How about another Mortgage based thread

[stemikger]

Originall quoted by SKI!Mom
I wonder if growing up poor is a common thread among those of us who choose to pay down the mortgage. DH and I both grew up poor- he more than I. Because of our past, we know the stress of having more bills than you can pay. It is very comforting for us to have a very low overhead. We can take nice vacations, let our DD be involved in several expensive activities, and save a lot while times are good but if we had a job loss or other crisis we could meet our living expenses on a reduced income.

ITA. I grew up in a home where my mom and dad were always fighting about money. My dad died at the age of 52 and because of poor money management, my mom lost everything. She lost the house we grew up in and we were pretty much homeless for that year.

We didn't have to live in cars or on the streets, but it was not a good feeling. I was in my early 20s at the time, so I roomed with a friend, and my mom stayed with my aunt.

So I can definitely tell you that is why I am the way I am today.

And the really sad part was that my mom had a good paying job, she just didn't have any skills in how to make her money flow. That is why I really believe it is not how much you make, it's how you manage it. I don't look at income as much as net worth.

After all if you make a million a year and spend a million a year, you are no richer then the guy you makes $30,000 and spends his entire pay.

 

[disneysteve]

I wonder if growing up poor is a common thread among those of us who choose to pay down the mortgage.

I'm an exception here. I didn't grow up poor. Not rich by any means, but we had what we needed. Now, I'm in a position where we have what we need and are comfortable with our lifestyle. By all projections, we are saving plenty for our future needs (particularly college and retirement) and there is some additional money available that I choose to use to pay down the mortgage debt. I think it goes along with what dvcgirl said about not having all our eggs in one basket. I don't want 100% of our money in the stock market. Paying down the mortgage "earns" us a fixed return, so I just consider that part of the fixed income portion of our portfolio, no different than if I was putting that money into bonds. Could I earn more elsewhere? Probably, but I think our portfolio is diversified well and paying down the mortgage is just a little piece of it.

 

[bellarella]

But like Dave Ramsey tells people like me who are struggling with this issue is: would you borrow money from your home to invest it in a mutual fund. Most everyone says no. So basically it is the same thing, pay off the home and be done with it. Now, with the extra money you aren't sending to your home you can send to investments.

See this is what I don't like about Dave Ramsey. His advice, like most "pop" financial advice is distilled down and simplified to make great soundbites for radio and book jackets. In the process, a lot gets lost. While I think he does a good job helping people get out of serious debt (in this area, even though much of his advice isn't the "best" when you run the numbers, it is good enough to get people moving in the right dirrection), once he starts giving advice to people with positive cash flow, I think it breaks down pretty fast.

Here's another analogy for you -- if you were hanging onto a cliff by your fingers, would you buy a length of rope to shore up your position, or save your money and count on your fingers to hold you? For people just starting to come out of debt, paying down your low interest mortgage is like passing on buying a length of rope. Having just a couple of months worth of expenses in liquid savings probably won't keep you from falling back into debt if you have a even a semi-major event happen. Once you send a check to a mortgage company, it is very difficult to get back any of that money. For most mortgage holders it would require borrowing at a higher rate than they are currently paying, or selling their home.

Like others have said, it's not good to have all your eggs in one basket, and I think that includes your home. That's why I think it is still a good idea that if you want to pay down your mortgage early and you are just starting to get into positive cash flow/net worth, for the first year or two you set up a high yield savings account, where you can be earning 4.5% (which, after you take the tax considerations into account, will probably be pretty close to the effective interest rate on your mortgage). Let the money grow there and be added to each month, but still be liquid in case things really hit the fan. Then, once your other savings vehicles are robust enough to act as a back up to your emergency fund, then you can pay down your mortgage with a big check and be just about the same place you would have been if you had been sending the checks to your mortgage company all along, but without the risk of tying up your money.

 

[stemikger]

Originally quoted by bellarella
See this is what I don't like about Dave Ramsey. His advice, like most "pop" financial advice is distilled down and simplified to make great soundbites for radio and book jackets. In the process, a lot gets lost. While I think he does a good job helping people get out of serious debt (in this area, even though much of his advice isn't the "best" when you run the numbers, it is good enough to get people moving in the right dirrection), once he starts giving advice to people with positive cash flow, I think it breaks down pretty fast.

I see your point bellarella and because I am not new to this personal finance stuff, I have been at it for over 12 years and I not only read people like Dave Ramsey and Bach, I am a student of Benjamin Grahm, the essays of Buffett, A random Walk down wall street, The bogglehead guide to investing. This is just to show that my point of reference is not only Dave Ramsey and the idea that you seem to have about the people who don't know much about investing blindly follwo his advice.

When I read Total Money Makeover by Dave Ramsey, I was not in debt and I was investing regularly in my 401K but did not have a very good emergency fund because I did a lot of work on my house that year.

Having said that although I don't agree with everything Ramsey teaches, when it comes to personal finance, he is right about behavior. It is not always about the numbers adding up. Sure I could beef up the emrgency fund to a years worth of expenses, but when I do get enough to pay off the mortgage, I will still have to cash out the investments and there will still be tax consequences. So I have come to the conclusion that I will just send extra toward my principal and I won't have to worry about cashing any investments to do it.

I personally don't invest like Ramsey, he teaches to put everything into managed equity funds with good long-term track records. I am more like a bogglehead where I invest in a good balanced index fund with low fees. My IRA is with Vanguard and my 401K (becase of my choices) I only have to index funds and to managed funds. However, my strategy is very simple and diversified.

Having said all that, personal finance is not only about being a math nerd and getting the numbers right, it's about behavior which I really feel is the biggest obstacle for most people. In the end if I invest this extra money for the next five years or pay down the mortgage, I will still feel pretty good with a paid for house.