Yearly net worth

[Cydkar]

My net worth is up slightly this year. Net worth, cash flow and liquidity is what I monitor each year.

I hope to NEVER have my house paid off. Cheapest money (dirt cheap) you'll ever borrow in your life.

That's not cheaper than using cash because you don't have to borrow anything. Not paying off your house to use it as a borrowing tool is flawed logic.

Although if someone can explain why carrying a mortgage is better than paying it off I'm willing to listen. I won't ever have my mortgage paid off so would like to feel good about that. I carry no other debt besides my mortgage and never will barring a medical emergency.

 

[capitalcityguy]

That's not cheaper than using cash because you don't have to borrow anything. Not paying off your house to use it as a borrowing tool is flawed logic. brianhos knows what's up.

Wow....a bit of hole in that one.

If you can borrow at today's rates (e.g...about 4.75/30 yr fixed) and can use the money that would otherwise be tied up in your house and make even a modest return of say 6 or 8%? No brainer (and thatis without even considering the mortgage int deductions). Even more important. What if that cash allows you to buy or start a dream business of your own? You can't do that if your liquidity is tied up your house.

 

[herbicide]

Wow....a bit of hole in that one.

If you can borrow at today's rates (e.g...about 4.75/30 yr fixed) and can use the money that would otherwise be tied up in your house and make even a modest return of say 6 or 8%? No brainer (and thatis without even considering the mortgage int deductions). Even more important. What if that exact cash allows you to buy or start a dream business of your own? You can't do that if your liquidity is tied up your house.

You will have to make more than 6-8% for that to work. You have to calculate taxes into the mix as well.

If you are using debt for the sole purpose of investment (ie not a mortgage) and can afford to reinvest all of the gains, then investment loans can make sense, but are risky.

 

[Cydkar]

I edited my post before reading yours. i still haven't read yous...to busy typing this.:smile:

 

[Ficklone02]

Very well said.

One of the characteristics that separates that masses from those at the top is that they know how to successfully use debt to their advantage.

IMO it all depends on how lofty your financial goals are and how much you want to work soley yourself (vs having your money also work for you). You need some form of smart leverage for the second part.

Well said. I think in part, this discussion really hinges on interest rates.....if interest rates are cheap, it makes sense to leverage your house. If rates are more like the late '70's (? I think) when they were in the low teens, than I'm not sure why anyone wouldn't consider paying off there house as fast as possible, and keeping it paid off.

 

[Cydkar]

Wow....a bit of hole in that one.

If you can borrow at today's rates (e.g...about 4.75/30 yr fixed) and can use the money that would otherwise be tied up in your house and make even a modest return of say 6 or 8%? No brainer (and thatis without even considering the mortgage int deductions). Even more important. What if that cash allows you to buy or start a dream business of your own? You can't do that if your liquidity is tied up your house.

But, if my house is paid off I can use the money that was going to go to a mortgage payment and invest that at 6%-8%. I understand that during the path of paying down the mortgage that extra money could have been invested at 6%-8% instead of paying down the original note.

I just don't think it's a no-brainer...especially after last year. I think some people borrow to much on their mortgage and they can't even make that payment without incredible sacrifices on other things. I see your angle. I've got kids and an ex-wife. I have a low risk tolerance and little room for error on cash flow.

 

[capitalcityguy]

It is very clear that emotions play a big part in this. (which doesn't necessarily lead to the best financial decisions on either side). Bottomline: look back at the thread and see how many of the "you should pay off your mortgage" crowd use the word "feel"in the comment(s). That is very telling IMO.

Pls note! That doesn't make it wrong, it just demonstrates decision making based on what helps them sleep at night (even though there could be better financial arguments that pay off MUCH better, but involve a level of risk).

 

[capitalcityguy]

But, if my house is paid off I can use the money that was going to go to a mortgage payment and invest that at 6%-8%. I understand that during the path of paying down the mortgage that extra money could have been invested at 6%-8% instead of paying down the original note.

I just don't think it's a no-brainer...especially after last year. I think some people borrow to much on their mortgage and they can't even make that payment without incredible sacrifices on other things. I see your angle. I've got kids and an ex-wife. I have a low risk tolerance and little room for error on cash flow.

The problem is, you are discounting the time value of money. This is one of the most important factors in this "equation".

 

[Cydkar]

It is very clear that emotions play a big part in this. (which doesn't necessarily lead to the best financial decisions on either side). Bottomline: look back at the thread and see how many of the "you should pay off your mortgage" crowd use the word "feel"in the comment(s). That is very telling IMO.

I understand that. What if I have a mortgage at 5% which frees up capital and I invest and get a return of -20%?

 

[Cydkar]

The problem is, you are discounting the time value of money. This is one of the most important factors in this "equation".

I do understand that. I'd like to see a spreadsheet comparing the two...could do myself if it wasn't for this stupid job I have. They expect me to work 40 hours. :smile:
I'm noit arguing(on purpose) I just want to learn as much as I can and there are so many people that will give their opinion. Many of them are experts with opposite views.

 

[capitalcityguy]

I do understand that. I'd like to see a spreadsheet comparing the two...could do myself if it wasn't for this stupid job I have. They expect me to work 40 hours. :smile:
I'm noit arguing(on purpose) I just want to learn as much as I can and there are so many people that will give their opinion. Many of them are experts with opposite views.

