When it comes to paying bills, a mortgage, for most of us, is the single largest bill we pay. Have you ever considered paying more than you owe each month?
If you take a typical 30 year, $200,000 mortgage at 6% interest and pay the required amount over the 30 years period you will own your home outright. We all understand that concept, but how much would you have paid for the house? Believe it or not, you would have paid $431,676.38. If you want to verify this, just run a loan amortization schedule template that comes with Microsoft Excel.
You have paid more than double the cost of the house back to the bank to own your house. No wonder banks make lots of money and people end up living from paycheck to paycheck.
The option to buy a house for cash, just isn't practical in today's market, even with the cost of houses dropping. The alternative is to pay a certain extra amount each month, in which case you can dramatically reduce your cost. In most states, banks are not permitted to charge a prepayment penalty, therefore you are allowed to do this and the mortage holder is required to lower the principal amount by the amout of your excess payment at your direction. Be sure your state has such a law and that there isn't a penalty in your mortgage agreement before setting out on this plan of action.
Assuming you are safe to make extra payments, you might ask how much an additional $100 a month will really save you. Using the same financial calculator the answer is: $49,138.41. Isn't that amazing? All you did was pay $100 a month extra and you saved almost $50,000 over 30 years. To be precise, you saved that money over the course of 24.6 years, because by that time the house is paid off early. Yes, you turned a 30 year mortgage into a 25 year mortgage. So while your neighbor is still making their payments for another 5 years, you can take that $1,200 per month and put it toward something else.
Another benefit of paying down your mortgage in this market is the interest rate benefit. What do I mean by that? Well, the average person will perhaps take that extra $100 they have per month and put it in their savings account. What interest rate are you getting there? At best you might be earning 0.5% (if so, tell me what account you have, because it's a high interest account) on your money. If you put $100 into your savings account, then after a year you have $100.50 including interest.
If instead, you took that $100 and paid it against your mortgage, you would have saved $6 for that year. Saying it a different way, by putting your $100 into your mortgage "savings account" at 6%, you saved $5.50 more than you would have with the same money sitting in your personal bank account ($106-100.50).
Keep in mind that once you "save" that $100 into your mortgage account, you can't take it out, like you can with a regular savings account, but maybe that's a good thing, right? With that in mind, you should consider having an "emergency fund" available to you should you face any unforseen financial difficulties were the mortgage payment would not be available.
Give serious consideration to paying a certain amount extra toward your mortgage every month. Make it a habit and watch the months and years come off your mortgage much faster.
Maybe you can afford more than $100 per month and maybe you just can't. Perhaps your monthly mortgage payment is $1,187 per month, why not round your payment up to $1200. Even that small amount will save you over $7,000 and 11 months off your mortgage.
Be creative, if you get a bonus, put some of that toward your mortgage. Get a tax refund, how about the same?
This is an excellent way to build equity, especially in tough times.
Monday, October 25, 2010
Tuesday, October 19, 2010
Life Purpose
Back in the 80's there was a popular bumper sticker that said: "The one who dies with the most toys wins". Today, many people live by that motto. People are living in 5 bedroom houses (families of 4) they can't afford, going on exotic vacations, driving luxury cars and earning just enough to pay for it all.
Living paycheck to paycheck has become the American way. The notion of having the bigger, better, and more abundant is what people are making their top priority, but what is happening as a result? Are people happier because of all their "toys"?
It seems , when you ask anyone , "How have you been?", the answer is "Busy" or "Working". Is that what we are really called to live for?
Don't misunderstand, hard work is what the American Dream is founded upon and it's a core value that suits all of us well. Is it the most important value though? What about integrity, sacrifice, love of God, family and country?
I believe that we are so swept up in the race to "win" the most toys that we put other things on the back burner - the most important things.
Lately in my reflections, I have been coming back to the word Legacy. Some may remember the Animal House movie where Flounder was a legacy in the fraternity. That means that someone came before him and paved the way.
We shouldn't be the people that rely on what someone else did to get us where we want to go, but rather be that example. Be the person who came first, paved the way and taught the next person the skills and tools they need to be successful. Have the sense of purpose to leave a legacy for the next generation.
I am not here to tell you what your life purpose is, that you have to find for yourself. That is deep within and only through the proper reflection, (perhaps prayer if you are so inclined) and listening, you can find your legacy.
Some examples might be teaching your child the skills they need to be a productive member of society. Teach them to think critically and stand on their own two feet, how to be self sufficient.
You might volunteer at a local organization or travel internationally to share your faith, your values, a smile and a sense of caring with others that need it. By doing that, others may be motivated to share as well. Sharing makes the human condition that much better as each person shares with another and sharing becomes contagious.
Recently I listened to a pastor on TV (I wish I could remember his name) who spoke about this very topic. A legacy is spending time with your loved ones, showing them what it is like to be a responsible parent, brother, sister etc. He also said it is not showing off the great things you have, worrying about what your neighbor thinks or going out and doing the wrong thing with the wrong people. All of that provides an example to your loved ones as well; a bad example.
