Myths On Money

You really can become debt free. Whether you are struggling to make it to the next paycheck, wanting more to retire, desperate to stop the collector’s phone calls, or just want to find a peaceful night’s sleep, you can find the financial help you need right here to become debt free. Once you become debt free, your wealth becomes free to grow rapidly, and you can rest well at night knowing your family is secure.

That’s why I designed this website: to provide you with everything you will need to know and have in order to become debt free and find financial freedom. If you want to rid your life of the stress of a tight family budget, get real debt help, and find true financial freedom, then you are in the right place. You can find plenty of free help and free blog posts for you to use to help you find relief. And, if you can’t find the answer you are looking for, feel free to ask a question.

“Normal is getting dressed in clothes that you buy for work and driving through traffic in a car that you are still paying for – in order to get to the job you need to pay for the clothes and the car, and the house you leave vacant all day so you can afford to live in it.”
- Ellen Goodman

Prepare to be EXCEPTIONAL.

Everyone seems to think that I am opposed to buying a home. Almost every fan of the blog that I talk to seems astonished when I tell them that I am very much in favor of people buying homes.

So, let me clarify again my position on renting versus buying.

In my opinion, far too many people (particularly first time home buyers) jump into buying a house because they can’t bear to “waste any more money on rent.” These people have a very valid point. Home ownership provides equity appreciation on the home, which in the large majority of cases will far outstrip any return you could earn in a savings account. This makes buying a home a generally good investment, and certainly can provide much greater long-run results than renting.

I am concerned, however, that first time homebuyers rush to buy before they are financially prepared. Home ownership is much more expensive than renting. You have to pay for hazard insurance, property taxes, repairs, upgrades, and (for first time homebuyers) mortgage insurance. These extra expenses can stretch a family’s budget far beyond what they anticipated when they bought the home. Many of the families who are losing their homes to foreclosure are young couples just starting out. In their desperation to avoid wasting money on rent, they overextended themselves and eventually lost their home.

After losing the home, how much better off are they? They get no equity, pay tons in interest and taxes, and any work they did on the house is pure loss. It’s financially devastating to be foreclosed on. Many families could avoid that if only they would take their time, research the un-told costs of home ownership, and go into the deal with their eyes open. Any financial decision you rush into headlong is susceptible to catastrophe. With a decision this large, potential homebuyers cannot afford to be hasty, because the consequences can be dire.

I think that it is perfectly fine for a family to rent an apartment or small home while they build their financial strength. Once their situation can support the mortgage EASILY, they ought to buy their own place and start up the equity ladder. You must only enter a mortgage if you can have a little extra room in your budget. Don’t stretch to the absolute maximum of your budget to buy the home, because you will find yourself overextended. You have to prepare for unexpected expenses and costs.

Lastly, I am hugely opposed to mortgages. Investment leverage is the only good thing I can think of about a mortgage. Everything else about them is terrible to your finances. A HOME is a great asset: a MORTGAGE is a great burden. Your mortgage is at least DOUBLING the cost of your home over 30 years. Just imagine all that your mortgage is costing you, and how strong your finances could be without that mortgage payment.

Of course, renting does not provide the option of eliminating your housing payment at some point. When you buy a place, you can pay off the mortgage and someday be rid of your housing expense completely. When you rent forever, you pay forever. That’s why I don’t support the idea of long-term renting. If you can pay off your mortgage in less than 30 years (and I can teach you how to get rid of your mortgage AT LEAST 7 years sooner without any extra cost to yourself), then you will have some time to really sock away some money into savings.

I hope that clarifies my thoughts on renting versus buying. If you want more clarification, fell free to drop me a line.

I hate late fees, don’t you? Problem is, in the complexity of our daily world, things can slip past us sometimes. It happens.

That’s why I love this great tip from Isemel on the I Will Teach You To Be Rich forum.

I always pay my credit card off in full, but once in a while I forget to make the payment by the deadline. When that happens, there’s a ridiculous late fee of $29.99 or more.

This way, even if you forget to pay the rest of the bill, you will have already paid the minimum and will not get hit with a late fee.

In my opinion, it is very effective to automate your finances as much as you can, because our finances are so complicated these days. When automating your bills, though, there are two problems to be aware of.