40 hours? I wish. Are you working for a union with the one of the Big Three? :smile:

 

[Cydkar]

I work more than 40...at least I'm at the office more than 40.:wink:

 

[capitalcityguy]

I understand that. What if I have a mortgage at 5% which frees up capital and I invest and get a return of -20%?

Dude- this is classic, risk vs. reward. Not everyone is going to take the time/effort to find positive investments and yes, (gasp!) you could lose money. There are all kinds of negative scenarios you can throw out there that if you work hard enough at it, you can probably convince yourself that the only place to put you money is under your mattress if you start only looking at the negative "what if's".
IMO this entire discussion is about educating yourself to determine the differences. This is one of the things that separates us from the apes. (OK…gross exaggeration there).

I suggest reading a book called, "Rich Dad, Poor Dad". It doesn't have all the answers, but will help you get past (or at least question) some of the thought processes that tend to "keep the man down".

 

[Ficklone02]

Dude- this is classic, risk vs. reward. Not everyone is going to take the time/effort to find positive investments and yes, (gasp!) you could lose money. There are all kinds of negative scenarios you can throw out there that if you work hard enough at it, you can probably convince yourself that the only place to put you money is under your mattress if you start only looking at the negative "what if's".
IMO this entire discussion is about educating yourself to determine the differences. This is one of the things that separates us from the apes. (OK…gross exaggeration there).

I suggest reading a book called, "Rich Dad, Poor Dad". It doesn't have all the answers, but will help you get past (or at least question) some of the thought processes that tend to "keep the man down".

I have read some of Robert Kiyosaki's stuff, and he definately has a different way of looking at things. I don't agree with his stance on the gold standard, but thats another argument.

For those that have a hard time getting past the down years in the market....famed market researcher Jeremy Siegel says that for the most dedicated investors, down turns in the market are opportunities, not risks. If you keep dollar cost-averaging through the bad times, you will come out ahead.

One other thought, and I know that I'm name-dropping here in a bad way, but Warren Buffet has famously said that "when other people get greedy I get scared, and when other people get scared I get greedy." Makes alot of sense with respect to the markets if you think about it.

 

[jamesfnb]

Some good rules to follow:

1. Never send in extra mortgage payments.
   Your mortgage will not affect your home’s value, so send your money where it can grow. That means into investments, not the walls of your house.
2. A 30-year mortgage is better than 15.
   With longer mortgages you get a lower monthly payment and a higher tax deduction. The lower cost helps boost your monthly investing, leading to greater wealth!
3. Always carry a big, long mortgage -- and never pay it off.
   Today, carrying a big, long mortgage is the smarter, safer, way to handle your finances.
4. Stop pretending your home is the best investment you ever made. It isn’t!
   Your home is not an investment at all! It’s merely a place to live. If it grows in value, consider yourself lucky, not smart.

 

[jamesfnb]

I have read some of Robert Kiyosaki's stuff, and he definately has a different way of looking at things. I don't agree with his stance on the gold standard, but thats another argument.

For those that have a hard time getting past the down years in the market....famed market researcher Jeremy Siegel says that for the most dedicated investors, down turns in the market are opportunities, not risks. If you keep dollar cost-averaging through the bad times, you will come out ahead.

One other thought, and I know that I'm name-dropping here in a bad way, but Warren Buffet has famously said that "when other people get greedy I get scared, and when other people get scared I get greedy." Makes alot of sense with respect to the markets if you think about it.

Great point with the Warren Buffet quote. If you pay attention to the inflows and outflows into stock mutual funds, you can make A LOT of money. When inflows are high and everyone is feeling good about the stock market,( end of 2007) I'm getting out. when outflows are high and everyone is running scared (now), I'm getting in. It's pretty simple but it takes discipline and absolutely NO EMOTIONS.

 

[dmclone]

All I know is that I'm relatively conservative with my 401K money for my age but I still lost 30% this year. I've never came close to losing 30% in a year on a house. I think it's get to pay off your mortgage. It's funny that you rarely hear about people having financial trouble that are not mortgaged to the max.

 

[alaskaguy]

Some good rules to follow:

1. Never send in extra mortgage payments.
   Your mortgage will not affect your home’s value, so send your money where it can grow. That means into investments, not the walls of your house.
2. A 30-year mortgage is better than 15.
   With longer mortgages you get a lower monthly payment and a higher tax deduction. The lower cost helps boost your monthly investing, leading to greater wealth!
3. Always carry a big, long mortgage -- and never pay it off.
   Today, carrying a big, long mortgage is the smarter, safer, way to handle your finances.
4. Stop pretending your home is the best investment you ever made. It isn’t!
   Your home is not an investment at all! It’s merely a place to live. If it grows in value, consider yourself lucky, not smart.

In a deflationary environment, I suggest that rules 1, 2, and 3 not be followed.

 

[wartknight]

Figure out what a 15 year payment will be, get a 30 year mortgage, and find a conservative, liquid, tax deferred (or tax free) financial vehicle to put the difference in and you will be mortgage free in probably around 11 years.

I've got a great investment for you-
It:
A-Gives up a tax advantage
B-Has no hedge against inflation
C-Has no rate of return
D-If you get disabled you can't use it

How many of you want to sign up?

 

[agpiper5]

Mine is up. I farm and land values haven't been hurt that much since the first of last year.