650. OK. You're sitting on pretty good coin, though. You're not a broke guy. OK? No. So you've done well. Congratulations. So what we found as we studied these millionaires was, we asked them questions of what caused them to build their wealth. Where did their wealth come from? And because we want to know, OK, if 89% of them are first generation, it's important to know that 9 out of 10 millionaires in North America today became millionaires by doing stuff. So what did you do? The number of them that said, I kept a mortgage and invested it because I made the difference was almost zero. It was weird. Well, I weird that because traditionally, we haven't had 2% mortgages. Well, but even if you made it at a 6% mortgage, if you had it in a mutual fund and you're making 12, you ought to be making 5% or 6% on it. You ought to still be making that $5,000 spread. But the point is that $5,000 is $430 or $416 a month, which is not spit. It's not enough to cause you to become a millionaire. So it's weird. What we did discover in further analysis was with the actual data of real wealthy people-- not discussing concept, but discussing who people that really did it-- was the freedom that they felt by having zero debt allowed them to negotiate with their employer different. It allowed their relationships to be at a different level because there's zero stress. And you would purport to say there's zero stress here because I'm not stressed about this. But you have stress that you wouldn't have if you were debt free. We have to all say that. If you had zero debt, your stress level goes down. Oh, and by the way, that actually has a physical component to it, too. The number of people with hypertension in America is at the highest level it's ever been. High blood pressures at the highest level it's ever been. Heart attacks at the highest level they've ever been. Oh, by the way, debt levels are at the highest level they've ever been. There is a correlation and a cause-effect series here in the data. And so as we get into all of that, what we bottom line is, you can keep doing what you're doing it. We wouldn't call you stupid. But the data says that people don't really do that that are building wealth. They really pay off their mortgage, and they really take their old mortgage payment and invest it in their 401(k) so that they have more money. That's what the actual data tells us. And that's good news, and we talked about this in the investment seminar a little bit, that the difference in the thing we're leaving out of this discussion is risk. The beta. Yeah, you're not talking about risk. You do carry risk when you carry a mortgage 'cause we've done research, 100% of the foreclosures occur on a home of the mortgage. And there's a lot more to this. There's the mathematical side like you mentioned. Most people don't actually look at their amortization schedule in their mortgage 'cause you might see, oh, I'm actually paying 600 bucks a month toward interest right now because of how this thing's weighted right now. You're not making that. And unless you have the full 92,000 and a 5% account, which is almost nobody, didn't sound like he had all that money sitting there necessarily, then it's not even apples to apples. And another piece is people forget on the Ramsey plan, you're investing 15% while paying off the house. So it's not a trade off of saying, I'm not gonna invest it and said, I'm gonna pay off the mortgage. Then on top of the-- Yeah, but he's just saying in general, on the concept of why would you ever pay off a 2% mortgage when you can invest it in? That's a standard question. And he's right, he's a new listener. It's a good conversation. Thank you for calling in with that, by the way. 'Cause people think we're crazy for suggesting you do pay it off. But the rationalization or the justification, the reasoning, none of that, the reasoning for the advice is that it's right. Because the data shows that the borrower is slave to the lender. The data shows your relationships are different, your career path changes and you make more money because you're not, if you're running your own business and you have zero debt, you make different decisions running the business. And you take fewer crazy risks and more proper risks in your business because you can and it doesn't scare you anymore. You're not playing desperate. You're not playing small ball. And I've watched small business people prosper beyond belief because their brain is freed up. They don't have this monkey rod in their box. - Living in your head rent free. The other piece is I want to ask different questions. Do I want to be 63 with a mortgage? You know, who dreams when they become homeowners? Man, I hope I get to hang onto this thing forever. I mean, there's just a life you get to live when you don't have a payment. I mean, mortgage means death pledge in French. Did you know that? - Yes. - Death pledge. That's what you're signing up for. And so I'm going to live more freely. I want to live in my 60s with a free up a payment, invest it and you're going to be okay either way, but in the meantime, goodness, I want to get that mortgage off my back. - Yeah. So it is, Jay, I'm also doing the show all these years. I have noticed that people that have pretty serious wealth never ask this question. And that's not to make fun of you, but they just don't. It never occurs to them, they're on Georgia side. They're like, I don't want to be in a death pledge. I want to be out of debt. And they don't even necessarily know why sometimes. They just have this pension to get away from it. But your most powerful wealth building tool is your income. And when you don't owe anybody any money, you can use that income. That 140,000 is a lot more powerful than the $416. - And any spread you could make. And Dave, I did this when I was in my early 30s, we paid off our house and, you know, for my financial advisor and creator, friends were like, "Dude, you're an idiot. I can't believe you paid off your mortgage at three point. And I'm like, guys, life is more than a spread. I got goals. You know, my wife is able to stay home now because we don't have a mortgage payment. And so you got to think bigger than just a mathematical spread on a piece of paper. - Well, I've been doing this so long that I've seen people's lives change in all areas of their life. And that actually has a mathematical effect as well. For instance, you don't have to work for a toxic boss. You can go work for somebody else that pays you more. And you have a better quality of life. Your stress level goes down. Your doctor bills go down. All these things run together. - More options, more margin, more freedom, more joy. I'll take it. - Turns out God knew what he was talking about. - Get rid of the death pledge. - The borrower is slave to the lender. You don't believe me? Try paying it all off and see if you don't feel like you'll free. - Create your free every dollar budget today. The simplest way to budget for your life.