Legacy is sharing what you know and it is also financial. This pastor spoke about the idea of saving for future generations. Yes, we can put our $5 in the collection basket, or donate $10 to the latest cause, but is that sufficient? He indicated that $100 a month might work, or perhaps $50. Put this in an account before you have a family; save. Teach your children that they too should grow this account for the next generation, and the next and the next. You can leave a financial legacy as well as skills for saving. Use only some of the interest on the account as you watch it grow and grow.
Perhaps you want to set up a scholarhip to honor your beloved, or set one up as part of your estate to benefit the education of future generations who migh otherwise miss out on opportunity.
What are you doing so that someone remembers you? What are you doing so that you are making a difference in another life?
We all know who George Washington, Abraham Lincoln, Ghandi, and Martin Luther King are. They were amazing people that made a dramatic impact. Maybe you can have that impact, or maybe you be like R.E. Miller (do an internet search) who provided a scholarship that I received when attending college. There are countless people who make a smaller impact, but one that is just as significant to a smaller group or to one person.
Ask yourself "What is my legacy?" If you don't have one, get one. It's something we all should have. To paraphrase/change a popular quote: Legacy; Don't leave earth without one.
Living paycheck to paycheck has become the American way. The notion of having the bigger, better, and more abundant is what people are making their top priority, but what is happening as a result? Are people happier because of all their "toys"?
It seems , when you ask anyone , "How have you been?", the answer is "Busy" or "Working". Is that what we are really called to live for?
Don't misunderstand, hard work is what the American Dream is founded upon and it's a core value that suits all of us well. Is it the most important value though? What about integrity, sacrifice, love of God, family and country?
I believe that we are so swept up in the race to "win" the most toys that we put other things on the back burner - the most important things.
Lately in my reflections, I have been coming back to the word Legacy. Some may remember the Animal House movie where Flounder was a legacy in the fraternity. That means that someone came before him and paved the way.
We shouldn't be the people that rely on what someone else did to get us where we want to go, but rather be that example. Be the person who came first, paved the way and taught the next person the skills and tools they need to be successful. Have the sense of purpose to leave a legacy for the next generation.
I am not here to tell you what your life purpose is, that you have to find for yourself. That is deep within and only through the proper reflection, (perhaps prayer if you are so inclined) and listening, you can find your legacy.
Some examples might be teaching your child the skills they need to be a productive member of society. Teach them to think critically and stand on their own two feet, how to be self sufficient.
You might volunteer at a local organization or travel internationally to share your faith, your values, a smile and a sense of caring with others that need it. By doing that, others may be motivated to share as well. Sharing makes the human condition that much better as each person shares with another and sharing becomes contagious.
Recently I listened to a pastor on TV (I wish I could remember his name) who spoke about this very topic. A legacy is spending time with your loved ones, showing them what it is like to be a responsible parent, brother, sister etc. He also said it is not showing off the great things you have, worrying about what your neighbor thinks or going out and doing the wrong thing with the wrong people. All of that provides an example to your loved ones as well; a bad example.
Legacy is sharing what you know and it is also financial. This pastor spoke about the idea of saving for future generations. Yes, we can put our $5 in the collection basket, or donate $10 to the latest cause, but is that sufficient? He indicated that $100 a month might work, or perhaps $50. Put this in an account before you have a family; save. Teach your children that they too should grow this account for the next generation, and the next and the next. You can leave a financial legacy as well as skills for saving. Use only some of the interest on the account as you watch it grow and grow.
Perhaps you want to set up a scholarhip to honor your beloved, or set one up as part of your estate to benefit the education of future generations who migh otherwise miss out on opportunity.
What are you doing so that someone remembers you? What are you doing so that you are making a difference in another life?
We all know who George Washington, Abraham Lincoln, Ghandi, and Martin Luther King are. They were amazing people that made a dramatic impact. Maybe you can have that impact, or maybe you be like R.E. Miller (do an internet search) who provided a scholarship that I received when attending college. There are countless people who make a smaller impact, but one that is just as significant to a smaller group or to one person.
Ask yourself "What is my legacy?" If you don't have one, get one. It's something we all should have. To paraphrase/change a popular quote: Legacy; Don't leave earth without one.
Friday, October 15, 2010
Why a "FLAT" or "FAIR" Tax will not work
This is just one man's opinion, however having a masters in taxation and a strong financial and tax background, I feel I can make a case that the "Fair Tax" isn't fair at all.
The proponents say the current income tax system isn't fair, because it benefits the rich. It seems clear that statistics might show otherwise, especially when you consider that only around 50% of Americans pay any Federal income tax. Don't take my word for it, just do a quick internet search based on my last sentence.
