OT: Financial Meanderings.

[giverdada]

Since this is a high concentration area of some very intelligent and often wealthy individuals, I figured I may as well pick your all's brains.

It turns out that I was not born into wealth, nor have I dedicated my life to gaining the stuff. Rather, it would seem to most observers that I spend too much time, effort, and money on other things to save any of it (time, effort, or money). And so, as my two younger brothers quickly approach their first house purchases, and my sister is fully ensconced in the owning of hers, my dad has called me out and will not stop challenging me on the plan to purchase a house.

There is a lot of other stuff complicating the issue, but the main question is: is there a crystal of sage financial advice/habit that has kept you in good stead since you first started following it? And: what of it can you share with me?

Thanks in advance. I'm not looking for any get rich quick schemes or blatantly arrogant criticisms of my financial ineptitude; I'd just really appreciate a nugget of info that might help me out of a hole.

n.

[BumbleBeeDave]

. . . but I do recall reading a story one time that made some good points. Mainly that there are way more millionaires out there than you might think and that the majority got to be millionaires by not living like millionaires. In other words, they still search for the best deal, live in normal homes, don't live ostentaciously, etc.

BBD

[gemship]

Good one BB. so I would say sometimes it works out quite well for someone to simply rent rather than own a house. Depends on the cost of rent and what it includes. Owning a house has been said to produce a lot of headaches. Where I live you have to maintain a septic system up to code and there's the well. Not to mention the structure of the house inside and out. Even if you own a house outright if you buy at the wrong time you can lose money if your interested in resale. Some people I know their rent is cheap enough that they would be paying almost the same in property taxes alone for a home they have a mortgage on and maintain.

[KidWok]

Well...you should save. By the time I reach retirement age, I don't expect Social Security to be particularly robust...not with all those baby boomers ahead of me.

Beyond that, buying a house isn't what it used to be and here are some reasons why:


Quality of construction isn't nearly what it used to be. If buying a new place you could be getting a POS that won't hold resale.

It's a major commitment to your status quo. Moving up in the world and need to relocate at some point down the road? Harder to do if you're tied down to a house. Harder to do if you're in an economically downturned place and have a hard time selling a house. Yet harder if you're moving to a place with higher cost of living and need to get another place while still holding onto your old one...assuming you can even afford to.

Not in a particularly good fiscal place at the moment? Maybe you can only afford a fixer upper? I've been in two of those now...not sure that I ever want to go through the trouble again. Maybe you can only afford to buy a place in the 'burbs. Want to spend two hours of your day in a car? Maybe you can only afford a small place...that's okay if you marry an Asian person...we're usually pretty diminutive and don't mind being packed into small spaces.

Like fixing things? Like paying people to fix things?

What's your credit like? If it's mediocre, you owe it to yourself to clean it up before you buy. Otherwise, you'll be taking a snapshot of yourself as a borrower at this particular moment that you'll be paying for...for a very long time.


Don't let anyone pressure you into doing something that isn't right for you...it's not THEIR life, credit report, professional flexibility, and/or time that will be affected, it's yours.

Tai

[zap]

hmmmm Toronto.

How is the residential real estate market in TO and the surrounding area? Mighty expensive there and could fall a way's.

Much depends on your personal situation but the standards apply, have someone else pay for your education, keep more of what you earn, don't chase after the latest gadgets/cars, invest in appreciating assets, marry into wealth, etc.

Isn't family pressure grand....?

ps, my mom lost quite a bit of money on the last detached house she owned (in the 90's) in the TO area.

[54ny77]

buy campy 80th anniversary gruppos.

:D

[norcalbiker]

Buying a house is not always a plus. In fact, there are so many people that ran away from their home when the market collapse. But if you must buy a house, then look into an area where you want to live and buy the cheapest house on the block and spend some time and money to fix it or upgrade. So when it's time to move on, then almost guaranty a profit. I have done this before when I first got married.

[giverdada]

There is, as per usual, a wealth of knowledge here already. And many of the points made are the ones I've used to counter the pressures from my dad. Currently, our rent is the 'smarter' choice than a mortgage on a fixer upper in Canada's second-most-expensive city. Houses on our street are selling over the million dollar mark, and they need work! My sister owns her house, but isn't in the school district that we are, and wants to be. I throw away money on heating and electricity in this old wreck (over 100 years old), but the rent is pretty solidly low and all of the other amenities that Tai mentioned are where it's at for us right now. Good schools, bike commute to work, two people with jobs, everything else within walking distance except for crackhouses and clubs, a park at either end of the street, etc., etc. And that's huge about the credit rating too. My lady and I are both poor university grads paying it all back, her with a masters degree too! A snapshot now would not be all that promising, I imagine. Keep it coming, boys!

[giverdada]

hmmmm Toronto.

How is the residential real estate market in TO and the surrounding area? Mighty expensive there and could fall a way's.

Much depends on your personal situation but the standards apply, have someone else pay for your education, keep more of what you earn, don't chase after the latest gadgets/cars, invest in appreciating assets, marry into wealth, etc.

Isn't family pressure grand....?

You're killing me...:hello:

[saab2000]

What do you do for a living? Where do you live?


I've learned a lot of basics of personal finance since returning to the US a newly single man 10 years ago and getting my first 'real' job in the US after having lived overseas for a long time. Knowledge of personal finance is pathetic in the US in my opinion and I've really been trying to learn more. I work with guys all the time who know a lot and it's been a real pleasure picking their brains on this stuff. Knowledge is power (huge cliché I know, but true) and there's so little knowledge about the workings of banking and finance and even just personal finance like retirement planning and mortgages. Most of it is about harder stuff like derivatives or futures trading. There aren't too many secrets. You've just got to dig a bit and learn a few basic things to get started.

Here are a few basics.

1. No credit card debt. Pay it off each month. You don't need more than one either. Debt is usually bad, except for home mortgages, which are deductible. For now. There has been talk of changing this though it probably won't change for individual owners who own just one home. But high interest, non-deductible loans like credit card loans, need to not go.

