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stockjock
Posts:113
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| 08/24/2008 3:35 PM |
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Currently, I live in a modest condo in Penasquitos. Last week, I'm glad to say that I've paid the thing off. So presently, I have absolutely zero debt (no credit cards, car payment, student loans, etc).
I'm contemplating moving downtown within the next 12 months or so, thus I'll likely have to take on some debt once again as I have difficulty selling my current place in this lousy RE market.
But for now, the debt-free thing is kind of a nice feeling. |
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kelly564
Posts:59
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| 08/24/2008 4:05 PM |
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| that is awesome. Did you do the monthly payment way over 30 years or less, or did you have extra money to put toward, it or how did you do that is what I'm trying to say? Congratulations for having some self control, discipline, and smarts to do that. |
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stockjock
Posts:113
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| 08/24/2008 4:38 PM |
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Posted By kelly564 on 08/24/2008 4:05 PM
that is awesome. Did you do the monthly payment way over 30 years or less, or did you have extra money to put toward, it or how did you do that is what I'm trying to say? Congratulations for having some self control, discipline, and smarts to do that.
Thanks Kelly. As I mentioned in the "what's your profession?" thread, I'm a financial advisor for a well known firm and I try to follow the same advice for myself that I give to my clients. Part of that advice would be to live below one's means, save until it almost hurts, avoid credit card debt entirely and pay down other debt wherever reasonably possible.
I'm happy to say that I've never paid a penny in credit card debt and I'm in my 40s. In terms of my condo, the "live below one's means" doctrine comes into play. Instead of buying a large and more impressive place, I bought something much more cozy and decorated it to my tastes. That means that I had a smaller mortgage to begin with than most.
For a long time, I paid the minimum on a 30 year mortgage, but later, I began putting a much larger amount towards principal. I'd do $750/mo towards principal payoff, but periodically I'd also throw larger amounts that way ($10k one time).
As the mortgage shrunk, I moved my first mortgage to a home equity line, which was not a 2nd, but rather was used in place of the traditional 30 year. Because the balance was so small, no one was interested in a traditional loan and the fees were too high. The HELOC acting as a first position mortgage cost me a total of $50 and I think my recent interest rate was only 4.5% as it was below the Prime rate.
Prior to working on paying down the principal loan value, I got rid of the car payment, which was a matter of discipline and buying a car that I can probably be happy with for awhile. I keep my car in very nice shape and have no desire to buy a new one, as I don't want to take on more debt if I can avoid it.
Meanwhile, I save like a son of a gun. I do considerable contributions to my 401k, which also helps me out tax-wise, as well as doing other well-diversified investments on a systematic basis. I've sold most of my company stock because even though it's a fine company, there's a lot of risk in holding a substantial portion of one's assets in just one company. If you don't believe me, ask the folks at Enron, or MCI or Delta Airlines or Bear Stearns or Countrywide.
Anyway, that's a long answer, but that's how I've done it. As mentioned, I'll probably buy a place downtown and I've been setting money aside specifically for this for several years. As a result, I expect to be able to come up with a down payment of at least $150,000. While I understand as much as any that I *might* do better with a smaller down payment and investing the difference, I'm already investing quite a bit each month and as mentioned, I really don't like debt.
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Waiting
Posts:38
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| 08/24/2008 5:33 PM |
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| Congrats, stockjock. Financial freedom is a freedom unlike any other. Oh, the choices you have! |
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harpca
Posts:82
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| 08/24/2008 5:44 PM |
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Congrats, Stockjock!
It was only last year that I realized I should really pay down the principal of my mortgage as well and I have been doing $500 a month towards the principal and used year end bonus to pay down even more. You're a great inspiration! |
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stockjock
Posts:113
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| 08/24/2008 6:12 PM |
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Posted By harpca on 08/24/2008 5:44 PM
Congrats, Stockjock!
It was only last year that I realized I should really pay down the principal of my mortgage as well and I have been doing $500 a month towards the principal and used year end bonus to pay down even more. You're a great inspiration!
It's my pleasure and congrats to you too. None of this will come easy, but it will likely come if you have discipline, live within your means, and avoid consumer debt.