As the theory goes, instead of an income tax, (which people say isn't fair) we would simply pay a "flat" tax of something in the range of 15-25% on everything we buy. The rate hasn't been determined, because it's just idealistic thought/discussion currently. I have heard that the Obama Administration is considering a VAT type tax, which is like a national sales tax. That's a different topic and I could write my opinion on VAT, which is generally similar, but would be an additional tax rather than a replacement for the income tax system we have. Europe already has VAT taxes.
My theory on what would happen with a "Fair Tax" is the following:
Let's assume the government decided tomorrow to impliment the "Fair Tax" to be effective January 1st, 2012 (or 2011, your choice). If I am a rich individual (for the purposes of this discussion assume I make several million a year), or at least one with a smart tax advisor, I would find out what that meant to me.
Personally, I would consider any large purchased I needed within the next few years such as TV's, Furniture, computers, cars, etc. Instead of buying after that tax goes into effect, I would buy them now. Sure, some things I can't afford right now, but rich people can.
Now, next year the "Fair Tax" goes into effect and I don't buy anything big. I just buy the essentials of life and that's it. Others buy a car and pay the "Fair Tax", but I don't buy anything. What would I pay in taxes? Nothing! Right or wrong?
The person who couldn't afford to buy things ahead of time now pays the 15% tax on the car, the furniture and all the other things they need, so their tax rate is 15% on everything they buy and I pay nothing as a millionare. Genius on my part! Sad for the other guy.
Now, this doesn't only mean that the poor and middle class people are paying all the taxes, it also means people aren't spending, because maybe they just can't afford the extra 15% that this tax costs on the items they wanted to buy. Now no one is spending and our economy suffers dearly. So what will the government do to make up for the revenue they aren't getting? They would have to bring the income tax back again, maybe with modified rules. Income Tax would have to come back or there wouldn't be enough tax revenue to run the country.
What has history told us about taxes and out government? When they create a new tax, it doesn't go away, so likely they would keep the "Fair Tax" and lower the rate and now we would pay income tax and the "Fair Tax"
That's my take on the concept of a Fair Tax. It would end up causing dire consequences to the economy as well as our country's ability to fund essential services.
When you think about it, with a Fair Tax, you are the one who decides how much tax you pay, if any. Ultimately that would result in tax cuts for the rich, with the poor and middle class having no choice but to purchase as they go and pay all the taxes.
The proponents say the current income tax system isn't fair, because it benefits the rich. It seems clear that statistics might show otherwise, especially when you consider that only around 50% of Americans pay any Federal income tax. Don't take my word for it, just do a quick internet search based on my last sentence.
As the theory goes, instead of an income tax, (which people say isn't fair) we would simply pay a "flat" tax of something in the range of 15-25% on everything we buy. The rate hasn't been determined, because it's just idealistic thought/discussion currently. I have heard that the Obama Administration is considering a VAT type tax, which is like a national sales tax. That's a different topic and I could write my opinion on VAT, which is generally similar, but would be an additional tax rather than a replacement for the income tax system we have. Europe already has VAT taxes.
My theory on what would happen with a "Fair Tax" is the following:
Let's assume the government decided tomorrow to impliment the "Fair Tax" to be effective January 1st, 2012 (or 2011, your choice). If I am a rich individual (for the purposes of this discussion assume I make several million a year), or at least one with a smart tax advisor, I would find out what that meant to me.
Personally, I would consider any large purchased I needed within the next few years such as TV's, Furniture, computers, cars, etc. Instead of buying after that tax goes into effect, I would buy them now. Sure, some things I can't afford right now, but rich people can.
Now, next year the "Fair Tax" goes into effect and I don't buy anything big. I just buy the essentials of life and that's it. Others buy a car and pay the "Fair Tax", but I don't buy anything. What would I pay in taxes? Nothing! Right or wrong?
The person who couldn't afford to buy things ahead of time now pays the 15% tax on the car, the furniture and all the other things they need, so their tax rate is 15% on everything they buy and I pay nothing as a millionare. Genius on my part! Sad for the other guy.
Now, this doesn't only mean that the poor and middle class people are paying all the taxes, it also means people aren't spending, because maybe they just can't afford the extra 15% that this tax costs on the items they wanted to buy. Now no one is spending and our economy suffers dearly. So what will the government do to make up for the revenue they aren't getting? They would have to bring the income tax back again, maybe with modified rules. Income Tax would have to come back or there wouldn't be enough tax revenue to run the country.
What has history told us about taxes and out government? When they create a new tax, it doesn't go away, so likely they would keep the "Fair Tax" and lower the rate and now we would pay income tax and the "Fair Tax"
That's my take on the concept of a Fair Tax. It would end up causing dire consequences to the economy as well as our country's ability to fund essential services.
When you think about it, with a Fair Tax, you are the one who decides how much tax you pay, if any. Ultimately that would result in tax cuts for the rich, with the poor and middle class having no choice but to purchase as they go and pay all the taxes.
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