I’ve been working towards financial freedom for a couple of years now, and I’m still wrestling with this question. Do I focus on paying down my mortgage and reducing interest? Or do I focus on building up an investment and seeing market gains and dividends?

I’ve been doing a bit of both as I see-saw between the two. This is actually the worst approach, as you don’t reduce the interest on your mortgage significantly and neither do you build up your investment capital as quickly.

Although putting any savings aside is better than not at all, it’s time for me to commit to one or the other. Here are the things I’ve been considering to help me make the decision.

Where do I want to be in 10 year’s time?

Finance is a long-term game, so I need to think about what I want to be doing in ten years. Am I aiming for early retirement? Or working for a not-for-profit? Or taking a risk and starting my own business? Or living a more nomadic lifestyle? That might suggest investing should be my focus, as it would establish a guaranteed basic income. If I’m aiming to stay settled and continue to work, maybe start a family and use maternity leave from my employment, that suggests that paying down my mortgage would be more beneficial.

What does the maths say?

Housing costs are typically around a third of expenses, so paying off the mortgage can seriously reduce the amount you will need for financial freedom. Run the numbers on a mortgage calculator to work out how long it will take to pay off and how much you’ll save in interest. Then run the numbers on a compound interest calculator to work out how long it will take you to save up to your financial freedom number after paying off the mortgage, and without having it paid off. How does these time frames fit with your life plan? In my case, focusing on FIRE first or focusing on the mortgage first made very little difference in total timeframe.

Also check how the two approaches affect your tax. Dividends from investments are taxable, whereas paying into a mortgage is tax free.

How comfortable are you with debt and risk?

How does a huge mortgage debt make you feel? Can you put psychology aside and treat it as a simple financial tool? Would owning your own home make you feel more secure? What about the security of having investments that you could liquidate quickly? How would you feel about not being able to pull out if the stock market takes a down-turn, or the risk of needing to sell your house in a real estate crash? A house is a completely undiversified portfolio – how risky is your particular investment?

What does your gut tell you?

Even after making a list of pros and cons, sometimes what the logic tells you still doesn’t feel right. One trick is to flip a coin on the decision, and then see what your first reaction is. Relief? Or disappointment? No matter what the expert advice is, you need to make the decision that fits you and what will bring you the most benefit, both financially and psychologically.

So, after all that weighing up I’ve decided to focus on investing for financial freedom – you can see my progress in my quarterly updates. Although I don’t plan on retiring early, I’d like to be able to take some risks with my career, and have the freedom to travel more and live overseas. Personally, I think I’ll also get a bigger sense of security having my money in investments.

Have you gone through the same decision making process over mortgage vs investments? I’d love to hear your story in the comments!