Tax Rebate

[LL2]

4) Paying your mortgage is typically a poor investment. Your money invested even half assedly should earn more than the interest rate on your mortgage, unless you have absolutely terrible credit.

This is actually good advise. Going all the way and paying off your mortgage is not necessarily a bad thing, but do not forgo retirement planning. If you start putting 10% of your salary away towards retirement when you graduate college in good investments you will have a lot more money in 30 years than your house will be worth. Especially if 10% is from a 6 figure salary. Even if you go with braod index funds or ETF's you should average 10-12% over the next 30 years. Personally I have averaged over 20% returns the past two years and this year I'm up 2% when most people are in the red. Your own house is actually a crappy investment. Your own house is an asset, but for the most part it's a liability. A true asset puts money in your pocket. A house takes money out of your pocket. Mortage payments, property taxes, utility bills, up keep cost, etc. I laugh at the people that say they bought their house for investment potential. After you subtract the true cost of home ownership from the appreciation on your house you are better off sticking your moeny in a savings account. My advise to you Partial is to invest as much as you can, and pay your future house of with a mortgage accelerator plan (bi-weekly). You will pay your house off 7-10 years early, and have a nice nest egg for retirement. Also, get advise from several financial planners and do your own homework and do not take financial advise from family and friends. I love my family and friends, but I do not take financial advise from them.

[retailguy]

4) Paying your mortgage is typically a poor investment. Your money invested even half assedly should earn more than the interest rate on your mortgage, unless you have absolutely terrible credit.

This is actually good advise. Going all the way and paying off your mortgage is not necessarily a bad thing, but do not forgo retirement planning. If you start putting 10% of your salary away towards retirement when you graduate college in good investments you will have a lot more money in 30 years than your house will be worth. Especially if 10% is from a 6 figure salary. Even if you go with braod index funds or ETF's you should average 10-12% over the next 30 years. Personally I have averaged over 20% returns the past two years and this year I'm up 2% when most people are in the red. Your own house is actually a crappy investment. Your own house is an asset, but for the most part it's a liability. A true asset puts money in your pocket. A house takes money out of your pocket. Mortage payments, property taxes, utility bills, up keep cost, etc. I laugh at the people that say they bought their house for investment potential. After you subtract the true cost of home ownership from the appreciation on your house you are better off sticking your moeny in a savings account. My advise to you Partial is to invest as much as you can, and pay your future house of with a mortgage accelerator plan (bi-weekly). You will pay your house off 7-10 years early, and have a nice nest egg for retirement. Also, get advise from several financial planners and do your own homework and do not take financial advise from family and friends. I love my family and friends, but I do not take financial advise from them.

I'm sure any of you who know me, would know that I completely disagree with this advice. I recognize that guys like Donald Trump are making millions writing books about how to do this stuff. What the above analysis ignores is RISK. You can factor in the cost of risk. It is some high brow economics equation you can look up on the internet in about 10 minutes. For the 'average american', factoring in risk and taxes almost negates the "advantage" of investing the money you could use to pay down your mortgage, and I maintain it'll lead to MANY sleepless nights as the market bounces around like a ping pong ball. Sleepless nights lead to bad decisions which doesn't help your quest to "beat the market".

To consistently outperform the market, you really need to look higher risk investments. Sometimes they'll work out great, sometimes not so much. The higher risk investment, the lower the net return on trying to invest your mortgage money. Why risk your home? To me that's just stupid. You owe your family more security than that option provides.

If you want to outperform the market and become the next high dollar finance guy on cable tv with his own show, fine, go for it. Pay off your house, and take that $1k to $2k per month that you don't have to pay on a mortgage an invest it in whatever you please. I happen to think it's pretty stupid to get too risky, but at least you're not risking being homeless.

LL is very correct not to take advice from family or friends. GREAT IDEA. Dave Ramsey likes to expand that advice to "broke people" as well. If your advisor has car payments, mortgages, credit card debt and student loans, they probably aren't the type of people that'll get you where you want to go... you'll probably get to where they are, which is what they know how to do, and I don't think that equates with success to many of you.

When you get your 1st 20 million, THEN play like Donald Trump. In the meantime, don't ignore risk lest the old adage "you play with fire, eventually you get burned" apply to you.

[SkinBasket]

I guess you might as well buy gold bullion and keep it in a treasure chest under the bed while you're at it too.

No one's saying don't pay for your home. It just doesn't make any sense to dump that much money into what LL accurately described as an asset, not an investment that you'll see a return on. You're setting yourself back 10-15 years on any kind of wealth growth plan, at an age when you have the ability to take higher risks with your money. It doesn't take playing the market to make money. There are countless investment options out there that are just as safe, if not safer, and much smarter, than putting all your money into your home.

