You may recognize Kelley Keehn, financial expert and best-selling author of Talk Money to Me, from her many on-air appearances offering up tips for financial empowerment. Her latest book, Rich Girl, Broke Girl, teaches women how to feel confident about their money, save and spend wisely, and advocate for themselves. We’ve excerpted a chapter from the book, which tells personal stories we can all learn from, the missteps to avoid, and the solutions to get you back on track.

Katie was second in command as the administrator for one of the largest hospital groups in the country. While she excelled at her job and had made great accomplishments, she was not very confident when it came to finances. Although her position paid well, most of Katie’s money decisions were driven by her fear of debt. She grew up listening to tense conversations about money between family members or with friends who struggled with long-term debt. Since then, she’d decided to be very careful with her own finances. It was the only way she knew  how to ensure a financially secure future. Still, there were times when she couldn’t sleep at night because she was so worried about her financial future.

Now, at 49 years old, Katie was super proud that she had no credit card debt, unlike others she knew. She was also on track to be mortgage free by 55. But when she met with a financial advisor, she was scolded for not having savings and for paying down low-interest mortgage debt instead of investing. So, wait—hadn’t she been doing things the right way? She was so confused.

Where did she go wrong?

Paying off your mortgage quickly is a noble goal. That said, it’s important to crunch the numbers and weigh all possible options. With today’s historically low interest rates, it may be more prudent to pay down your mortgage and invest at the same time. After all, if you have a change in circumstances in the future, you can’t eat your countertop.

STEP #1 Get a Clear Road Map for the Future

Much of Katie’s anxiety would have been mitigated if she had a plan. A good financial plan is akin to a GPS: it lays out a clear path, based on your goals, for what you need to do and when, to make it to your destination. This can include a plan for retirement, saving for a home, getting married, or making sure your hard-earned dollars are taxed less and go to whom you desire at your death. Even if life takes you off course through job loss, divorce, or the death of a partner, a good financial planner can recalculate a new path for you. It’s crucial that you keep looking for the right financial professional who will listen to your concerns and work with you to build a realistic and achievable plan.

STEP #2 Understand Mortgages

Katie was fixated on paying off her mortgage as soon as possible, without being fully aware of all her payment options. Mortgages can seem intimidating, especially since it’s probably one of the biggest purchases most people will ever make. You have many options as to how often you’ll make your mortgage payments. You can pay them once a month, every two weeks, or even weekly. If you pay weekly, you’ll make an extra payment or two per year, so it accelerates how fast you’re paying your mortgage and thus lowers how much interest you pay. It will cost you the most interest to pay monthly, but if that’s how you receive your paycheck, it may make sense to stick with monthly payments. Most mortgages allow you to prepay 10 or 20 percent per year without penalty and to double up on your payments, but you should check your mortgage agreement or ask your lender for details.

STEP #3 Weigh the Pros and Cons of Investing Versus Fast-Tracking Mortgage Payments

As we’ve seen above, there is a great benefit to paying off your mortgage faster, as you will pay a lot less in interest over the term. If you’re comfortable investing in a moderate- or aggressive-risk portfolio, especially with the tax benefits of an RRSP or TFSA, it’s not unreasonable to expect that those investments could earn more than the interest on your  mortgage. This could add tens of thousands of dollars to your overall net worth over a decade or more. Of course, that’s not guaranteed. If your investment fees are high, it may be tougher to earn a better return than your mortgage rate over the long run. And if you’re a conservative investor, paying down debt may not be a bad “investment” alternative. If you can earn a higher return on your investments than your mortgage rate, you may come out ahead over the long run, especially if your tax rate is high now and you expect it to be low at retirement.

STEP #4 Figure Out Your Financial Fidelity

Financial infidelity is a common issue for couples. A 2018 study revealed that 53 percent of participants said they had kept money secrets, such as hiding receipts or lying about the price of an item, from their partner. However, only 27 percent admitted to having committed a financial infidelity. Often when people partner up, the money game gets complicated, as everyone has different ideas of how to best use their funds—and you might not always agree. It’s vital to discuss finance as early as possible in your relationship so everyone is clear on where they stand and these types of situations can be avoided. Consider how you want to share money.

STEP #5 Find a Money Buddy

If you’re struggling financially, finding a money buddy or support group to share your struggles with can ease your anxiety and provide much-needed encouragement as you get back on your feet. If you’re like Katie and don’t have anyone to discuss money matters with, or feel overwhelmed talking about it with people you know well, start a Facebook group, start an investment club (formal or informal), or reach out to those you admire on LinkedIn for support.

 

 

 

Rich Girl Broke Girl: Save Better, Invest Smarter & Earn Your Way to Financial Freedom (Simon & Schuster Canada) by Kelly Keehn, $23.