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Amazing video, A friend of mine referred me to a financial adviser sometime ago and we got to talking about investment and money. I started investing with $150k and in the first 2 months, my portfolio was reading $274,800. Crazy right!, I decided to reinvest my profit and get more interesting. For over a year we have been working together making consistent profit just bought my second home 2 weeks ago and care for my family.

I decided 20 years ago I would pay off the large debts in my life off first and give most of my attention to those debts, house and vehicle mostly. Once I had payed my mortgage off in 12 years, tripling my payments for the last 3 to 4 years, I was mostly debt free! Also the value of my house from 1997- 2009 had tripled! Thus leaving me debt free and basically ended up indirectly investing at the same time! I won on both accounts IMO. Having said that I was basically house poor for most of that time did not take any trips or buy many luxuries for myself. In retrospect I regret not having more fun in those years age 25-37. If I could do it over again I would tweek that approach abit, following the Everything in Moderation including moderation rule. You can always make more money, but you can’t get time back! Some advice to those starting out. Good luck.

Mental health wise....Best pay of Debt..!!!

Hmm... credit cards charge 24% interest. I hardly believe any investment would give me 24% net return. Something tells me i should pay off my credit card first.

Get rid of personal debt first.Then invest.

I would say that it’s always better to get your head above the waves before you start to climb that mountain! You can always invest in opportunities but having to carry a load of debt around would just weigh you down mentally and cause unnecessary stress. The great thing about paying off the debt too is that once it’s gone, it’s gone as long as your wise enough not to get sucked back into it👍

"Never Tell Anyone How Much Money You Got Saved Its None Of Their Business." 💯

The extremely easy math makes the answer extremely obvious. 8%>4.5%, or 4.2%. An extra $1800 per year from employer match is greater than the nothing you'd get without it. If the two hypothetical situations both buy exactly the same things at exactly the same times, the investing couple comes out ahead by quite a bit after 10 years. In the video version, the couple that attacks their debt instead of investing only winds up ahead in the end because they never bought a second set of cars. With another 60k car purchase at the 68 month mark(same time as couple 1 did), couple 2 ends up with less than 180k instead of 248k. That's not to say paying off your loans is always the wrong move. I'm just pointing out that this particular video is deceptive. The psychology of money matters, too. If you had at any point stated that the second couple's hatred of debt had inspired them to avoid buying new cars, I'd call this a great video. Instead, you effectively hid the fact that couple 2 are still driving 10 year old clunkers from viewers not willing or able to do the math.

Your channel awesome and pretty binge-worthy! I paid off my student loan debt late last year (it took me 17 months to annihilate 72k) and plan to continue life without [non-mortgage] debt. I have been working on my emergency fund and once complete, will dump all of my disposable income into index funds. Anywho, thanks for the great info. I've subscribed!

My wife and I were this couple almost exactly. We paid off $110k in debt in 2 years by age 26. Life is much better without debt, and we are going to be able to pay off our mortgage by age 33. It’s not just math. 80% of finance is mental. Get out of debt first.

smarter to clear debt and stay debt free, build up 6 months of living expenses (not salary, living expenses) then start to invest. you have to have a solid foundation before you put up walls, and sturdy walls before you put on the roof

Jane and Jon messed up when they got new cars.

Have balance! Why not do both? Give at least the minimum it takes for your company to match then after u become debt free, increase how much you invest.

they should get rid of the car loans... they spent an entire years salary between the both of them on cars??? that is just asking to go into bankruptcy..at a combined 60k yearly salary they should each be driving 5k cars at the most...fools

Being debt free allows a lot of mental freedom as you're stress free, can try new things like start your own business or work on a skill set that builds towards future success. Living pay check to pay check - or worse credit card payment to credit card payment - kills those options.

Hey Dan! I always enjoy your videos! I love this concept but would love a video on this same topic but for folks in their 40's plus. Some of us didn't get started until much later in life. Thanks again!

Paying off debt is risk free and tax free …...

what about if they paid enough to get the full match from their employers 401k and threw the rest at their debt until it was paid off?