2. Max out a 401(k). Or at least do what an employer will match. I don't know if your work has a retirement plan or not but if so, participate to the maximum of your ability to do so. Also, read about your investment options within such a plan. My company has a Roth 401(k) option and all but 1% of my contributions go into this. It is post-tax money and reduces my take-home now but is not taxable upon distribution after retirement. Get a Roth IRA too if you can.

You can get an account a Schwab for probably $500 or less to get started. Learn from there. Connect the account to your bank account. When you have extra cash, transfer a few bucks to a fund and watch it grow. Like a Chia Pet.

You can contribute up to $17,500 per year under the age of 50 to a 401(k) plan and this year I think it's $5500 to a Roth IRA. If your company offers this, enroll ASAP.

3. I bought my first house 6 years ago and am closing on selling it on August 6. Home ownership has taught me an enormous amount about compound interest. We all know it, but seeing it in practice means you really learn it. I've been paying extra towards principal every month but really I should have been investing that money. Still, I'm not sorry I did it. Mortgage interest is deductible. But with mortgages are low rates right now (though rising) it is probably worth taking that money and investing it in a fund that will likely see a growth rate larger than your interest rate on your mortgage, which is deductible anyway.

4. Cars are financial black holes. Lots of prestige, little value. An economy car that's paid off is a real asset. An expensive car with high payments is a huge liability.


EDIT: I see you're in Canada. Things there might be quite different than in the US. But the basics of low debt still apply. And investing in growth funds that have a low tax burden is almost always a good idea.

[KidWok]

Oh hey...look at that...you're in Canada. Maybe you're not as screwed as we are. I was at the Canada - Mexico Gold Cup game last night here in Seattle. We sat next to the small sections of Canucks in a stadium full of Mexicans. Funny bunch...they were chanting "We've got healthcare" and singing "Summer of '69" in the most horrific way.

Hope it works out for the best.

Tai

[fa63]

I put at least 20% of my paycheck into savings/investments, 10% into a retirement account, and live with the rest. If that means I have left over money to buy a house/car/bike, then that is fine. If not, I am OK with that also. It has worked pretty well for me so far.

Oh, and never buy a new car (or bike) :)

[SpokeValley]

There is, as per usual, a wealth of knowledge here already. And many of the points made are the ones I've used to counter the pressures from my dad. Currently, our rent is the 'smarter' choice than a mortgage on a fixer upper in Canada's second-most-expensive city. Houses on our street are selling over the million dollar mark, and they need work! My sister owns her house, but isn't in the school district that we are, and wants to be. I throw away money on heating and electricity in this old wreck (over 100 years old), but the rent is pretty solidly low and all of the other amenities that Tai mentioned are where it's at for us right now. Good schools, bike commute to work, two people with jobs, everything else within walking distance except for crackhouses and clubs, a park at either end of the street, etc., etc. And that's huge about the credit rating too. My lady and I are both poor university grads paying it all back, her with a masters degree too! A snapshot now would not be all that promising, I imagine. Keep it coming, boys!

So much good advice here but it sounds to me like you already have it figured out. (Except I couldn't figure out if you were looking for close-by crackhouses...;)

Stay the course! Looks like you're on great track. Stay lean, pay down the debt, and forget about sinking your retirement funds into a money pit. You'll have freedom and more options when life throws you curves.

[SlackMan]

My two cents is that if you spend a lot of time in your house, you might as well buy a nice one that you enjoy. Moreover, with a fixed rate mortgage, you lock in your housing cost over time as opposed to the possibility that rents keep rising (note here that insurance, maintenance, etc. aren't locked in, but the equivalent of the rent on the house you own is locked in). That said, I think far too many people buy way more house than they can comfortably afford. You can see from the graph below that people have spent much larger fractions of their income on housing and transportation (i.e., fancy houses and fancy cars). And this is how so many people wind up so far in debt.

My simple rule in life regarding financial matters (purchases, saving, investing, and charitable giving) is to avoid stress by making sure that I spend less than I make. I also think giving to charity helps one be more thankful about what he has. I know people who make >$500K/year and constantly stress out because they spend too much. I also know people who make $60K/year, live within their means, and are among the happiest people I know.

http://visualeconomics.creditloan.com/wp-content/uploads/sites/4/2009/12/spending-breakdown.jpg

[Ken Robb]

"you only need one credit card" is usually wrong. Credit scores are affected by what percentage of your available credit you are using so it is usually helpful to have at least two cards so you can keep the balance on each below 30% of available credit.

It also helps to have a long-term loan that you keep current. A few years ago I paid off my 5.75% mortgage because I didn't have any guaranteed investments paying that much and my credit score apparently took a hit because one of my long-held credit cards cut my limit by 75%. Their reason: you don't have any long-term real estate debt. No, I own several pieces of property free and clear and two of them produce income. That doesn't fit the template FICO uses.

I grew up in a rented house and I was so jealous of my pals whose parents owned their own homes. They could have dogs, play on the lawn, run in the house, put up pictures in their rooms, etc. I was not allowed to do any of those things because it upset the landlord. At least we stayed in the same rental for 17 years. Lots of perpetual renters have to move every few years because the owners of their homes raise the rent beyond what they can afford, move in themselves, sell the property, etc. I want to control my environment as much as I can. As for the expense of keeping up property nobody really believes that over 30 years of renting the tenants will not have paid for the maintenance of the property plus a profit for the owner(s) do they?

If I knew I was going to be moving in a very few years I would probably rent. Once I got transferred to San Diego I KNEW where I was going to spend the rest of my life and bought my first home in less than a year. I was 28 years old and single but I knew there was no way I was going to be a long-term renter like my folks. I got a practical education comparing the financial well-being of my dad and his one brother who rented forever with my uncles who bought property. Over the very short run the financial aspect may be close but in the long run renting is usually a mistake.

[biker72]

Berkshire Hathaway stock
Vanguard index mutual funds.

[Llewellyn]

Random "rules" in no particular order of importance

* Spend less than you earn

* Don't borrow money for lifestyle assets

* Unmanageable debt is one of the biggest reasons why companies and people go bankrupt.

* Not everything you buy has to be new

I think as a society we can learn an awful lot from the war/post-war generation where they saved up for things, made do with what they had and didn't spend money that they didn't have

[nm87710]

Don't carry any debt

[1centaur]

Two questions - real estate, and saving money.

