Notice that 10 does not equal 30. And if I must point out i've averaged 12% annually over the last decade.
Yearly net worth
- Thread starter dmclone
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Notice that 10 does not equal 30. And if I must point out i've averaged 12% annually over the last decade.
Oh, and add in the power of compounding over the last decade and I'm WAY AHEAD of where I'd be if i put all that money towards paying down my mortgage.
And what if you don't put all of that money towards the mortgage? Isn't there a balance or do you believe all should go towards investments?
I've put it both places, and my equity paydown is looking much better right now.
I think 30 year time frame, you're dead on. But if you took a 10 year slice(espeically the last 10 when the stock market bottomed out last fall), and no way most peoples stock portfolios out performed. Lord the news is calling the last 10 years, the "lost" decade.
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No, it doesn't make you stupid. If you can afford to spend money on something it isn't stupid. Most people spend more than they can afford on more than just cars. A new car would just be high on the list of stupid purchases if you aren't well off.
I disagree. Most decisions in life have a psychological element involved. Doesn't mean a person has issues.
Most often its that people don't know where to put the money and think they need to take risk to get a return worth it. There are vehicles to put your money in that involve little to no risk and will get you between 5 and 6% tax free on your "saved" money. Doesn't need to be invested, to me that suggests that you take on risk with your dollars.
If dollars that were otherwise going to pay off the mortgage are being put at risk or consumed, I suggest the mortgage be paid off.
If dollars that were otherwise going to pay off the mortgage are being put at risk or consumed, I suggest the mortgage be paid off.
I've lost big this year in 401K ~40% but I've got another 20 years so it's all paper money now and no major impact.
I like the Dave Ramsey approach and follow most of it but you have to take Dave with a grain of salt. His plan works for the spectrum of folks (those who have nothing in savings and are carrying 10's of thousands of $$$ in debt and have bad $$$ habits or have had some $$$ setbacks. These people are generally not current on several things so the $1K is big for them) vs. folks like my wife and I who have more debt than we should but we can comfortably pay on it. We just want to reduce it so we can free our money up to work for us not pay interest. I recognize this is a more conservative approach but the other ways discussed on this thread are higher risk and too much work for me.
We follow Dave's concepts and methodologies but we don't do it 100%. We've had steps 1 and 3 in place since we've had jobs, over 10 years ($1000 in savings & 3-6months of savings built up). However, we will be reducing that savings amount to the 3 month level do pay on some current debt. For my wife and I having more than $1000 in savings is what WE feel comfortable with so you can see we don't follow his plan 100%. Along with that, our debt snowball has really grown and his concept is working with little effort for us. What we have that we feel is extra we will use to pay debt (student loans, boat, others) down. We've reduced our debt about 30% this year and will bump that up to ~60% in the next few months when we cash out the extra savings.
Another area I differ a bit with Dave is in the 401K area. We are still paying down debt at a comfortable pace but we are both still investing in the 401K. However, I've reduced mine from 15% to 6% in the last few months to help increase the debt snowball. For me it's hard to give up free money and makes me feel good that I'm still saving for retirement (401k matches 300% on 1st 2% and 100% on next 4% - tuff to give up free money). At the pace we are on now we'll have all debt except for the house paid off in about 18-20months. Then the plan is, with the increased cash flow, investing at much higher rates, setting up the ISU fund for the kid, and paying the house down at a faster rate. The house has just been refinanced at 4.875% for 30 years but following Dave's general plan we should have it paid off in ~10 - 12 years if not sooner.
As discussed in this thread, other approaches may work but the risk is too much for me. I think those approaches have been one of the problems with the financial crunch the Nation/World is in right now. To many people leveraging too much and when one minor bump comes along the house of cards comes tumbling down. The one thing that's hard to argue with Dave about is how financially secure he's made 1000's and 1000's of people. They no longer live in a house of cards and are very secure. They maybe not filthy rich but they very comfortable with their money and have almost no risk and no issues. The cool thing is many of them have achieved this in ~ 3-7 years with very little risk. For me, that's hard to argue with.
I like the Dave Ramsey approach and follow most of it but you have to take Dave with a grain of salt. His plan works for the spectrum of folks (those who have nothing in savings and are carrying 10's of thousands of $$$ in debt and have bad $$$ habits or have had some $$$ setbacks. These people are generally not current on several things so the $1K is big for them) vs. folks like my wife and I who have more debt than we should but we can comfortably pay on it. We just want to reduce it so we can free our money up to work for us not pay interest. I recognize this is a more conservative approach but the other ways discussed on this thread are higher risk and too much work for me.
We follow Dave's concepts and methodologies but we don't do it 100%. We've had steps 1 and 3 in place since we've had jobs, over 10 years ($1000 in savings & 3-6months of savings built up). However, we will be reducing that savings amount to the 3 month level do pay on some current debt. For my wife and I having more than $1000 in savings is what WE feel comfortable with so you can see we don't follow his plan 100%. Along with that, our debt snowball has really grown and his concept is working with little effort for us. What we have that we feel is extra we will use to pay debt (student loans, boat, others) down. We've reduced our debt about 30% this year and will bump that up to ~60% in the next few months when we cash out the extra savings.