The real world education of taking on debt is extremely underrated - loved your rational approach to a topic that is not solely mathematics based

I really like how you cover scenarios including numbers as well as real life stats such as the stress it can put on an individual or relationship. As emotional human beings, it's important to account for all those factors. Superb video!

I used the debt snowball. It works!!! Got out of debt much quicker than I was predicting and now the wife and I have a ton of money at the end of the month we are putting towards buying a home.

Thank you for this! Gives me hope that I'm not behind. I'm almost 26 and about $60K in debt, my job doesn't offer a 401K, so I put $100 into my Roth each month and anything extra goes to debt. I plan on being debt free by April 2022. I don't want to work a corporate job until 65, so I was afraid my debt would put me really far behind but this gives me hope!

And this my friend is how john and jane end up in the rat race of stressful life no matter what they earn

If you can't pay cash for it, you can't afford it.

Simple, pay off debt first!

Wow, thank you for this video and information, really great!

The real solution to this hypothetical couple's situation is to sell the cars and dump the $1000 monthly payment. Get the 401K match and pay down the student loan debt in the same 3 year period. You reduce your stress levels and build your wealth quicker. I'm 58, put two kids through college without debt, have a paid off mortgage, no car loans, and we're currently saving about $25,000 per year in 401K and Roth IRAs. All it takes is a little self-control and planning.

advantages of paying off debts: 1.zero risk. 2. its a tax free.

This really made me think of things differently! Thank you so much!

Great educational video. From my own personal experience, I have decided to pay off my debt first, save money and contribute to my 401k in a moderate/conservative way and I can share, that the financial weight and stress that I had on my shoulders has banished and that my friends, it’s priceless!!! FREEDOM HAS NO PRICE!!!!

I love that you're taking into account risk, and the effect on lifestyle choices (if you have a car loan now, you'll have one in the future). That said, 9min in you said either snowball or avalanche would be the same, but the car loan category was 2x loans in your first example, so they'd be first in snowball. Great vid

I like your videos but I think you might have forgotten to keep the two comparisons under the same control/constants. In the first example, after the 68 months of paying off the car debts, you made Jon and Jane buy 2 new cars for the same price and interest rate -- thus only allowing that same 1k a month for investing. Whereas in the example of paying off debt first, I don't think you factored in Jon and Jane buying 2 new cars again for the same price and interest rate. To keep it fair, shouldn't the 2nd example include Jon and Jane being debt free for the 4th year until 5.667 years in which both would have to buy 2 new cars? This puts them back on track of having to pay their debts for another 2 years before they can go back to strictly investing all their money? That means they'll have about 60.69k in investments when they stopped investing @ 5.667 years... go another 2 years of putting all their income to paying off another 60k car loan like the first example had to. Which means they start to reinvest at 7.667 years. ---------- With this in mind, Year 5 - 6 ends with 60.69K after interest. Year 6-7 ends with 65.55k after interest. I added the last 4 months with 3% company's match before compounding for year 8, So year 8 ends with 82.24k Year 9's end = 123.16k Year 10's end = 167.36k ---------- Lmk if my assumption was right. If it is, that's a 92k difference in wealth, with both examples being debt free. The rate of gain from that difference is going to be even more significant down the road because it is compounded yearly. Sorry lots of edits, but after another 10 years, the first example grows to 963k versus 2nd example's 763k. 200k difference.

Very good video with financial consequences explained, appreciate it!

The maths head says pay off debt first Life says the heart start investing The real answer is somewhere in the middle It’s not financially the best way it is though emotionally the way you can do it 👍🏾

Nice video! Big and difficult choices here.

Wish you would have done scenario where they only invested what was needed to get the company match, then used all left over to attack their debts. Kind of a best of both worlds.

The math don’t add up: What happened to the taxes that l’s not included in the expense calculations. Also, if they invest in a pre tax 401k they would invest less than $1K.

I agree. Schools aren't teaching basic finance. Good video. I believe it makes sense to try to balance both, investing and paying off debt. I worked for a company that gave me a dollar for dollar match is company stock. I'm glad I got that!