Real estate: Don't look back, look forward. The US just went through an amazing housing crunch and job growth is very low but real estate is turning around hard. That's a lesson in human nature, which does not change in our lifetime. If you had enough cash and you were in the US, buying a house where people really want to buy houses and inflation might make you wealthy (many generations became wealthy by levering their home down payment) is very much worth considering.

But, a house is an investment (with benefits), and must be viewed that way. Find out how housing affordability in Toronto has trended over many years (price/average income or whatever metric there is; maybe at a local university's business school or on line) and don't buy if the graph looks well above trend. 5x leverage works in both directions, as millions of 2006/7 buyers could tell you.

Fixer-upper - bad if you're not very handy and have extra capital. Not you. The investment return is way worse the more dollars you put into the fixing.

But it sounds like all this is moot, as you have not been a big saver. There, the advice is generic. Don't splurge, don't eat out, never buy a new car (buy 3-4 years used in highly reliable brands that bored their owners). Invest intelligently, consciously, and consistently (don't buy stock tips; read a lot; use common sense). If you end up with enough for a down payment that does not destroy your emergency funds, that's when you investigate whether a house is a good investment when and where you are, not in general or in other places. Believe in your own ability to be a good investor and don't believe you are surrounded by people with investment secrets - you are not. If you are not thoroughly familiar with compound interest and its implications, get out an Excel spreadsheet and build a 30-year model of growing wealth and adjust the compounding rate, throw in a year or two of 20% losses, then go look at what Treasuries and junk bonds offer in yield. Risk and return go together, on average, over time. Imprint that on your brain. The world of investors constantly adjusts prices to factor in potential return and potential risk. Markets do a very good job of that. Read common sense investment books (while you're not going out to dinner or the movies or buying Starbucks). Love the life you lead and make your money do the work while you sleep. Own your financial acumen.

Do all that and you'll be ahead of 90% of the people out there.

Good luck.

[wc1934]

And if you do decide to purchase a house, the 3 most important factors are:
location, location, location.

In other words don't buy an expensive house in a crappy neighborhood - instead buy the cheapest house in the most expensive neighborhood.

[SoCalSteve]

My home purchase has been the best financial decision I have ever made (and boy, I have made some BAD ones)...

Its gone up almost 50% in the 11 years I have owned it, has been MOSTLY trouble free and has been a source of joy and pride for me for all 11 years...

Not sure what everyone else is talking about. Buy a decent house on a good street that has something going for it (that makes it desirable). Even if the actual house has no worth, the land will as people will want to buy there and build on the land.

For me, it has truly been a win-win situation. And, afforded me to pull out a bit of equity and buy a nice Porsche...which I sold to buy an Audi A7, go figure...:confused:

Good luck whatever you decide, but I dont think you will ever go wrong buying real estate.

[giverdada]

Sounds like real estate is a massive gamble and gambling is dangerous. I haven't saved because I did that stupid thing where "smart" kids went to university and others went to college to learn a trade (significant differences in the terminology connotations in Canada). All of us did it on borrowed money that I've been paying back ever since. Invested in education. Oops. It may never end up being as lucrative as a plumbing career started at the age of 21... So I'm not buying new cars or much Starbucks or a house. If only I could keep my income and leave behind the expenses! Keep it coming though. I'm all ears.

N.

[Climb01742]

Keep your monthly nut low.

And pre-nup.;)

[fa63]

What did yo study, if you don't mind me asking?

[Big-d]

I'm not a financial wiz..so I won't offer any personal advice. But i can recommend a couple good books that will give good insight in personal finance. "The millionaire next door" & "rich man,poor man " both probably avail at your local library :)

[Peter P.]

I'm of the opinion that home ownership has gone beyond the reach of middle class America and has been so for some time.

Most people stretch their finances so they can own vs. rent, thinking they're "building equity" when in fact you NEED a place to live so what are you going to do to access that equity, sell your house?! No, instead you take out a loan and pay interest on that loan. Not to mention you pay mortgage interest which will end up making the house cost 2-3 times your purchase price.

Then comes the maintenance. The house actually owns YOU instead of the other way around.

I have a friend who keeps bugging me about my renting instead of owning. I tell him my snow shoveling, lawn mowing, taxes, and maintenance are all rolled into the rent so my "actual" rent is very low compared to his mortgage.

So instead of "investing" my money in a mortgage/house, I save.

For comparison, my income is slightly below the mean income in Connecticut.

I like liquidity, so I don't max out my 401k contribution. I put in 10%. I arrived at that number through the oft repeated suggestion to save 10% of your income.

I contribute much more than that to a mutual fund. It's viewed as a bill that I have to pay monthly and after years of doing so, it's habit. It's called "dollar cost averaging" and is the best way to accumulate wealth for the middle class as "timing the market" is only for professional investors. After doing this for 30 years I have a nice chunk of change available for retirement, or as I've already done once, paid cash for a new car, despite my less than middle class income.

People in the middle class don't have access to the investment vehicles that bring the rich their high returns, so we can't risk as much. I once read that it's best to invest in a fund that follows the market, otherwise known as an "index fund". So that's what I do.

And then I live simply, always thinking I have to save for the future and the unexpected. I own neither a TV nor a cellphone which I believe are 2 of the biggest discretionary expenses people have, especially cable TV bills. Imagine how much you'd save if you could bank the equivalent of either or both of those bills on a monthly basis.

I also believe that people MUST plan their family sizes with regard to income. Instead, my observation is people typically expand their families to the limit of their income with no margin of financial comfort.

[saab2000]

Random "rules" in no particular order of importance

* Spend less than you earn

* Don't borrow money for lifestyle assets

* Unmanageable debt is one of the biggest reasons why companies and people go bankrupt.

* Not everything you buy has to be new

I think as a society we can learn an awful lot from the war/post-war generation where they saved up for things, made do with what they had and didn't spend money that they didn't have

These are super good basic rules that anyone can follow.

Love the life you lead and make your money do the work while you sleep.

It took me a while to learn this, but it's totally true. The earlier you learn it, the better. Compound interest and all that. Also related - so-called 'dollar cost averaging'.

