Firstly, welcome to our first community Money Dilemma for 2024! If you have a burning question, send it to me and I love giving you my general advice on things to consider.

It's fantastic that you are thinking through your different options and the answer is, it is very case by case (annoying but true). This is not paint by numbers, it's your life. Everyone's values and goals are different, therefore you need to consider what is important to you and what goals are the ones that are the most important.

On the goal-setting front (tis the season), know you will be making trade-offs. We constantly have wants/ needs that are at odds with each other. More often than not, we aren't looking for a black and white answer – we are looking for what is the sweet spot where many get met. This is a very common example, you might want to knock down your mortgage, but also start setting your financial future up to give you financial options down the line and you might still want holidays/new shiny things/furry animals etc.

Trade-offs mean we are often pushing out time horizons, reducing targets or parking some plans altogether. They can feel disheartening and frustrating because we want it all, like right now. But building your wealth is very much a journey – one that has twists and turns along the way. What we don't want is to feel like we are going around a giant roundabout forever with no progress and less fuel in the tank with every spin.

First up, before you decide on your strategy, like Monopoly – we cannot pass go until we have an emergency savings buffer (typically 3-6months worth of basic expenses). We also want to consider what insurances we have, if you don't have income your strategy goes down the toilet, fast. Make sure you’re adequately protected and factor that cost into your budget before you start considering how much you could allocate to each.

Right, now that's sorted, we can play on... some things for you to consider around investing vs paying down a mortgage:

- Diversification: As the saying goes ‘Don't put all your eggs in one basket’ Investing is very similar. Diversifying your investments means you can allocate your portfolio across different asset classes, reducing the risks of putting all your money into one asset, so you can try to keep your 'eggs' safe!

- Market Risk: Investing in the share market or the property market for that matter involves risk. This means that the value of your investments can fluctuate, and there is a chance your asset value could go down, especially in the short term.

- Interest / Returns: Paying down your mortgage offers a return equivalent to your mortgage interest rate, which can be a risk-free investment compared to the uncertainties of the share market. It is a game of trade-offs. By choosing to invest in the share market instead of paying down your mortgage, you continue to incur interest costs on your loan, which could be substantial over the life of the mortgage. In saying this, the money used to pay down the mortgage could potentially be invested elsewhere for higher returns. If your mortgage interest rate is low (shout out to those lucky people still on fixed-rate mortgages), you might miss out on investment opportunities or higher returns.

- Liquidity: As I mentioned earlier you want to make sure you have enough funds set aside if say your washing machine breaks down. You can't "sell bricks" from your house, but you could sell investments if you need funds in the short term.

Also, you should read this from the ATO if you are using Airbnb for your home. Our last Money Dilemma in December was on strategies to consider when investing in ETFs with smaller amounts that you might find helpful or this one from September which breaks down time frames and some investment types. Or you may want to join our Financially Flourishing in 2024 Webinar Series below which covers Goals Setting, Debt and Investing.

Now you need to block out some time and ask yourself some important (sometimes hard) questions about how you feel about each of these. What is more important and why? Are you being influenced by what you ‘should’ do, not what is actually most important to you?

The most important thing here is: don’t do nothing. Doing nothing, which often occurs when we get overwhelmed and give up, is still a decision... and in most of the cases I have seen, it's not the right one.

Jess

Have a money dilemma?

Money dilemmas can be a nightmare! They can leave you up all night ruminating about what to do, have you feeling alone and isolated or just plain ol' stuck. So, we are here to help. I am going to tackle one a week and give you my unbiased, no BS general thoughts on how to tackle your conundrum. We would love for you to send yours (or someone you know) in. 

Obvs all of this is general advice only... especially important to note any and all of the comments above do not take into account your objectives, financial situation or needs. Before acting on any information, you should consider the appropriateness of the information provided and the nature of the relevant financial product having regard to your objectives, financial situation and needs.