Granted I did not take the time to crunch the numbers myself, but it is not possible to have a higher return putting money in a lower return investments(or paying off a lower interest rate). Especially when you are getting additional outside money for free for a longer period of time.

Awesome illustrations! Is that all really be done by hand and are you doing it?

I always enjoy your videos immensely!

I was about 50,000 in debt and decided to pay it all off. It took about 4 years. I now have zero debt and invest all my extra money. I understood the pay yourself first rule but put that concept on hold since companies were making money off the interest of my stupid desicions. I paid everything off. My debts are all settled and now I invest knowing I earned the f*ck out of my current financial situation. I will NEVER willingly put myself in that kind of debt again 👍

Thanks a lot really cleared my mind bro..

One other thing to consider: Invest up to your match in your 401k, and spend 100% of the rest towards paying off debt.

great information and great animations

The best example would really be where you put in enough to capture the 401k match fully. only put in the 3% since that is a 100% guaranteed return. No risk. After that focus on debt

I guess investing versus paying off dept is an interesting topic. As long as using your own money and when not benefiting from the leverage effect, then paying off dept first is probably the best choice. Using other peoples money for investing for example when buying a block of flats for example can be very profitable, as other people then pay off your dept for you - in this example through their monthly rent. So it depends on how you handle money and what the interest rates are....

Very good explanation on this topic . Thank you much 👍👍

To much car debt, & repurchasing new cars dumbest way to stay broke. I’ll keep my 13 year old diesel pickup it will run 400,000-5000,000 miles before any major repairs will need to addressed. Even with major repairs it’s still hell of a lot cheaper than having a car payment

A wise person once told me to pay yourself first! I don't see any problems with investing for your retirement while paying off debt. Maybe it's not a good idea to invest in individual stocks while in debt...

It seems the first example is biased if you invested 100% of the remainder instead of just going to the match I would expect you to always have a higher final number, it seems you contributed more from the remainder in the debt payoff example than in the investment scenario? Also if you took the match and withdrew it with penalties to pay down the debt(assuming immediate vesting) it should typically greatly outperform paying down debt?

Flawed comparison and completely misleading. First example involved another car loan and third example seemed to suggest selling the cars immediately after a loan was taken out, which simply does not seem realistic. The examples cannot be directly compared because the variables are so different.

The debtor is slave to the lender

You simply have to do both at the same time. Reducing debt in one direction leads to financial security in the other. Lenders refer to this as gearing. Its the relative proportions of debt and equity that a company uses to support its operations, and its a sound model to follow if you want to reduce personal debt and remain financially secure. Case in point.

Great video. I currently devised a plan to invest and pay off debt that I think works in my case. I can invest $700 and put $650 into paying off consumer debt and student loans. The reason why I think invest is important for me is that my consumer debt has very loan interest due to 1 being with collection agency at 0% and the other is 2%, so it's adding about $5 a month. And my student loans is at 4.13%. Also my investments are in Roth IRA so I don't want to miss out on 2019 & 2020 contributions that I will never get back had I put off investing.

Great thorough video!

It seems simple. If you can get a better return on the money you use to pay the debt, then invest. If you have a credit card or other debt that is in the double digits, then pay the debt. Of course there is more to it, but if you crunch the numbers and they are decidedly better in one direction, then follow that direction.

why did the couple get so expensive cars in the first place? Would it be easier to just get used ones? Aren´t 1-2-year-old cars a lot of cheaper than a new one?

Excellent analysis. Pay off all consumer and college debt, then invest.

It depends on the type of debt and how much debt. But time in the market is also important so it really depends.

I love the video. I just subscribe.

Never put off investing because investing has longterm benefits, while debt is usually terminal. Plus the market typically grows and dividends can compound.

This is where I disagreed with Dave R. 401k match was too hard to say no. Just the max company matches.

I get the paying off debt theory. But here in the UK we cannot just chuck money here and there into paying off a debt. Instead I’ve put my money into investments to gain the interest until I have enough to pay my debt.