One more thing - transaction costs. I read something about millionaires next door and this was a theme that came up and up again. Every time we engage in a transaction, buying or selling, there's a cost to both the buyer and the seller. You can minimize that cost by paying cash. You can eliminate that cost by not making the transaction. Many are unavoidable. We need to eat and sleep, for example. But many are avoidable too. We need to think about what we spend.

I like watching movies at home. About 90% of the movies in my movie library are 'used'. They are about 25% of the new price. And I don't care if they're two years old or twenty years old. Digital content doesn't age. That's an example of reducing transaction costs. Another is holding onto a car a long time. Or a cell phone. Do we really need to upgrade to that new device the first day they're available? Probably not.

Just some food for thought. The words 'liberal' and 'conservative' are demonized too often these days and used in the wrong context, but think about what you spend. We'd all be better off if everyone did that. Except those who collect interest. They're better off. But unless you're collecting interest, and unless you own banks you're probably not, be careful about what you spend.

[Jason E]

Maybe I missed it, but your age and situation (married? Children?) also are factors. If you are single and 24 or married and 36 there is a huge opportunity loss for starting late.

We are a generally not-stupid group and there are some good points here, but your best bet would be to go to a financial adviser and get some advice. Personally, I'd see two or three for a varied opinion and I'd also look to some comfortable friends, ask them who they trust.

A good adviser can be a little like a good Dr. You amy not listen to your wife if she says you eat like sh*t, but you'll take it more seriously from a pro.

Lastly, this is all garbage looking from "here is where I am". To plan, you need to know where you want to BE.

[Bob Ross]

- A house is a place to sleep, raise a family, store things and relax in not an income producing asset.

^^^This. Best financial advice I ever got -- or stumbled across -- was "Buy a house to live in, not as an investment."

[19wisconsin64]

hi giverdada, your question: " is there a crystal of sage financial advice/habit that has kept you in good stead since you first started following it? And: what of it can you share with me? " is a good one!

i have had a unique life myself, and am from extremely humble beginnings. my job in real estate for over 25 years, and in mortgages for 17 years, my business degree, and many other things have helped me to succeed.

first, was the desire to succeed, which you possess.

second, you are doing the exact thing that you should, asking successful people how they do what they do. (many, many kind people on this forum who have given great advice on this thread).

third, you need to focus on the long-term financial side of succeeding in your chosen career. ideally (though not always fiscally) you will find your career fulfilling. educated yourself in your chosen endeavor, become and expert, and get paid for it. you must find a way to do this, by discussing with others who are higher-up in your field (or higher income-making) ....how they do what they do, and how they got there.

this last bit of advice has made my life very strong financially....the ability (which you clearly already possess!) to directly ask successful people how they do what they do. go ahead, take these people to lunch, express your interest in their success, and you will find (as i did at an early age) that most successful people are also kind, and will take the time to help others succeed.

i take helping others very, very seriously....all of my clients, all of my tenants, all my family and friends. i was lucky enough, like you, to be bold enough to ask the direct question you proposed initially.

good luck, and pm me if you need more advice

cheers

[echelon_john]

Best financial advice I've ever gotten in three words:

"Pay Yourself First."

Every month you have bills, for your phone, utilities, groceries, dining out, etc. But before you pay ANY of these bills, make a contribution to savings/retirement that you keep sacrosanct. When you pay yourself first, there may be other expenses that need to get cut if supply doesn't equal demand. But by paying yourself first, you're not screwing yourself if you need to make cuts. You're giving up a meal or two at a restaurant, a new car when the old one works, etc.

To that end, I would second the advice to open a retirement/investment account , and add that automatic deposit makes paying yourself first a no-brainer. Kind of a 'don't see it, don't miss it' scenario. Getting into this habit is the first building block; the choice of investment (assuming you choose a decent mutual fund or funds) matters less IMO than the behavior for where you say you are.

[Marburg]

I'm very much a +1 on this conversation. 5 years ago when we moved south I was keen to buy and settle. Fast forward to the present and the reasons to buy are up (unsustainable rents, two kids) while means is down ... so I feel locked out. It's frustrating ... but it's nice to know that , on average the two paths are often financially closer than you think. Buying a house won't solve your problems, it's just a different set of problems.

Since noone asked, I'll admit to reading Mr Money Mustache. He's right in many respects but you (I) always need to remember that he's an extreme case. He made a lot of money during a tech boom and that's how he could retire early. Mr Money High School Science Teacher coukd teach the same lessons, but wouldn't be quite as smug about it.

[Ken Robb]

One also has to remember that while a 30 year fixed rate mortgage will require payments totaling a lot more than than the original loan amount the dollars you will be paying to the lender 15 years down the road will not be worth nearly what they were when you took out the loan. Taxes and insurance will rise with inflation but the principle and interest payment will stay the same.

[1centaur]

[QUOTE=Peter P.;1382610}People in the middle class don't have access to the investment vehicles that bring the rich their high returns, so we can't risk as much. I once read that it's best to invest in a fund that follows the market, otherwise known as an "index fund". So that's what I do.[/QUOTE]

Let me take those two separately, not necessarily for you but in general:

Investment vehicles for the rich: I am very much in the 1% at this point and manage billions of dollars for others, but I don't have access to such vehicles either. I have to buy stocks and funds just like anybody else. It would be wrong to think that rich people have special investment vehicles. Specific rich people in specific circumstances sometimes take chances in risky investments that pay off. For example, Mitt Romney was allowed to coinvest (maybe even get "free" shares) in his firm's private equity LBOs (very risky) and put those investments in tax free vehicles (smart tax lawyers). Very unusual. But one of the great insights into rich people came out of Bernie Madoff's case: he attracted all those rich people's money because he offered 8% returns consistently. 8%! In a world where 8% was not way above Treasury rates at the time. That's very revealing of what rich people think of their options. People who got rich are much more interested in keeping it than making it a lot bigger. Romney probably would not be gambling big bucks in LBOs at this point in his life.