1. Insufficient Funds. Automatic bill pay can be problematic if you keep low balances in your checking account. A good way to try to prevent this is to schedule your bill payments to go out the day after your paycheck gets deposited.
2. Incorrect Billing. The other problem you might face is the possibility that you might be mis-billed, or that you simply won’t know how much you are spending. The solution to this problem is to track your expenses regularly. My favorite way to do this? Mint.com

By automating your bill pay, you remove the unknown element: you. Systems are great because thye are reliable. People (no matter how vigilent), are prone to forgetfulness and error. So, automate at least a minimal payment so you don’t get hit with fees, then pay the rest yourself so you don’t get hit with interest expense.

I realize that I have written a lot about the rent vs buy question. And I also realize that my writings have come off as very pro-rent. But the fact of the matter is that I am very much in favor of people buying homes. It is a great thing. I recommend 95% of everybody buy a home. The reason I have taken a pro-rent stance in these posts is because nobody ever tells the truth about the costs of home ownership. And since this site is dedicated to exposing the financial lies you have been told your whole life, I figure I ought to expose the truth of how expensive buying a home can be. My purpose in so doing was not to convince you to rent, but to make you fully aware of the situation you face when you consider buying, so that you can make a wise, well-informed decision.

I have not yet purchased my first home. A lot of people give me a hard time about not buying a place, especially in this market. Believe me, no one would like to take advantage of this market more than I would. A buying opportunity like this market affords is a once-in-a-lifetime opportunity, and I would LOVE to take advantage. But I have my reasons to not buy. Want to know what they are? Well, here are just three of the reasons why I have chosen not to buy a home yet.

3. Location Location Location. Our apartment has a fantastic location. It is within walking distance of the train station that I take to work everyday. It is only a few hundred feet from the entrance to the two major freeways in the city. And, the best benefit of the location, is that we do not have to have to have two cars—I can walk to the train and take it downtown to work.

2. Price. In order to get a home that would offer similar benefits as our apartment’s location offers, we would have to either live in the ghetto (NOT an option, I assure you!), or we would have to pay way more than we can afford for the home. We could afford to buy a home in a less preferable location, although doing so would make it necessary for us to purchase another car that I could drive to work, since the train would no longer be a viable option.

1. Saving. If we were to buy a home now we would have no income left to save. Sure, we could make the payment, pay the taxes, etc for the home, but we would be living at the very edge of our means. And that is not only scary, it is outright dangerous. If we have no extra income to save, then in order to get the car we would need (because of reason two) we would need to get a loan because we would not have been setting money aside. With a new car payment, we would be over our heads, because the home already took everything we had. Our finances would become extremely tight. We would have to very carefully control all our expenses in order to pay for the car and the home. We would live under constant stress. We would fight about money a lot. We would not be happy. Sure, we would have all the possessions that are supposed to bring happiness (car, home), but we would not be happy. And isn’t happiness what it is really all about?

There are two lessons I hope you might take away from this little foray into my own personal finances.

Lesson One: No financial decision can be made independent of any other. Notice how intertwined my three reasons are. I could easily have lumped them into one single reason, because they are all linked. The chart below illustrates the chain-reaction that buying a home would have on our finances.

Look at the impact buying a home right now would have on us. This decision is not just about payments or appreciation or interest. The effect it has on every other aspect of our financial situation is huge. So, when contemplating your own major financial decisions, it is worth your while to take look down the road and try to see what other impact the decision might have.

Lesson Two: Doing what you feel would make you happy might not actually do so. I would be thrilled to own a home. I think it would make me happy to take ownership of a property, and make it truly my own. If I had stopped my line of thinking at that, you can see that I would have been in trouble. In fact, doing what I thought would have made me happy would have had the opposite effect. Sure, I would be classified a home owner and received satisfaction from that. But, when I thought it out, I realized that it would have put immense pressure on my finances, pressure that would have inevitably made its way into my marriage, and that most assuredly would have caused both my wife and I great unhappiness.

So, will I buy a home? You bet! When the time is right. Until then, I will continue happily socking away my savings in preparation for the time when it would not put un-toward pressure on my finances. Only then will I buy a home, and I will pay it off as quickly as possible. Maybe I will not get a deal as great as I could now. Oh well. I will regret missing the deal. But it is worth it to ensure that my family is secure in the long run.

Do you own a home? If yes, then please go to the “ask a question” page and share with us why you decided to buy your first home. If no, I would love for you to share your reasoning for that decision as well. One response will be chosen to be posted right here on the blog as a guest post! Hurry, submissions will only be accepted for two weeks!