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Horst
Posts:33
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| 08/24/2008 6:15 PM |
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| Congratulations. You've done what most only dream of. |
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twocents
Posts:78
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| 08/24/2008 6:28 PM |
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| I would have to add to anyone considering paying down their mortgage in excess of their monthly payments that it is imperative that you have a 6 or preferably a 12 month safety cushion before going down that path. Keep in mind that the mortgage company, especially with current credit conditions, do not care how much you paid extra in the past month. They only care about what you are going to pay this month. Stockjock, how much do you advise your clients to have in cash to take care of emergency needs? I think it's worth bringing up... |
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stockjock
Posts:113
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| 08/24/2008 6:55 PM |
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Posted By twocents on 08/24/2008 6:28 PM
I would have to add to anyone considering paying down their mortgage in excess of their monthly payments that it is imperative that you have a 6 or preferably a 12 month safety cushion before going down that path. Keep in mind that the mortgage company, especially with current credit conditions, do not care how much you paid extra in the past month. They only care about what you are going to pay this month. Stockjock, how much do you advise your clients to have in cash to take care of emergency needs? I think it's worth bringing up...
That's a very good point. Everyone is different, of course, so it's hard to provide a specific number. But you do want to make sure that there is a bit of a cushion available "just in case". 12 months sounds a bit high to me, but again differents individuals will have different circumstances and comfort levels.
When I see people having financial problems, *usually* it's not that they don't make enough money, but rather, that they spend too much and as a result of that spending, they have ever increasing debt. It's a viscious circle that's hard to break free from.
Unfortunately, here in the U.S., many have a sense of entitlement. They can't really afford the Mercedes, the big house, or closets filled with fine clothes and high-end shoes, but they do it anyway because it feels good and because they have an "I deserve it" attitude. While all of these items are nice in the short-term, the reality is that this sort of sense of entitlement is what financially destroys many indivuduals or best case, typically prevents them from achieving many of the long-term financial goals that they desire. |
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stockjock
Posts:113
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| 08/24/2008 6:56 PM |
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| P.S. Pardon the above spelling errors. |
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Goingup?
Posts:156
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| 08/24/2008 7:27 PM |
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I think it's great you paid off your morgage and it makes you happy. Me, I've never been more in debt in my life and never been happier or richer. Whenever a bank offers to give me money at 5% I have a reallly hard time not taking and investing it somewhere.
My sister is like you. She has a 15M dollar house and owes about 1M on it and is busting her butt to pay it off within the next few years. She's around 60 and overweight, and will probably last another 10 years at which point her crack-head daughter will inheirit the house, sell it,andr go on the biggest coke binge in history.
I asked her why not just keep some debt and enjoy life now, but she hates debt and is singularly focused on paying off her house.
So to each his own (or her own). I'm happy in debt and wouldn't have it any other way. She's miserable owing anyone money.
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Jack**
Posts:77
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| 08/24/2008 8:08 PM |
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| Congratulations. Until today, I was convinced that Mortgage Burning Parties were a thing of the past. Since moving to San Diego - I probably won't be attending mine. lol. |
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Brian
Posts:2276
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| 08/25/2008 1:07 AM |
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Congratulations, Stockjock. I second your advice of living below your means and never using consumer credit to buy things that depreciate.
I also live what I preach.
I bought my niece a new car on condition that she promises that
1) she would never ever carry a credit card balance.
2) she would always buy her next car with her own cash savings. Either that or she would continue to drive the old car.
We'll see if she lives up to her promise.
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stockjock
Posts:113
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| 08/25/2008 7:39 AM |
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Posted By Goingup? on 08/24/2008 7:27 PM
I think it's great you paid off your morgage and it makes you happy. Me, I've never been more in debt in my life and never been happier or richer. Whenever a bank offers to give me money at 5% I have a reallly hard time not taking and investing it somewhere.
My sister is like you. She has a 15M dollar house and owes about 1M on it and is busting her butt to pay it off within the next few years. She's around 60 and overweight, and will probably last another 10 years at which point her crack-head daughter will inheirit the house, sell it,andr go on the biggest coke binge in history.
I asked her why not just keep some debt and enjoy life now, but she hates debt and is singularly focused on paying off her house.
So to each his own (or her own). I'm happy in debt and wouldn't have it any other way. She's miserable owing anyone money.
To each their own. The problem with debt for most is that it's a snowballing sort of thing. Most people with substantial debt see it grow considerably over time and often it becomes unmanageable at some point. Initially, the changes are gradual but the debt continues to rise until what I call "The Day of Reckoning" arrives. That day is the point at which borrowers come to the stark realization that they have an unmanagable problem on their hands. At this stage, they usually blame everyone except for themselves or look for someone to bail them out, but those type of happy endings are more often reserved for fairy tales.