Index funds. They are recommended because so many managers don't beat their benchmarks after management fees over long periods, so why not get the index at a low cost? True, but...some managers ARE actually pretty good and if you figure out who they are you can beat the index by much more than the fee savings could ever give you. Further, decent managers may well be very close to the index after fees anyway, so who cares? And finally, do you really want the index return (and its risk) at any given time? Indexes can and do go down a ton from time to time, and without a manager they have no means (like going to cash) to offset the pain. BTW, indexes can have implications in their construction that you might not like, such as weightings by market cap that automatically pull money to things that have run up rather than things that are "cheap." There's a place for indexing, but it's an active decision every day you're in it.

[Ahneida Ride]

Learn what is money and how it is created and destroyed

Spend some time learning how our private central banking cartel works.

Then discover fractional reserve banking. It's how banks work.

It's all rather simple ... there is tons of info on the web

[slidey]

Ok, so I have a related question. I've heard some mention of the student-loan bubble being another instigator of a financial collapse in a few years (lets say in 5 years). What do you think is the merit of this line of reasoning? Will this affect real-estate as well?

Furthermore, do you expect to see real-estate plummeting in the foreseeable future? Can you state why or why not?

[gemship]

Ok, so I have a related question. I've heard some mention of the student-loan bubble being another instigator of a financial collapse in a few years (lets say in 5 years). What do you think is the merit of this line of reasoning? Will this affect real-estate as well?

Furthermore, do you expect to see real-estate plummeting in the foreseeable future? Can you state why or why not?

I'll take a guess as to the merit of this reasoning. It maybe a foreseeable bubble because the job market for graduates is not good at all. Or a lot of students are taking low interest loans and again not paying them back quick enough so the economy feels the consequences. Or a lot of students take out loans for school and get degrees that are useless for finding jobs in the job market. Life seems to be all about numbers all too often and the numbers aren't adding up to being in the black.

Not sure how this would affect real estate market.

I'm no expert but I am interested in this discussion.

[saab2000]

Learn what is money and how it is created and destroyed

Spend some time learning how our private central banking cartel works.

Then discover fractional reserve banking. It's how banks work.

It's all rather simple ... there is tons of info on the web

With all respect, and you're probably an economist, you rarely offer suggestions. Only criticism of money. We don't barter anymore. I can't trade my skills for a pound of flour or a loaf of bread. We use money. Humans have used money for a long time.

One of the things the federal government does is create a currency, which people then use to purchase things. My employer pays me money. I buy food and shelter with these numbers, which you refer to as FRNs.

In the absence of a better idea, this is how our world works.

This quest of yours is meaningless without further information. Give us the basics. Am I wrong or stupid to save more a third of my gross income in retirement investments? I will need something for when I retire. Hopefully it'll still be worth something. I'm surely not going to join the bizarre gold rush that's been going on. People will lose their life's savings buying gold at all time highs. Buy low, sell high. This is what I've always thought. But the anti-money folks and those who think a total collapse of society preach "GOLD!" to their flock of Sheople as a solution for the anarchy that will exist after the bottom falls out.

The only thing I'd get if I could would be land. They're not making it anymore. But guess what, I need money to buy land.

[MattTuck]

Ok, so I have a related question. I've heard some mention of the student-loan bubble being another instigator of a financial collapse in a few years (lets say in 5 years). What do you think is the merit of this line of reasoning? Will this affect real-estate as well?

Furthermore, do you expect to see real-estate plummeting in the foreseeable future? Can you state why or why not?

The economy is a very complex system of inter-related actors. There are a lot of resources out there talking about the student loan bubble, or the housing market bubble.

At the end of the day, these 'bubbles' are related to debt. If an individual is not generating enough cash flow to service his or her debt, whether it be mortgage or student loans, there are going to be problems.

Student loans are especially problematic because you cannot discharge them in bankruptcy. I work at an institution of higher learning, and I'm very concerned about the student loan bubble.

The ease with which students can get loans has allowed schools to increase prices much faster than inflation. Remember the days when someone could work for the summer to save money and cover tuition for the following year? That was easy when tuition was $500 per semester. How many kids do you know that are earning $20K over the summer?

Now, kids are saddled with debt when they get out of college and have to delay many big events in their life, such as buying a car, getting married, buying a house, having children, etc. That has ripple effects for the economy outside of the loan bubble. With stagnating wages and dim job prospects, there's really no way that all of these grads will be able to pay off their loans... so, expect defaults. That will ripple through to personal bankruptcies, school financial crises (see Cooper Union, Thunderbird Business School) tighter lending standards and more pressures on academic institutions to deliver value.

Bottom line, things that are not sustainable eventually end.

[1centaur]

Ok, so I have a related question. I've heard some mention of the student-loan bubble being another instigator of a financial collapse in a few years (lets say in 5 years). What do you think is the merit of this line of reasoning? Will this affect real-estate as well?

Furthermore, do you expect to see real-estate plummeting in the foreseeable future? Can you state why or why not?

I think gemship pretty much gets it. Just as the noble goal of home ownership was boosted by governmental support in all sorts of ways until it was so darn easy to get a home loan (please save the bankster comments here; many folks to blame but I'm working just one channel for the link to student loans) that too many people without the right means owned homes and the bubble deflated, so governmental policies/American dream type thinking have inflated college education FAR beyond its worth, in the process saddling millions of people with loans they can't pay back because they can't get jobs that compensate them for their knowledge. I think it is inevitable that vast swaths of student loans will not be paid back and some combination of lenders and taxpayers will eat the expense. Note that politicians have an incentive to push legislation to "forgive" (i.e., shift the expense of) all those loans to curry favor from lots of voters (back at the well, since they curried favor by creating that loan availability, which in turn increased tuition relentlessly). Just as we are now seeing the push and pull between saintly legislators looking to relieve mortgage payers and evil financiers who want to be paid back, we will see debates about forgiveness and costs on student loans, but this time the lender is most likely the government (few non-guaranteed private student loans in the mix). So this is really a deficit buster, and thus an interest rate (and tax) increaser, more than a banking crisis in the making (I think).

Higher rates won't be good for real estate, but young people out from under student loans might be more able to buy so.....my guess is this will not kill real estate (professor salaries is something else). But, along with health care costs and social security, the student loan bubble is a very unwelcome consequence of good intentions gone wrong for the sake of political expediency.