Putting all your money into paying for your home is just as risky, if not riskier, than telling someone to invest every penny they have over 12 years in one stock. You still have all your wealth in one basket, a basket that eats money and there's a declining market for.

[packinpatland]

"A true asset puts money in your pocket. A house takes money out of your pocket. Mortage payments, property taxes, utility bills, up keep cost, etc. I laugh at the people that say they bought their house for investment potential. After you subtract the true cost of home ownership from the appreciation on your house you are better off sticking your moeny in a savings account. "

You really do need to take into acct the part of the country you're going to be living in.
AND one other thing to consider......sweat equity. When we built our home, we took out a construction loan of 65K. (1984) We literally built this place ourselves, took a few years....didn't have all the niceties at first. But right now, this house is appraised at over 600K. Had we not bought property near the shore, more inland, we'd be talking a decrease of almost 200K.

Yes, a house takes money out of your pocket.... Mortage payments, property taxes, utility bills, up keep cost.....but where and how can you live without these costs? Putting money in savings is great, but unless you never move out of your parents house..............how is it possible?

[LL2]

"A true asset puts money in your pocket. A house takes money out of your pocket. Mortage payments, property taxes, utility bills, up keep cost, etc. I laugh at the people that say they bought their house for investment potential. After you subtract the true cost of home ownership from the appreciation on your house you are better off sticking your moeny in a savings account. "

You really do need to take into acct the part of the country you're going to be living in.
AND one other thing to consider......sweat equity. When we built our home, we took out a construction loan of 65K. (1984) We literally built this place ourselves, took a few years....didn't have all the niceties at first. But right now, this house is appraised at over 600K. Had we not bought property near the shore, more inland, we'd be talking a decrease of almost 200K.

Yes, a house takes money out of your pocket.... Mortage payments, property taxes, utility bills, up keep cost.....but where and how can you live without these costs? Putting money in savings is great, but unless you never move out of your parents house..............how is it possible?

Your right, where you live makes a huge difference. I'm not advocating not to buy a house and stick money in a savings acct. I'm saying that to plow all your extra income into your house and not putting any money into the stock market (ETF's, mutual funds, etc.) is much like sticking your money into a saving account. Now, you saw a nice rise in value in your house, but MOST people, and especially those in the midwest will not see their house rise to 600k in value. Your house is a good investment, but my point is that you should not ignore investing for retirement and put every extra penny into paying off your house.

[packinpatland]

I agree 100%.
Sometimes it's hard to know what to do and more importantly when to do it.

[retailguy]

Who said anything about ignoring investment for retirement? Every american should be saving at least 15% for retirement, WHILE paying off the mortgage.

Paying off your home early makes it a better investment (still not the best, but the security of a paid off home is valuable too). Paying off a 30 year mortgage creates interest costs that exceed the cost of the home, especially if you don't put 20% down. Most Americans pay more in interest than they do for a home. If you pay it off early, you pay less interest, funds which you can use to invest, instead of giving them to Bank of America.

Buying Gold is as stupid as keeping a mortgage. A common sense mutual fund with a good track record makes sense for most people. Real Estate (without mortgages) make sense for others. There are a plethora of options. Pick the one you KNOW SOMETHING about.

It does make sense to pay off a mortgage for many reasons. Some to do with money and some not to do with money. Skin, if you want to keep a mortgage and invest the difference, go ahead. But don't advise others to do that. How do you know how they'll react the next time the market tumbles 800pts? Last time the market tumbled, my house didn't decrease in value, I didn't find myself overextended like I would've if I'd bought options, and no one threatened to repo me or jack my adjustable rate mortgage. I was able to hold my investments and not panic. Did that have anything to do with my home? No, not directly, but I didn't worry as much about my decisions either. They were solid, I rode them out, didn't sell and over time, recouped what the market lost in one day. I had very little risk, and minimal exposure.

Common sense prevails here. Knock yourself out with investments, but clarify your vast investing knowledge when you do it. Too many people will do something stupid like mortgage their home with a 1st, 2nd and HELOC and then sit home day trading. Maybe you won't, but others might.

Finally, paying off a home puts the money "in one basket" for a very short period of time. First off, if you've invested for retirement all along the way, you have a second long term growth basket. Once your house is paid for, you have about 20-23 years of money left over each month that you're NOT making a mortgage payment on. That money can be very diversely invested in whatever you choose to do. At $1k to $2k (or even more) a month other baskets appear very quickly. Your income is your most valuable wealth building asset. It'll do much more for you if you're not giving it to Bank of America on a mortgage note.

