$120,000 in my savings, parents what me to pay off their house.
I’m 25 years old and live with my parents and make $52,000 a year after taxes. I spend about 9k a year on food gas clothes etc. My parents have about 110ish left to pay of on their and are expected to pay off in 11 years. I believe the interest rate is somewhere between 3-4%. Would I save them a significant amount of money paying off their house and having them pay me back in 5 years or would it be better for me to invest my money and open a high yield savings account.
Let’s get straight to the point: Your plan to pay off your parents’ mortgage and have them pay you back in 5 years is fraught with financial and emotional landmines.
If the logic here is that they can pay you back in such a short timeframe, it begs the question: Why aren’t they just as aggressive in paying down the mortgage themselves? This isn’t just about numbers; it’s about the complexities of intertwining financial dependency with family dynamics.
Mixing money and family is a notorious recipe for disaster. The intentions might be pure, but the execution is riddled with potential for misunderstandings, resentment, and financial loss.
And here’s the kicker: never loan money to family expecting to get it back. It’s a harsh truth but one that’s been proven time and again. If you proceed, you’re not just risking your money; you’re risking your relationship with your parents.
The idea that you could later claim your money back without any formal legal agreement is naïve. Imagine a scenario where you need the money back for an emergency or personal goal.
What happens if your parents can’t or won’t pay you back? Without your name on the title or a legally binding agreement, you have no recourse. And more than likely, you’ll be advised to “kick rocks.”
You’re 25. It’s time to prioritize your financial independence and future. The fact that you don’t see an issue with essentially handcuffing your financial growth for a gesture that’s not financially sound shows a lack of understanding of how to manage and grow your wealth.
At your age and with your income, your focus should be on building your savings, investing wisely, and perhaps even planning for your own home purchase. Consider this: instead of pouring $120,000 into your parents’ mortgage, investing that amount in an index fund or a diversified retirement account could be a game-changer for your financial future.
Historically, the stock market has returned about 7-8% per year on average, after adjusting for inflation. By investing in a broad index fund, you’re essentially buying a piece of the entire market, reducing your risk while still capitalizing on the market’s overall growth.
Over 30 or 40 years, the power of compounding on that $120,000 could turn it into a staggering sum, potentially millions, securing your financial future and retirement.
You’re at a pivotal point in your life where the decisions you make will significantly impact your financial future. It’s essential to invest in yourself, ensuring you have a solid emergency fund, and perhaps more importantly, to start thinking about your own housing needs.
Your urge to help your parents is commendable, but there are other ways to support them without jeopardizing your financial well-being and autonomy.
Theodore Lee is the editor of Caveman Circus. He strives for self-improvement in all areas of his life, except his candy consumption, where he remains a champion gummy worm enthusiast. When not writing about mindfulness or living in integrity, you can find him hiding giant bags of sour patch kids under the bed.