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-   -   The more you make, the more you spend (http://forums.pelicanparts.com/off-topic-discussions/186558-more-you-make-more-you-spend.html)

dmcummins 10-12-2004 09:24 AM

Now Im not saying that you guys should not get some of the toys and homes that you want. Im just saying if you get a raise or bonus to put some of it away.

tabs 10-12-2004 09:32 AM

Ronin.....it all amounts to the same net worth...figure

500K house minus 200K debt = 300K equity + 200K liquid assets.

What you have is 2 appreciating or deprecaiting assets and one debt at a fixed interest rate...your using the banks money to invest and reap the reward of the risk U take...

Meanwhile your living in your house and if your investing the Liquid portion conservativily your risk is low... as we all know the value of any asset can go up or down even the value of cash...try buying any German Porsche parts lately....

turbo6bar 10-12-2004 09:37 AM

Goes with what Verberg says: take chances when you're young. 6% is chickenfeed. MO is paying 6.28% dividend. Add the upside potential and liquidity into the mix. You get ZERO return on your investment if you send a check to the mortgage company. You ONLY reap a return when you sell the house or pay off the mortgage. Until then, you are getting ZERO% return + NO use of the funds. Remember, on a fixed rate mortgage, your P&I is amortized for the original loan balance and not the remainaing principal.

dm, you're in a special situation, wherein you're winding down. Few will reach your place. Paying off a mortgage is great insurance and cuts expenses.

tabs 10-12-2004 09:47 AM

Ohh..lets go one step further...if you really want to screw with things...like your amortization table on your house...

If you must start making extra payments on the house start with the first payments...your loan balance is at it's highest and your paying the most interest....thus if you just made a $100 extra principle payment every month for the first 3 years ..you really chop of time on the mortgage....you might say just putting back into the house the extra income your making from keeping your liquidity.

dmcummins 10-12-2004 11:59 AM

I don't see how my situation is special. And I don't agree that you get Zero return. I agree that you wont see the cash flow. Also the dividends are not guaranteed. I have several stocks that are paying in excess of 10% dividends, but the NAV can drop and the dividend can be reduced or eliminated.

You may or may not come out better by investing instead of paying off the mortgage. The problem is most people spend the extra instead of investing it. I think before anyone starts paying extra on the mortgage or investing in stocks they should have some set aside incase an emergency comes up.

For most people if they could just keep their credit cards paid off they would be way ahead. Why someone would want to pay extra for everything they buy is beyond me.

And I hope that at 47 I still have a few years left to wind down. Ive just made some choices. I realized that I would rather do with alittle less and have time to enjoy what I have, instead of working day and night to get things that I would'nt have time to use.

I enjoy sailing. I could go out and buy a nice new 40 footer for around 500K. Id have to work anouther 4 or 5 years to pay for it though. I can go out now and get a used 35-40 footer for around 100K. And I could be out cruising in it now. I could buy the new boat but I wouldn't be able to use it much because I would have to continue working to pay for it. I could be dead at 50. You never know.

The problem is people arnt just spending the increase in their income. They are looking at it in their increased borrowing. It's not how much it cost's but how much per month.

dmcummins 10-12-2004 12:08 PM

As to the original post. If youve been making it on 50k and suddenly your up to 100k, I say go ahead and enjoy some of the gains. Just put some of it back. Split the difference and save half. You would still get something for your efforts and long term you would be in better shape. Just don't blow it all. At least buy an early 911. Hopefully they will go up in value.

turbo6bar 10-12-2004 12:29 PM

Quote:

Originally posted by dmcummins
I don't see how my situation is special. And I don't agree that you get Zero return. I agree that you wont see the cash flow. Also the dividends are not guaranteed.

If you do not pay off the mortgage, how is return greater than zero. Sure, you reduce the total number of payments, but you're trading today's dollars for future dollars which have been devalued via inflation.

Dividends are not guaranteed, but neither is a job paying the mortgage. Nothing is guaranteed. What if the RE market crashes, and your house devalues by 35%? The equity you thought you had is now gone. I'm not knocking RE, because it's my livelihood.

Peace out.

dmcummins 10-12-2004 12:51 PM

I guess were just looking at it differently. Im not saying its the best investment, but it is an investment. I assume at some point the mortgage will be paid off. If the RE crashes I still owe the money. I made a deal.

Would you borrow additional money against your house to invest? You may or may not do better. Im not against investing in the stock market. I have more in the market than my house is worth. I just think paying alittle extra each month on the mortgage is alot easier for most people and will help them in the long run.

I hope RE and Stock's both do great. I don't think there is a right or wrong decision here. Hopefully they are both appreaciating assets.

good luck

turbo6bar 10-12-2004 02:27 PM

Quote:

Originally posted by dmcummins
I hope RE and Stock's both do great. I don't think there is a right or wrong decision here. Hopefully they are both appreaciating assets.
That's what I was driving. Each situation is different. If you're winding towards retirement, reducing expenses is good. If you're me (age 28 and growing), take more risks. I'd rather take extra cash, invest in rental properties, and earn 25-35% cash-on-cash return than pay off relatively low interest rate mortgages. In my opinion, there exists good debt. Risking good debt for potential big gains is worth it, depending on your goals. Each must evaluate their risk tolerance, goals, and financials to determine what's best.

OK, have I managed to totally destroy this thread, yet, already, eh? :p

porsche356a 10-12-2004 04:01 PM

I still subscribe the have no dept school of money management.

If I pay off my mortgage in 7 years instead of 30, I own the house and it doesn't own me.

Granted, if I was not putting an additional chunk of money into investments, I probably would invest before settling the mortgage.

The way I figure, by 36 I will own the house, have no debt, a healthy 401k and plenty of cash (knock wood).

Does anyone recommend I change my plan?

turbo6bar 10-12-2004 04:41 PM

356a, if it fits your goals, run with it. One thing you might consider is a 5 or 7 yr mortgage amortized for 30 yrs. This gives you a lower fixed interest rate for 5 or 7 years. Then, you either refi or pay off the mortgage. The lower interest rate allows you to pay off the mortgage quicker. Or, if you're really aggressive, consider an interest-first mortgage. The rate floats with the market. The advantage to this is you can get crazy low rates (2.5-3.5%), and you'd then use the savings to pay down principal really fast. The downside is when (not if) rates go skyward. The 30 yr mortgage is the safe bet. The other mortgages require discipline, but the savings can be drastic.

You really have to compare your existing mortgage's principal paydown vs. alternative mortgages to figure out if it's worth the jump. I run the numbers on rental properties a dozen times, and the answer always changes. There is no perfect solution for everyone.

Ask yourself this: can you get a better return on your money if you invested elsewhere? Are you willing to take calculated risks to make good investments? What will you do when the mortgage is paid? Reduce your income? Spend more? Buy a junkyard specializing in 924s?


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