You can argue with me all you want, it won't change that. These aren't my principles. I didn't invent them. I just know from personal experience they work. You can add risk, and you might get there quicker, but you might hit the wall too. Why risk it?

Exceptions are like assholes, everyone has one and thinks theirs is important. In reality if you ignore that crap and just put one foot in front of the other, eliminate all of your debts, and invest wisely you won't lose.

[RashanGary]

That sounds like some pretty good advice RG. My wife and I are getting pretty close to buying a home. We're not super wealthy like you or wealthy like skin's wife. We're pretty average (mostly because I was stupid for the first few years out of high school, but that's another story)

We have the retirement accounts going on. If I get the job I think I'm going to get (govt related and my foots already in the door), my retirement will be secure. I still plan on investing, but my first goal was to pay of a house as soon as possible.

I looked at the interest of a 30 year loan vs a 10 or 15 year loan, and the amount paid in interest is horrible. I'm in the process of talking my wife into maybe buying a little less home than we can afford in exchange for paying it off rapidly. Once it's paid off, if our retirement plan is as good as I hope it to be, I don't mind selling that house and buying a larger one. Life is about living so at some point, I want to enjoy my earnings, but right now I really want to try to get ahead a little.

I'm not looking to only invest in my home because my wife has her 401 and I have a roth and will have something more soon (hopefully a reliable govt pension). Other than that, I want to get out of debt quickly. I guess it's one step at a time. Right now, keep the retirement accounts rolling, then pay down my loans. Other than that, I'll make sure to keep my spluge spending down and always have my money going toward something productive.

[packinpatland]

That old saying......pay yourself first. Always put away the absolute most possible.

[SkinBasket]

You can argue with me all you want, it won't change that. These aren't my principles. I didn't invent them. I just know from personal experience they work. You can add risk, and you might get there quicker, but you might hit the wall too. Why risk it?

OK. Let's assume Partial's dreams come to fruition and he averages a salary of 70k over the next 8 years. He finds a way to take home 60% after taxes and insurance costs. He's bringing home 42k a year, although of course the early years are leaner years.

He invests/saves your recommended minimum 15%. He's got 36k left.

Partial eats. He needs clothes for his fancy job. Partial needs to pay loans at great student loan rates. Partial needs a car. Partial likes to sit in a chair. Partial even likes to see movies. Conservatively He spends about 18k a year on all these things, living lean and mean. Now he's got 18k left per year. Heck, call it 20k because he's dieting and doesn't watch cable anymore.

He's got his house paid for when he's 30, just like he wanted. He's making his 100k just like he wanted. He's ready for his 5 kids, just as planned.

In his $130,000 house.

[SkinBasket]

In his $130,000 house.

To make it clear, I don't have a problem with 130k houses. I just don't think it's what Partial has in mind.

[packinpatland]

You can argue with me all you want, it won't change that. These aren't my principles. I didn't invent them. I just know from personal experience they work. You can add risk, and you might get there quicker, but you might hit the wall too. Why risk it?

OK. Let's assume Partial's dreams come to fruition and he averages a salary of 70k over the next 8 years. He finds a way to take home 60% after taxes and insurance costs. He's bringing home 42k a year, although of course the early years are leaner years.

He invests/saves your recommended minimum 15%. He's got 36k left.

Partial eats. He needs clothes for his fancy job. Partial needs to pay loans at great student loan rates. Partial needs a car. Partial likes to sit in a chair. Partial even likes to see movies. Conservatively He spends about 18k a year on all these things, living lean and mean. Now he's got 18k left per year. Heck, call it 20k because he's dieting and doesn't watch cable anymore.

He's got his house paid for when he's 30, just like he wanted. He's making his 100k just like he wanted. He's ready for his 5 kids, just as planned.

In his $130,000 house.

You're not adding the cost of the annual PR game.

[SkinBasket]

You're not adding the cost of the annual PR game.

You're right. Sorry Partial, you're down to $129,000.

[b bulldog]

tHE BEST THING TO DO IMO IS TO LIVE CONSERVATIVELY NOW in terms of finances ect so when you retire, you can do what you want, when you want. I'd rather pay off a home than be stuck paying a huge monthly amount in interest and maybe $100 a month off of the principle. oNE OF THE BEST THINGS YOU CAN DO IMO IS NOT BUYING A HOUSE THAT YOU CAN'T DO A 15 YEAR TERM ON.

[Partial]

Skin you're smoking crack. 20k for living expenses? Ha. I spent about 5k last year total before school.

I already have a new car. I won't have any student loans. And my GF has a brand new car and will have about 20g in the bank when she finishes grad school.

It's possible to do. 5 kids don't come all at once fool. I am thinking over 12 years. And probably only 4 kids. Startng at 30.