what to do with money after paying off mortgage

April 10, 2022 Post a Comment

Photograph by Ketut Subiyanto from Pexels

My hubby and I are non high-income earners. In our mid-40s with an 11-twelvemonth-old just child, we make less than $101,900—the corporeality StatsCan says is the median household income for a family with kids .

Only nosotros've been smart with our money—choosing to live almost public transportation, and walking and using the subway equally much as possible, saving $350 a calendar month in parking fees at my husband'south workplace, non to mention gas, and besides forgoing a 2d car altogether.

Top-priced peak-season resort vacations were off the table for the states. To travel on a budget, nosotros limit ourselves to road trips in the summer, and opt to get away during shoulder flavour anytime airfare is involved. For instance, we would visit my hubby's family in Ireland in April instead of August, and typically nosotros'd also go for wintertime vacations either in February or Apr to miss the high prices at March Break or Christmas.

The payoff? Over the past 14 years, nosotros've covered mortgage payments on our minor Toronto house with biweekly accelerated mortgage payments, dropping lump-sum prepayments one time or twice per year to reduce the principal faster. Then we managed to pay off our mortgage in Dec of 2019.

And yet, we've come to a strange juncture. Correct after basking in the pride and relief at paying off the largest debt near individuals ever incur, nosotros were left wondering how best to use our new mortgage-payment-sized chunk of disposable income, with retirement still 20 years away.

And then the COVID-nineteen pandemic hit.

With both of united states worried for our job security (nosotros work in the increasingly precarious publishing industry—my husband as a salaried newspaper reporter, and me every bit a freelancer), the "before times" financial advice doesn't seem applicable. We're concerned about wage contractions, layoffs and, of form, a recession .

We've ever wanted an income property that could also exist a vacation domicile, preferably somewhere with a sunny, warm climate to escape the Canadian winter. Given the current economic outlook, withal, we're scared to take on a significant new purchase using the coin we would have directed towards our mortgage. So, what should we do at present?

Redirect your money towards retirement savings

Paying off a mortgage with twenty years until retirement is not that mutual, says Akilah Allen-Silverstein, CFP, RRC, a financial counselor with Mandeville Private Client Inc. "Just as a financial planner I am very excited for clients when this is their reality; this provides the actress cash flow to fund retirement savings." (My husband and I are giving each other a retroactive pat on the dorsum.)

The conventional wisdom for the post-mortgage menstruum of life is to pay off any loftier-involvement debt, pay for motorcar repairs or other large purchase items, then focus on your retirement goal; set that goal, and allocate funds appropriately, says Allen-Silverstein.

With 20 years left, she says, my married man and I take put ourselves in an ideal spot for retirement planning. The cost of living is high, and non likely to go down anytime presently. Those who program to stay in a big city or any developed country are going to need a sizeable nest egg to back up their lifestyle. Simply the practiced news is, t he longer y'all have to invest, the better hazard your investments have to grow. "CPP and OAS on average pay out $672 and $613 per month which isn't nearly enough," she notes.

If you lot have 20 years to invest and commit $1,500 a month invested aggressively and with an estimated half dozen% rate of render, yous could potentially have $693,061 in 20 years.

" Simply what if we waited another 10 years to invest? " Allen-Silverstein posits. " We would have to invest $4,500 a month invested at a 6% charge per unit of return to potentially take $696,487," she says. Obviously the former is a better strategy.

Set aside money for emergencies

What nigh COVID-19? Experts say even though there is a pandemic happening , it's important to go along setting financial goals and invest for retirement. Even though markets are more than uncertain than usual due to COVID, the very nature of investing is that it comes with dubiety and risk, says Saijal Patel, CFA, founder and CEO of Saij Wealth Consulting.

"No ane, not even the most seasoned investor, can successfully predict the markets. There are far too many variables and outside factors that can modify the form. The timing and intensity of COVID is merely one example," she says. "The key to managing volatility is to create a diversified investment portfolio aligned to your goals and risk tolerance that varies beyond different asset types."

