Investing will allow you to reach financial independence. You must Invest your savings or you’ll miss out. Invest your savings or the big, bad inflation monster will gobble them up!!! Invest, invest, invest. That seems to be all we ever read in certain parts of the personal finance blogosphere.
And it is true, investing is one of the chief ways of growing your wealth long term. But I will let you in on a secret: Mr. Frugasaurus and myself do not have most of our savings invested in the market. In fact, our savings to investing ratio plummeted this past month, as our sudden house purchase was not entirely planned, and I had to take out some money during the recent dip in the market to cover the rest of the closing costs.
But the simple truth of it is, we don’t have the majority of our savings in the market because we don’t have a terrible lot of savings to begin with. When we came from London, I had $5000 to my name in a mortgage savings account, and Mr. Frugasaurus had even less.
I have talked about the Norwegian mortgage savings accounts before. Tax beneficial, at a decent 3.2% interest, with an upper limit of 300k NOK or about $37k. On top of that, you can have a non-tax advantageous mortgage savings account for another $37k. Multiply that by two because Mr. Frugasaurus can have two accounts as well, and you’ll reach the healthy sum of 1,200k NOK or $148k.
Since we consider a paid off house a large source of wealth and security, filling those accounts take priority. In just the last year and a half, my accounts have grown from those measly $5000 to a rather more healthy $22k. And a new boon of the year is that banks may take security in your mortgage savings account, without you emptying it.
That means we can continue saving in it (up to 34 years old) at the healthy 3.2% savings rate plus tax benefits, while our mortgage is currently set at a rate of 2.2% interest. You don’t have to be a math whiz to see why we didn’t cash out the accounts to get a smaller loan in the current market, scary though it may be.
When all our accounts are full however, and our mortgage is ticking down at a healthy rate, there is no doubt we will put much more of our surplus income towards investing.
We just aren’t there yet.
There is so many great blogs out there these days, it can be easy to get overwhelmed by all the advice back and forth. My point with this post is not “Save in a mortgage savings account!” (especially since I don’t know if they are available anywhere except Norway).
My point is that people are different, and needs vary. My income is currently locked at a medium for area at about $50k per year before taxes for the next few years. It is the most I have earned any time in the past, to be sure. But it is not the amazing six figure income some people make. Mr. Frugasaurus is making less than half of that because his freelance business is just starting out.
So while we are not struggling to make ends meet, we can’t put 90% of our income towards savings or investments either. We just don’t have that kind of disposable income to throw around.
If you want a $10k emergency fund before you invest a penny, do that if it gives you peace of mind. Prefer paying off your mortgage to safeguard against a downfall or job loss? Rock on! I know how it feels to want to optimize every penny. In 2.5 years I might find myself without a job again. The clock is ticking in every sense of the word.
But if you make decisions you’re not comfortable with, even if it looks good on paper, you might find yourself feeling miserable all the same.
At the end of last year, I sat down and wrote down my seven financial goals for 2018, in order of priority. Those were:
I have got through goals 1-4 already, and was sooo close to crossing out 5 when the unplanned house purchase caught us a tad unawares, and I had to empty it again for closing costs.
As you can see, I put investing way down there after my “peace of mind” goals. My student loan is even further down, as it only accrues interest at 2.0%. Way below anything the mortgage savings account or potentially the market could give me in returns.
I still like seeing the student loan principal decrease, don’t get me wrong. But that is exactly where this list of goals comes in real handy. I can look at the list and know that getting the student loan under 200k NOK is a priority, but only after I’ve seen to these other money goals. Lists makes it easy to see exactly how and where your priorities lie, making it easier to follow through on them. Same with investing. I can increase how much I put towards index funds, only after I set the rest of my financial house in order. Right now, I invest as much as I pay towards my student loans. That seems like a healthy balance.
I love reading personal finance blogs online. They were a large part of the reason we are now financially able to get a mortgage on a great house (for us) in the first place! Without the PF blogosphere I never would have saved quite so aggressively, or worked quite so hard at trying to find a sidehustle which fits my personality. I probably would have gone to work and called it a day, happy with my effort and happy to spend money on fabrics and crating supplies, maybe even *gasp* lunch at work because I’d earned it.
So I am not at all hating on bloggers who tell you investing is the holy grail. It probably is. For them. At this stage in their life.
But some of us are not quite so far ahead yet. Some of us are still trying to find our feet financially and try to create a safe platform from which we can make decisions based on strength, not desperation.
And that is perfectly ok.