Usually it's best to take a 100% or even 50% match if you have a retirement matching benefit, THEN dump everything into debt (or at least debt with an interest rate above whatever rate you assume investments historically return), it's sort of the best of leveraging vs. reducing your risk/stress. That said this is a good video. With interest rates of 4 percent or greater... well it's like this, if there was an investment that returned a guaranteed 4 percent I don't know I'd be able to resist it versus enduring the volatility of the market. Mindset/emotional peace matters. When I was digging out of debt I actually went in the "wrong" order and paid off my car loan first, because that's what I was the most apprehensive about, and I don't regret that decision! Also it's a lot easier to go "Meh" when the market corrects if you otherwise don't have debt. Mentally your investments are all "extra" that way.

I have a question, your example was taking the extra money and investing it, what if they took the $150/ month and added it to the 401 K and used the extra to pay off debts? You get the company match, but don't put off paying off debts by that much. Does that make sense, or did I miss you addressing that in the video?

Pay off debt first! What I did years ago was after some bills got taken care of from a tax refund, I was able to budget a percentage to get a company match for my 401K just to get myself started in what I could for retirement while focusing on the debt snowball. I even took a 2nd job part time 2-3 evenings a week in a restaurant just because you have a better chance at making decent money in one compared to a retail minimum wage job.

Risk factor of investing while you're in debt is exactly why Dave Ramsey advises the way that he does. You wouldn't take out a loan in order to invest in the stock market, (although you can buy on margin) so why would you rob loan payoff in order to try your luck in the market? Also good point about having that higher cost of living with the loan payments. If an emergency or job loss were to occur, those bills will keep coming, putting you in a bind that much faster. Pulling from 401K would be expensive due to cost of taxes and penalties which would negate gains and match to some degree.

In the first example, couple took out a second car loan after 5 years for another $60,000 and ended up with $215,000 in 401k. As an aside, it was noted that without that if they'd bought a cheaper car instead they would have ended up with $206,000. How are they $9,000 ahead with the second car loan over the $5,000 cars?

This is the table from hell. It's so confusing and disorganized

Hello!!! I'm new to investing and the big question I have: I'm planning on investing for a long term, slow gain. Looking at the DIV/YIELD number, how to you determine WHEN this occurs? Is this value always shown based upon it being Quarterly? Or is there a places stating that Company A @ 1.2% pays out monthly, Company B @ 3% quartly, and Company C @ 5% yearly? Cause wouldn't A, if all factors are the same, be the best value here, since their yearly would be 13.4%?

Good arguments and great illustrations. I would suggest that in any scenario, putting enough into the 401k to get the employer match should be the first priority. (see my video on 5 reasons to invest in a 401k plan.) Many employers require at least 5 years to be 100% vested in those contributions, so if one or both of them happened to lose their job at some point, at least they had built up the value of the 401k with the "free" money. Also, I would never suggest buying a new car (or employing car loans), so they should buy 1 or 2 year old cars to begin with, which are still covered under warranty, and take the savings of at least 20% or more. I like your scenario where they buy cheaper used cars. Since the money going into their 401k is pre-tax, and it does not impact their take-home by as much as the contribution, they can afford the minimum contribution, get the match, and still pay down debt. New sub here........good stuff.

Why don't people ever say you should do both? That's literally what I did.

Outside of having REALLY nasty CC debt, you should ALWAYS invest enough to the point where you get your companies 401K matching. It is NOT a question of "return", you principle is being doubled. And then there is the tax implementations. If you have $1000 a month to pay off debt or invest and your company matches $150 a month, you are stupid not to put in $150 a month. This video does a shit job because it muddies the waters by making the matching a 15% matching, rather then a 100% matching. First, meet the matching level of your company for your 401K, then pay off reasonable debts.

I'm new to your channel. It would be nice if you can also have a video about Variable APR and Fixed APR. As this, I think also affects if you want to invest the money or pay off debt. Typically, you'd want to pay off debt that has variable apr because the apr is based off of your balance. Fixed APR typically is already included in life of the loan. So paying extra on fixed rate loans doesn't really make sense (unless you just want to be debt free).