I personally don't see real estate plummeting for the foreseeable future. The over leverage of the real estate financing system has been squeezed out and the government is printing money looking to generate inflation from which real estate should benefit. Enough jobs to support home buying is perhaps the biggest question, but 92.5% employment is a good start.

[cnighbor1]

Has Houses has been climbing in value 3% per year not that great an investment. and chasing wealth is not a great occupation either. what you need to do is just not spend foolishly and invest say 5% of your yearly income

[Ahneida Ride]

Since 1970 or about 40 years .... prices have increased by a factor of 10.

1.06 ** 40 = 10 (that is 1.06 forty times) 0.06 = 6%

So just to stay even, you have to earn 6% on your frns (after tax).

-------

This is a direct result of a system that creates $ outa nothing and charges
interest on nothing. One must continuously increase the "money" supply
so there is "money" to pay the interest. An increase in the money supply
without a complementarity increase in the economy = money dilution,
which we experience as higher prices.

Obviously this insanity cannot continue indefinitely

Since 1913 the notes of our nations private central bank have lost
around 98% of their purchasing power.
.

[saab2000]

Not all of home ownership is an investment though. I just lost money on my house (condo - so there's all you need to know...) in Grand Rapids, MI.

But I loved every minute of owning it. I learned tons about money management and the buying and selling experience. And I loved having a place that was MINE even if it was a condo and all the literature makes sure you know it's not really yours.... But it effectively was mine. As long as I didn't disturb my neighbors, I made my own rules in the house. You can't always do that in a rental.

I hope to own a single-family home again and maybe soon but that depends partly on factors related to my line of work, not my ability or interest in doing it again.

Much of the satisfaction and desire of owning is the sense of independence, not the investment. At least that was how it worked for me.

Grand Rapids will be over soon for me. The next adventure awaits.

[saab2000]

Since 1970 or about 40 years .... prices have increased by a factor of 10.

1.06 ** 40 = 10 (that is 1.06 forty times) 0.06 = 6%

So just to stay even, you have to earn 6% on your frns (after tax).

-------

This is a direct result of a system that creates $ outa nothing and charges
interest on nothing. One must continuously increase the "money" supply
so there is "money" to pay the interest. An increase in the money supply
without a complementarity increase in the economy = money dilution,
which we experience as higher prices.

Obviously this insanity cannot continue indefinitely

Since 1913 the notes of our nations private central bank have lost
around 98% of their purchasing power.
.

Nothing exists in a vacuum though. The population has also increased many times over and the rest of the world's currencies have also decreased in purchasing power.

That said, I agree we can't keep borrowing and increasing the federal debt. I do agree that is not a good thing.

What do you suggest? A return to the gold standard? How would it work? Serious questions.

[aznred]

Going back to gold is like going back to penny farthings. The emergence of international trade and its relationship with transaction cost as well as its implications under fixed rate needs to be concerned.

Going back to OP's topic, it's also good to know when housing prices are high and low depending on the season. Housing prices tend to rise during warmer months and decline during colder months. Prices rise starting Spring and the trend continues till the Summer usually peaking around June and July. There is regional differences that needs to be considered but overall this should hold.

[djg]

My home purchase has been the best financial decision I have ever made (and boy, I have made some BAD ones)...

Its gone up almost 50% in the 11 years I have owned it, has been MOSTLY trouble free and has been a source of joy and pride for me for all 11 years...

Not sure what everyone else is talking about. Buy a decent house on a good street that has something going for it (that makes it desirable). Even if the actual house has no worth, the land will as people will want to buy there and build on the land.

For me, it has truly been a win-win situation. And, afforded me to pull out a bit of equity and buy a nice Porsche...which I sold to buy an Audi A7, go figure...:confused:

Good luck whatever you decide, but I dont think you will ever go wrong buying real estate.

Our home is worth about 2.5 times what we paid for it. Here's my genius method for securing a similar return: get lucky. Really lucky. Plenty of research and shoe leather went into securing a good deal -- probably paid about 25k or so below market and there were reasons to be optimistic when things were just starting to heat up after a long lull (the outset of what turned out to be the run-up prior to the crash). But neither I nor the rest of the world really saw where things were going (indeed, it's not crazy to think that prices would have been different had the smart money known what was coming).

Many, many people followed your basic guidelines -- a decent house on a good street -- and got burned. I'm not saying you did the wrong thing, but housing prices may rise and fall over time, and even steady prices may not represent a great investment if inflation or the opportunity cost of your money is high.

Plainly, there are ways to do well in real estate, and I wouldn't discount the consumption aspect that you mention -- everybody needs some sort of place to live and many folks find a good deal of pleasure in home ownership. But to return to the OP: money at risk is money at risk. Moreover, being house poor (extended on a mortgage or other home projects so that your non-house lifestyle needs to plummet) can suck. The things folks have said about saving (and not running up super-high interest CC debt) make good sense but, in the end, the decisions when, how, or whether to buy can get complicated. Different markets may point a bit one way or the other (a temporary glut/shortage of rental units or new construction, etc.) but generic "no brainer" answers may be hard to come by. Off the top of my head, I have no idea whether the OP should try to buy a house, this year, in the OP's market.

[xlbs]

Toronto is a difficult market to buy into. $1million doesn't buy very much. Our OP says he's a plumber...great trade with lots of opportunity for real income in the Toronto area. He'd be well advised to rent for a number of years until he is debt free from student loans. High ratio mortgages are a big risk when one adds up property taxes (on a $1M home taxes in Toronto are going to be $500 + per month) maintenance, hydro, heating costs, etc. Since I live less than 80 miles from Toronto and am there about once per week with lots of clients there I know of what I write. Since I'm also a financial advisor my advice is coming from some hard-won knowledge. If the OP wants to check in the GlobeandMail business section within the past month there's a fine article written to support the notion that renting in the Toronto area is a better long-term strategy. The article was written because there's an annual bizschool assignment challenging the notion that home equity is the best long-term investment in the area. Every year the students concede defeat to the rent proposition...If you, the original poster, wish to check in with me I'd be happy to meet with you personally for a chat. Ian

[TBDSeattle]

Every year the students concede defeat to the rent proposition...If you, the original poster, wish to check in with me I'd be happy to meet with you personally for a chat. Ian

Wow... that is quite an offer. I had read the post and replies thus far because I am interested in the same questions as the OP. I was going to reply to all and say that getting a professional financial adviser would seem to be the first step, not necessarily asking for advice on an online forum.

