Money—A Finite Resource

I was not the best student in high school, academically. However, I was one of those kids that was well liked who always had a good time. I went to a Catholic school and I remember all the nuns telling me that I had a “spark” in my eye. Of course, that would always be just before they handed me a detention for doing something in class I probably should not have done. I cannot tell you how many times I cleaned the chapel alter after school. I really did not “find my way” until college. My mother always told me, “better late than never.”
 
Can you look back over your academic career and remember that one teacher who had a significant influence in your life? I can. For me, that was Howard Waldron. He was the football coach, strength and conditioning coach, and my high school history teacher. He was charismatic, physically strong, humorous, fair and had a way about him that commanded respect. He was one of those teachers who “figured me out” really fast. He would always refer to me as that “infamous young Cutter, who will be a shining star someday.”
 
Mr. Waldron drove this old Ford F-150 truck that had seen better days. He called it the Blue Flame. The thing had no A/C and no power windows. I was told, “A/C’s for wimps.” I always asked him why he did not buy a new truck. “Young Cutter, it’s not the age; it’s the mileage.” You see, Mr. Waldron was always teaching; whether it was about history, sports, or—most importantly—life. He always had great lines that, while relevant to the topic at hand, also included an underlying life message. Heck, I even use his quotes today with my own kids when I am trying to teach three teenage girls those same life lessons.
 
Mr. Waldron always found a way to make class really interesting. One particular day, we were discussing one of the many wars in our world’s history and he said, “Nearly all wars are simply a battle for power, and power is one of the most finite resources on earth.”
 
Hmm. Life lesson.
 
You see, I remember that line like it was yesterday. For the first 16 years of my life, I had never thought of the world that way—that every time someone gained power, they weren’t just creating that power for themselves, they were taking it from somewhere or someone else. They were seizing control or capturing territory leadership from another leader or a free people or another government.
 
I think about that realization often now that I work in the world of finance, as I now see money in a very similar way as Mr. Waldron described power. Sure, you can make more money for yourself by either earning it or investing it but in a large sense the amount of money that you have is limited, and if you want to allocate some of it to a specific purpose or purchase, you are likely taking it away from something else, because, at least in the short term, your financial resources are finite.
 
This concept, or idea, is especially relevant when people ask me about the best way to use their money; the best use for those limited financial resources. One of the more common questions I get from folks is whether it makes sense to pay off a mortgage early or to use that “extra” money for something else.
 
Frankly, there really is no right or wrong answer to that question and any such decision needs to be based on an individual’s unique financial situation.
 
So, let’s talk through some of the factors possibly affecting such a decision, starting with a very common impetus for wanting to allocate limited resources to paying off a mortgage: emotions. I get it; there’s a sense of freedom or accomplishment that comes with paying off a mortgage. But this feeling or emotion should not be the reason to pay off a mortgage early. Never let your emotions get the best of you, and make sure that, if you do decide to pay off your mortgage early, you are doing it because it makes the most financial sense, not just because it makes you feel good.
 
Determining what makes the most financial sense often depends on the terms of a mortgage. What’s the interest rate? Is that rate fixed or adjustable? How many years are remaining? What is the income tax deduction for the mortgage interest paid? Mortgages are often considered financially beneficial because they free up money to be used in other areas or invested so that it will grow at a rate higher than the interest rate on the mortgage.
 
The other thing to consider is the comfort or security of the current financial situation. Like I said, money, in the short term, is a limited resource. So if you use that resource to pay off your mortgage, you need to be very confident that you will have enough of that limited resource remaining if you lose your job, need to buy a new car or pay for college, et cetera. Paying more money toward your mortgage is not necessary but paying to get your car fixed so you can drive to work is.
 
You should also think about how prepared you are for retirement and make sure you are comfortable with the amount you have saved. As many financial professionals will remind you, it is possible to get loans for a house or for an education but no one will loan you money for retirement.
 
Like Mr. Waldron taught me about war and the seizing of power: oftentimes, the amount of money you have is limited, finite, and, in a large sense, out of your control—but determining the best way to use those limited resources is wholly in your control.
 
You know, a couple of years back, around Christmastime, I was sitting at the Coonamessett Inn waiting for my friend Bill to arrive for our lunch. A boisterous voice rang out from the dining room, “If it isn’t the infamous young Cutter, my shining star.” A smile came to my face; I knew the voice but could not see him. From around the corner he appeared. Mr. Waldron looked a bit older now. I had heard that he had some health issues and he was not as physically strong as I remember him to be. I stood up from my chair with respect, happy to see him. After we chatted for a bit about life’s events he said, “You know, young Cutter, now that I am older I have learned a valuable lesson. It is not the age in life that matters but it is definitely the mileage.” He smiled, turned and walked away. I stood there and thought, “That’s him, always teaching.”
 
Be vigilant and stay alert, because you deserve more.