My answer is different invest and dont get into debt into the first place.

Better solution: buy a beater car for the both of them. Use the "car payment" to get out of debt. I'm 28 and I've been debt free since I was 23. I avoid debt like the plague it is, including student loans. Work full time, take a few courses a term. It will take you 6 years to graduate, but you're debt free. (Yes you will need to shop around for colleges.)

We are paying off debt but are also putting 3 percent into 401k to get the match. It is slowing down the debt payoff some but not a ton.

what about medical insurance claims expenses which are very likely to impact them on the long run since they are two

I think age is a big factor because of compound interest someone in thier 20 can afford to pay off thier debt then invest but people 30 and up I think should focus more on investing because time is not on thier side

The debt avalanche only makes sense if the higher balances have the higher interest rates. Usually not the case when it comes down to having student loans and cc debt and car debt.

In this hypothetical situation I would invest just enough to get the employer matching maxed out and then use the rest to pay down debt. But the reality is for many young folks there isn't that much extra money to go around. After expenses and minimum debt servicing there might only be $100-$200 for investing or paying down debt. Then it is very much an either/or situation.

You should always pay yourself first, no less than 10%. There will become a time when you can no longer work and being debt free will not help pay for living expenses like income from investments will.

My biggest investing mistake happened two springs ago when Bitcoin was around $800. It was either take $2000 and put that toward student loans or invest. I had a gut feeling on investing that money, but I also wanted reach my debt free goal faster. So, I payed down my student debt instead of realizing a gain of $26000 (I would've pulled out early) in 5 months. 😔

It's always wise to pay off debt, then start investing.

pay debt first, then invest. Stupid is stress tested when its under duress.

Why not invest in stock directly, and partially withdraw the profits to pay of the debt? Is that not an option?

What happens when jane stops work at 25 to have kids and family expenses go up up up up ?

The second example isn't accurate, you didn't have them buy new cars as in the first example. This is dishonest.

Is that the beat to Smooth Criminal playing in the background?

Paying off debt is so much better for your health since stress is a major factor in disease. Let's face it, you won't be able to enjoy the money that has been invested if you are sick and dying.

I have a boat loan and yes I'm making drastically higher payments than minimum now in my 3rd year after I have all the upgrade I want. But, I'm not going to wait to invest for retirement until this is paid for. I'm doing $500 per month for 2019 which is the maximum for a Roth IRA by law. Then the majority of my profit is going to the boat loan. I also am doing a side job DoorDash to pay this off faster. I need to make sure I'm not going broke in retirement because it's easier for me to take stress now of having debt than wait until I'm old when my health is failing and I'm not on medicare yet. After I max out my Roth IRA, I can pretty much stop or drastically cut down the amount I put in each month. Then I can focus on saving cash for my next car etc. I don't think I want to save so much in investments where I end up having too much money to know what to do with. There's the bucket for now, a few years in the future, and well off into the future everybody should have.

All of the negative comments in this video just back the fact how defensive people get about there ‘Debt’ and that we have a massive Debt problem in America. Whoever thinks they can ‘borrow’ there way into wealth need a wake up call ...

What is the background music in this video please? Looking for something like this for our videos.

For example 1 and 2 too be similar, they should have bought new cars again after they paid off the first set.

Great video. You gained a subscriber.

Not to over complicate the example; there are several elements to consider; Risk primarily, then taxes. Any investment carries taxes, if now, later. Debt, certain types is not tax deductable. Also interest is compounded and it is certain, investment are not guaranteed.

You should make a video of someone who didn't make the best decisions early one and are just starting out in there mid twenties. That to me holds more value than a video like this.

Hmm I would have done it slightly different, pay the 401K to get the full match, THEN use the rest to pay off debt, when that is done ramp up the 401K, never say no to FREE money and 150 bucks free per month for 4 years is still $7200 which also over the time gain interest.