Turns out, I am wrong. Asking for advice on the online forum was a great idea- it led to a professional with experience in the local market who offered to meet.

This is a heck of a forum!

[giverdada]

What did yo study, if you don't mind me asking?

not the right things for wealth of money. :)

English and Visual Arts. So I can write real good about painting myself into a corner...

[giverdada]

Not to toot my own horn here, but this has got to go down as one of my all-time favorite threads ever. So much discussion happening and so much sharing of knowledge (that I never would have gained before asking on a bike forum), I'm a bit overwhelmed. I also got stuck (north of Peterborough XLBs!) without internet for a bit so I could only read sporadic replies on my phone screen. I really appreciate all of the PMs and PM offers and individual and sage advice going on.

Another thing that I would like to add to the discussion is my dad's notion of an 'equity event' - something that my lady and I could use as financial leverage. Obviously, houses are pretty typical equity events, for a financial system that operates on money, and my lady and I blew thousands on non-equity-events called 'degrees' from post-secondary institutions. Not terrible times, or terrible choices, but I would have likely been better off becoming a plumber. Being a teacher isn't a great thing for equity or wealth in money these days, especially in Toronto. Anyway, what's an equity event if it's not a house? A boat? I don't even know how to sail... And I doubt my steel road frame with frankencampy grouppo counts...

[1centaur]

Oh, and never buy a boat :)

[echelon_john]

I understand what you're saying about 'equity events,' but I would suggest that these 'events' happen largely outside of your control based on your description of your situation. E.g., a relative dies and leaves you $50k, or you buy a house and sell it later for a lot more than you paid. You can't base your future on equity events; you need to do the planning/work to build a foundation, then you will have the same choices/opportunities that you would have in the case of an 'equity event.' The way you get to decide what to do with $100,000 or $1,000,000 or $10,000,000 is to accumulate that much money based on saving, investing and inheriting. Embrace the parts you can control and do them to the best of your ability and leave the unknowns to the gamblers.

As you've read here; the whole concept of having a home purchase turn into such an 'equity event' is based on timing, luck, and market forces that you'll never get a handle on, hence the advice to carefully consider renting instead of buying your home unless you can identify a clear reason to do so. Also, I'm not as much of a $USD doomsayer as some here, but you need to consider both the long term devaluation of currency as well as the long term carrying/transaction/maintenance costs of all your savings/investments when considering what you're ultimately trying to do, which is to build/maintain purchasing power to support a quality of life you desire for the timeframe you desire.

You're asking the right questions and getting a lot of good fundamental guidance here; you'll need more than that, obviously, but the values behind what you need to think about should be pretty clear.

[Ken Robb]

Oh, and never buy a boat :)

Leslie and I had heard all the jokes about buying a boat like "the happiest two days in your life will be the day you buy it and the day you sell it" but one yacht broker cracked us up with a new one. B.O.A.T.= break out another thousand. It should have been "B.O.A.T.T.=break out another ten thousand.

We figured it was an expensive toy but a reasonbly priced second home on the water. :)

[54ny77]

home ownership blows.

it's a never-ending bunghole of money suckage.

my advice: rent for half of what a mortgage would run you, and invest the other half.

over time (call it a 20 year window), you'll be ahead, hands down.

yeah you'll have disruption now & then (forced to move by landlord, job, etc), but whatever. that's life. as a renter, when the hot water heater goes kaput, when fixtures leak, when plumbing goes wacko, when the roof needs replacing, when this that and lord knows what other thing need tending to, you pick up the phone and magically someone else comes to take care of it AND it's paid for by someone else.

:)

[Peter B]

Leslie and I had heard all the jokes about buying a boat like "the happiest two days in your life will be the day you buy it and the day you sell it" but one yacht broker cracked us up with a new one. B.O.A.T.= break out another thousand. It should have been "B.O.A.T.T.=break out another ten thousand.

We figured it was an expensive toy but a reasonbly priced second home on the water. :)

Boat (n.): A hole in the water surrounded by wood (or fiberglass) into which one throws large quantities of money.

[oldpotatoe]

Boat (n.): A hole in the water surrounded by wood (or fiberglass) into which one throws large quantities of money.

If it flys, floats or..ya know..it's cheaper to rent.

-Cleaner USN proverb.

[oldpotatoe]

home ownership blows.

it's a never-ending bunghole of money suckage.

my advice: rent for half of what a mortgage would run you, and invest the other half.

over time (call it a 20 year window), you'll be ahead, hands down.

yeah you'll have disruption now & then (forced to move by landlord, job, etc), but whatever. that's life. as a renter, when the hot water heater goes kaput, when fixtures leak, when plumbing goes wacko, when the roof needs replacing, when this that and lord knows what other thing need tending to, you pick up the phone and magically someone else comes to take care of it AND it's paid for by someone else.

:)

UNLESS 1/2 of your mortgage amount means you can't rent where you are.

My mortgage payment is way less than the rent on a comparable house here in the republic.

AND the value of my house is about twice what I paid for it..in 15 years. Doubt $175,000 invested in 1998 would be worth $325,000 today..maybe but probably not.

So, it's a big 'depends'.

[xlbs]

"It depends" is a key concept. 10% down on a mortgage in a market like Toronto is $100,000. That's a lot of canuck bucks for someone still paying student loans. I apologize too, I thought I had read that our OP was a plumber...the plain and simple truth is that buying a house that one can't afford to support is not a good way to get ahead. It is, rather, a recipe for disaster. In the past 8 weeks I have met with 3 couples all in their 40's all overextended to the point where they face immanent financial collapse. In every case the discussion went something like this, "Everyone told us that we should buy a house..." so they did. And ended up spending far beyond their means because they were told by their bankers that they could do so. Now they face the latter half of their lives living in substandard conditions trying to recover. Note, in Canada one cannot simply walk away from a debt without consequences...buying is only wise when one can afford it. Simple equation.

