The best and safest investment you can make.

If you have debt, the best investment you can make is to get rid of it. There are a few reasons for this. If you read the post “Retrain your brain”, you know that paying off debt serves a purpose in allowing you to get clarity on the things that you value in life. Equally as important, it lowers your Bottom Line.

Paying off debt also serves another, valuable, and tangible purpose. It is a guaranteed return on your money.

The Standard and Poor’s 500, also known as the S&P 500, is a U.S. stock market index that serves as a benchmark for market performance. Since its inception in the 1920’s, the S&P has averaged an annualized return of around 10%. That sounds pretty good, right? Those are odds I am certainly comfortable with. But, as averages go, there will be some good years and some not so good years. If you put all your money in the stock market in early 2008, you might have experienced a bad year. And, if you started investing last year, you would have experienced a good year. There have been years where the market is negative (e.g. if you invested $1000, you might end the year with $700) and there have been years where the market has soared (e.g. if you invested $1000, you might end the year with $1300). Because it is an average, at any given time, you might not be experiencing returns.

Now, if you have debt that has an interest rate of 7%, you are losing 7% a year by not paying it off. Let’s say for example, you owe $100,000 in student loans and those loans have an average 7% interest rate. Every year you don’t pay them off, you are paying an additional $7,000. Guaranteed. And, most student loans will add that accrued interest to the principal. So, the following year, you now owe $107,000 and if you again don’t pay them off, you now will pay interest of $7,490. You can see where this is going. If you pay off your debt, you are guaranteeing that you will save the interest rate that is tacked on to the debt.

While the market might have a good or bad year, something you can’t totally predict, you know, with absolute certainty, what your loan interest rates are. Paying off your debt gives you a guaranteed return.

I’m not saying to never invest, because investing is amazing and a huge part of wealth building, BUT, before you should start investing, you should have a very safe foundation to start from. Creating as much certainty in your life, knowing that you can withstand some of the less good years that investing will throw at you, allows you to invest over time and without fear.

I personally like guarantees. How about you?

*PLEASE NOTE THAT NOTHING ON THIS WEBSITE CONSTITUTES LEGAL OR FINANCIAL ADVICE. I AM NOT A FINANCIAL ADVISOR OR CERTIFIED FINANCIAL PLANNER (“CFP”), NOR AM I LEGALLY ALLOWED TO TELL YOU WHAT, HOW, OR WHEN TO INVEST.