Another area I differ a bit with Dave is in the 401K area. We are still paying down debt at a comfortable pace but we are both still investing in the 401K. However, I've reduced mine from 15% to 6% in the last few months to help increase the debt snowball. For me it's hard to give up free money and makes me feel good that I'm still saving for retirement (401k matches 300% on 1st 2% and 100% on next 4% - tuff to give up free money). At the pace we are on now we'll have all debt except for the house paid off in about 18-20months. Then the plan is, with the increased cash flow, investing at much higher rates, setting up the ISU fund for the kid, and paying the house down at a faster rate. The house has just been refinanced at 4.875% for 30 years but following Dave's general plan we should have it paid off in ~10 - 12 years if not sooner.
As discussed in this thread, other approaches may work but the risk is too much for me. I think those approaches have been one of the problems with the financial crunch the Nation/World is in right now. To many people leveraging too much and when one minor bump comes along the house of cards comes tumbling down. The one thing that's hard to argue with Dave about is how financially secure he's made 1000's and 1000's of people. They no longer live in a house of cards and are very secure. They maybe not filthy rich but they very comfortable with their money and have almost no risk and no issues. The cool thing is many of them have achieved this in ~ 3-7 years with very little risk. For me, that's hard to argue with.
For me, I totally agree. The analogy earlier in this thread about a noose around my neck is how I feel. Having no debt removes that feeling Not there yet so the noose is still there
). As well, paying on that debt and reducing it has had a pretty good psychological impact on how comfortable we feel in the current financial crunch the Nation is in. With less debt and more cash flow (Debt snowball) I feel really comfortable.:yes: I'm not sure everyone can say that.
For me, I totally agree. The analogy earlier in this thread about a noose around my neck is how I feel. Having no debt removes that feeling Not there yet so the noose is still there
As well, paying on that debt and reducing it has had a pretty good psychological impact on how comfortable we feel in the current financial crunch the Nation is in. With less debt and more cash flow (Debt snowball) I feel really comfortable.:yes: I'm not sure everyone can say that.
I agree with you nearly 100%. I was stating that debt reduction in a vacuum without faCTORING IN THE PSYCHOLOGY OF THE METHODS ISN'T REALISTIC. Cap lock bumped. not editing.:smile:
Perhaps not, but it essentially works in reverse. If you pay off a note using a 30-year versus a 15-year amortization schedule, you will pay more than 2x the interest because of compounding, not just 2x.
I am not advocating saving nothing, but that aside, the above example of losing your job works both ways. If you lose your job and are carrying a longer term mortgage, you will have a more highly leveraged home and the tax advantage of your higher interest payments will be mitigated as your income is reduced. If you had taken a shorter term note, you will have a asset that can be leveraged for cash and be in a more desirable position to renegotiate to protect the asset.
I did not want to calculate this, but here are the numbers:
30-year note of $100K, 5.5% rate, 25% marginal tax bracket, monthly payment $567 mortgage + $218 investment
versus
15-year note of $100K, 4.9% rate, 25% marginal tax bracket, monthly payment of $785 mortgage for first 15 years then $785 for next 15 years.
If you make the historical annual compounded rate of return of 7.3% for the total stock market for the additional investments made for the 15-year note, you will need to make a annually compounded rate of return of 6.6% for investments made with the 30-year note to break even on your investment (approximately $252K.) This takes into account the tax advantage of the 30-year note over the 15 (a bit more than $15K.) Once again, the risk-adjusted return for the investment in equities does not necessarily favor the added risk of equity investment. BTW, this risk actually can be calculated. You simply subtract the risk free rate of return (T-bill) from the expected rate of return (mortgage rate or expected investment return) and divide by the standard deviation of the rate of return of the investment.
That much is certainly true. I choose to not leverage my home to invest in other vehicles. I only leverage assets held by my business for investment.
"I am not advocating saving nothing, but that aside, the above example of losing your job works both ways. If you lose your job and are carrying a longer term mortgage, you will have a more highly leveraged home and the tax advantage of your higher interest payments will be mitigated as your income is reduced. If you had taken a shorter term note, you will have a asset that can be leveraged for cash and be in a more desirable position to renegotiate to protect the asset."
I want to know your banker because the unemployed people I know are obviously getting a raw deal from their banker. Bankers don't loan against your asset (house), they loan against your income. How do you propose a person with no job and no income, get a home equity loan even if their house is 100% paid off?
I think we agree here more than we disagree.
I want to know your banker because the unemployed people I know are obviously getting a raw deal from their banker. Bankers don't loan against your asset (house), they loan against your income. How do you propose a person with no job and no income, get a home equity loan even if their house is 100% paid off?
I think we agree here more than we disagree.
Think about what you're saying. The loan is based on Home Equity, not income. How do you think Senior Citizens get these loans? They don't work.
I am a former banker. Senior Citizens have income, it's called Social Security. Bankers will not give you a loan if you don't have income to pay it back. It's really that simple. Show me a banker that will give you a loan on no income then give me his phone number so all my unemployed friends can call him/her.
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