ACCOUNTANT EXPLAINS: The Optimal Order of Investing Your Money

"now I would Define High interest debt as anything above eight percent interest some people say six percent others say 10 the reason I chose eight percent is because historically when investing in the stock market you can expect to earn about 10 annually and when you adjust this for inflation it's around eight percent so to me anything above what you could earn in the stock market is going to be high interest debt"

"this is called different things in different countries in the UK it's the pension contribution and the US you would have heard it as the 401K and what this means is for every pound or dollar that you contribute your employer will also match that contribution put that towards your pension so say you're earning a hundred thousand and you contribute 4 000 of that towards your workplace attention your employer matches everything you put in so you're basically making 100 return on your investment straight away remember this is different from the full amount that you can contribute all you care about here is contributing whatever you need to get the full match because otherwise you're just leaving free money on the table"

"this is when you want to have enough money available so that if anything happens you can bail yourself out and not rely on credit card debt to get you out of your situation so you want to work out what is the absolute minimum you need to survive on so your fixed expenses your variable expenses your total expenses for the month and then multi apply that number by three to six months if you're employed or nine to twelve months if you're self-employed this number is your emergency fund"

"personally in my situation I would not pay off my mortgage right away instead I would choose to use that money to invest because mortgage rates are typically some of the cheapest debt you can get and they have long-term commitments that have already been priced in to be paid over the full term so instead if you wait to pay off your mortgage before you decide to start investing you're really limiting your time in the investment Market that can take away from some of the benefits of compounding and long-term growth"