That existence said, the fiscal reality of COVID-19 for many will require an adjustment of expectations for retirement, and the actions we take to program for that potential new reality.

At the aforementioned time, both Patel and Allen-Silverstein underscore the importance of building and maintaining an emergency fund that covers 3 to half-dozen months worth of living expenses.

"It'southward probable to be quite a while before things return to normal," says Allen-Silverstein. A vaccine or effective COVID-nineteen treatment would drive stock markets college, and could lift consumer sentiment and heave economical action if people experience safer resuming activities that they have put on concur, such every bit travel. However, at the time of this writing, this timeframe is unknown.

Should we hold off on investing in real estate?

Because our dwelling house is paid off, nosotros could consider tapping that to finance an investment belongings—for example, past obtaining a dwelling house equity line of credit (HELOC) . Allen-Silverstein says this is a pretty common move, and could exist a great investment option, if the HELOC is paid off past retirement and we're able to find suitable tenants who cover the costs completely. Having rental income now and in the hereafter is a laudable goal, simply beingness a landlord comes with its own series of risks and headaches, she warns, and international real manor associated with tourism is non a skilful idea at present.

My husband and I have decided that ownership an investment holding is too risky at the moment (we had been looking at purchasing a small Miami condo). Only it remains our business firm goal. We'll revisit this in 18 months later (hopefully) a vaccine stabilizes the tourism sector.

Meanwhile, over the next yr and a half, we'll be taking Patel'south and Allen-Silverstein's communication: I'll bump up my emergency fund to cover six months of expenses, nosotros'll earmark more money for investments and RRSPs so that it doesn't slip through our fingers or languish as cash.

Post-mortgage money dos and don'ts

Do pay off any loftier interest debt, such as credit cards or repairs for your motorcar or dwelling house you've been putting off, says Allen-Silverstein.
Do crash-land up your emergency funds to six months if you lot're worried well-nigh your job. "That probably means you will cut out discretionary spending (entertainment and non-essentials) and watch your variable spending," says Patel.
Do institute new, postal service-mortgage goals. Decide what'south "mandatory" and what are "nice-to-haves." And then create a plan (decide when you lot need to accomplish that goal, how much money needs to be gear up aside).
Don't get used to your "new" cash flow for too long before you determine to put information technology to work. However, you needn't commit the entire amount to saving and investing. "Y'all deserve to celebrate this achievement and the perks of beingness mortgage-complimentary," says Allen-Silverstein. Keeping $200 a month for guilt-free ordering of takeout meals or Zumba classes is cardinal to not resenting the process, and ensuring we also thoroughly bask the present, she adds.
Don't procrastinate on retirement savings. "Money will slip away if not earmarked." says Patel. Don't save what's left after spending rather than paying yourself showtime. Automatically save a portion of your monthly income towards your goals and and then you tin can spend the rest guilt-gratuitous, fifty-fifty in the COVID era.
Don't avoid individual stocks. As long as they're used to create a diversified portfolio, even now, they volition aid in managing risk, says Patel. "Let's not forget that stocks also vary in risk (large cap dividend stocks are typically less risky than small cap stocks, for example)." Consider using a robo-advisor , which can match you up with a set up-made investment portfolio that matches your chance tolerance, until you build knowledge, says Patel. "When you lot're comfortable and as you build noesis, you lot tin consider picking your ain individual assets," she says. Her pecking order would be to apply TFSA and RRSPs (take reward of both if you can) before investing in non-registered accounts.
Don't go fixated on buying gilded, which is at a high. "Gold can be volatile and risky, then it should be considered for someone who has a medium to college risk tolerance. And every bit part of a diversified portfolio, I'd propose it doesn't make upwards more than five to 10% of one's portfolio," Patel says. If you lot practise feel confident enough to go ahead, she says there are various ways to get exposure to the gold sector : gold bullion, individual gilt stocks, gold ETF or mutual funds.