Undoubtedly, there are some who know how to manage debt properly. But I think that a lot of individuals, who think they're fine, won't be down the road. That's why so many are losing their homes right now. They thought things would work out well given the easy credit, low interest rates offered by the banks and ever-increasing property values. Now, we've seen the results of their miscalculations in a pretty dramatic and unfortunate way.
Hopefully, your strategy will work well and you will be one of those uncommon exceptions. But from a financial perspective, I think that most people with a lot of debt will end up burying themselves, sooner or later.
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stockjock
Posts:113
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| 08/25/2008 7:45 AM |
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Posted By Brian on 08/25/2008 1:07 AM
Congratulations, Stockjock. I second your advice of living below your means and never using consumer credit to buy things that depreciate.
I also live what I preach.
I bought my niece a new car on condition that she promises that
1) she would never ever carry a credit card balance.
2) she would always buy her next car with her own cash savings. Either that or she would continue to drive the old car.
We'll see if she lives up to her promise.
Thanks. That's definitely good advice, which might or might not be followed.
I think that being good with money or not is sometimes in the DNA, and I'm somewhat serious about this. We'll see whether or not the gene is inherited, in this case.
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cabbie
Posts:58
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| 08/25/2008 8:13 AM |
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Way to go...good for you!!!
Being debt free isn't easy....but it is SUCH a great feeling!! Picking up a 30 yr. term might be a bit rattling at first, but once you have a system....debts are gone before you know it!! |
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jakob
Posts:494
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| 08/25/2008 8:46 AM |
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Congrats dude! Not an easy task in SD to say the least.
I want to ask you, since you are financial adviser, doesn't it make a some sense to carry debt on your house? You mentioned, you're paying just 5% interest since you got a HELOC. Only a little more for a fixed rate. And the interest is tax deductible, making it more like 3-4% interest. That means you just need 4% return on the money to break even. That should be doable. Forget stocks and RE, simply investing the money in educating yourself, or your own business should return double digits. Of course there is always risk, but it makes sense to me to find a use of the government subsidized loan, if you have the collateral. |
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stockjock
Posts:113
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| 08/25/2008 8:57 AM |
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Posted By jakob on 08/25/2008 8:46 AM
Congrats dude! Not an easy task in SD to say the least.
I want to ask you, since you are financial adviser, doesn't it make a some sense to carry debt on your house? You mentioned, you're paying just 5% interest since you got a HELOC. Only a little more for a fixed rate. And the interest is tax deductible, making it more like 3-4% interest. That means you just need 4% return on the money to break even. That should be doable. Forget stocks and RE, simply investing the money in educating yourself, or your own business should return double digits. Of course there is always risk, but it makes sense to me to find a use of the government subsidized loan, if you have the collateral.
Yes, this definitely could makes sense, depending on the circumstances. If you get a good enough rate, lock it in and avoid all of this constant refinancing nonsense, and are disciplined then sure. Plus, you'll want to have a strategy to pay it off eventually and be sure to save in other ways.
The problem is the many do not have the proper discipline and end up getting in way over their heads, so that eventually they become slaves to the debt. Plus, in my experience, many with reasonably high debt loads find themselves unable to save money, as most of their cash flow is devoted to servicing the debt.
But for the right person under the right well-reasoned conditions, what you've proposed can certainly work. As I mentioned, I'll probably take on some debt when I move downtown. Of course, I'll try to start paying it down in a systematic manner. Not all at once mind you, but in a more accelerated pace than the standard amortization schedule.
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sleepybear
Posts:116
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| 08/25/2008 8:57 AM |
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jakob--The "return" on invested money is likely to be taxed, offsetting at least some of the tax deduction for mortgage interest. More important, in the final years of a fixed-rate, fully-amortizing mortgage, a very large part of the monthly payment is principal, not interest (=not much tax benefit).
We paid off the mortgage on our previous home a few years early, but individual circumstances vary. There may be a smaller benefit than you think to sticking with monthly payments in the final years of a mortgage, depending on one's tax situation and willingness to use accumulated $$ for other forms of investment. |
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jakob
Posts:494
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| 08/25/2008 9:18 AM |
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| Stockjock, thanks for your response. Sleepy, good point that I didn't consider. Hmm, munis are almost 5% these days, but that's really not enough "positive carry" to be worth it. My idea is that investing in your own successful small business, (which is in itself not easy) should return 20% or more. In that case you'd be insane not to take money at 5%. |
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