[Ken Robb]

What financing is available in Canada. Years ago my Canadian clients told me they could only get mortgages that had to be renewed every five years. That seemed very risky to me. Can a Canadian deduct interest and property taxes from his taxable income for income tax calculations?

[19wisconsin64]

wow, so many nay sayers on home buying.

what were prices of your homes in ... say, 1970?
how about 1980?
1990?
2000?
2010?
Now?

You have to adjust for higher repair costs, and taxes (both taxes you pay on your property, and if you get any tax advantage by owning).

for the long term, given you buy in a good location (yes, it's true, location, location, location), i truly believe it's a great hedge against inflation, and an asset that appreciates...... given the numbers work out tax-wise, repair-wise, and overall-cost-wise vs. renting.

you could, most likely, do better, by stuffing all of your savings into low-cost broad-based stock market funds, but they are only part of the equation.

the big part of the equation is your career, your income, your long-term income.

it's not just one thing or another....you have to live somewhere, you have to save for retirement, and you have to focus on your career.

it's a good conversation to have.

oh, and buy a good solid bike from a good frame builder, and keep it a lifetime! cheers!

[xlbs]

Interest and property taxes are NOT tax deductible in Canada, so mortgage payments eat up a huge chunk of a person's income.

And, I'm not suggesting for a moment that renting is the best overall option. "It depends" is a concept that should apply to anyone anywhere.

We can buy mortgages for varying periods up here, but 5 years with a 25 amortization is common.

For our OP a $900,000 mortgage at 3.5% with a 25 year amortization would run about $4,500 per month, or $54,000 per year. According to Canadian regs that means he would need to be earning over $180,000 to meet the 33% of total income required to buy a house. And, just so you southerners understand, that $180,000 is taxed at 47%, not 20%...Get it? Yep, we have wonderful health care, and we pay for it.

Now do you folks understand why I'm suggesting that renting is better than buying for our OP?? If he can't find work that pays enough to retire his student loan, how is he going to pay that kind of mortgage rate?

[zap]

And, just so you southerners understand, that $180,000 is taxed at 47%, not 20%...Get it? Yep, we have wonderful health care, and we pay for it.



ummmm, Canada's top federal tax rate is 29%. In the USA it is 39% something.

We in the USA do have more deductions to bring down the effective rate........

[xlbs]

yep, that's the federal tax rate, but combined with the Ontario provincial tax rate takes it up to 47% total, and we don't have the generous tax deductions that you folks have...

[EDS]

Interest and property taxes are NOT tax deductible in Canada, so mortgage payments eat up a huge chunk of a person's income.

And, I'm not suggesting for a moment that renting is the best overall option. "It depends" is a concept that should apply to anyone anywhere.

We can buy mortgages for varying periods up here, but 5 years with a 25 amortization is common.

For our OP a $900,000 mortgage at 3.5% with a 25 year amortization would run about $4,500 per month, or $54,000 per year. According to Canadian regs that means he would need to be earning over $180,000 to meet the 33% of total income required to buy a house. And, just so you southerners understand, that $180,000 is taxed at 47%, not 20%...Get it? Yep, we have wonderful health care, and we pay for it.

Now do you folks understand why I'm suggesting that renting is better than buying for our OP?? If he can't find work that pays enough to retire his student loan, how is he going to pay that kind of mortgage rate?

Your position would make sense only if we know what the cost to rent a comprable home is. Here in NYC, $1m gets you a decent two bedroom apartment, though you likely have to put at least 20% down and have an additional maintenance payment to worry about. That said, the delta between the monthly cost of renting a comparable apartment and owning is probably not significant, so the decision to buy is more a question of (a) avalabilty of funds for significant down payment, (b) lost opprtunity cost of that down payment (versus investment) and (c) an individuals personal need/desire for future flexibilty.

[Ken Robb]

Your position would make sense only if we know what the cost to rent a comprable home is. Here in NYC, $1m gets you a decent two bedroom apartment, though you likely have to put at least 20% down and have an additional maintenance payment to worry about. That said, the delta between the monthly cost of renting a comparable apartment and owning is probably not significant, so the decision to buy is more a question of (a) avalabilty of funds for significant down payment, (b) lost opprtunity cost of that down payment (versus investment) and (c) an individuals personal need/desire for future flexibilty.

I think renting is more common in NYC than most places. It's also "safer" from unwelcome displacement for tenants because even if one's apartment building "goes co-op" (pretty rare) tenants usually get first right to buy at reduced prices.

Renting a SFR or a condo from an individual in my area usually means you will probably have to move in a few years at best when the owner wants to trade up or move in himself.

In Canada can the owner of rental property deduct the interest he pays on mortgages from his income on his rentals when figuring taxable income? If so that would partially explain how renting could be quite a bit cheaper than buying, at least in the short term.

[Peter B]

It depends.

Great thread. I've enjoyed the discussion and continue to listen & learn. My immediate takeaway is that there is no 'right answer'.

It depends.

On your location.
On your resources.
On your personal/familial situation.
On your income.
On your savings.
On your goals.
On your career trajectory.
On your need/desire for flexibility.
On your tolerance for debt.
<replace 'your' with 'spouse' on all above>
On a lot of things.

Keep all the good stuff coming. Doubt I speak alone...

[xlbs]

Yes, a landlord can deduct interest from mortgage payments on a rental property in Canada. Yes, a comparitor for rental properties in Toronto would make sense for a full analysis, but the simple fact remains that our original poster does not have the income to support a $1M purchase...There are lots of homes available for less than $1M in Toronto of course, but the OP suggested that he was being told to buy a home in a neighbourhood where the prices are at about $1M...so why spend a lot of time discussing another scenario?

"It depends" is always, always, always the most important phrase for decisions like this. All being well our OP and I will get together for a chat...we've been in touch.

In the meantime, Toronto is a great place to live, even if it's expensive. As in all cities, there are pockets of pricing in the stratosphere, and other places where plebes can buy and live. Our OP will find his way--he's young and rides bicycles. What other qualifications does one need for ultimate success?

[soulspinner]

What do you do for a living? Where do you live?


I've learned a lot of basics of personal finance since returning to the US a newly single man 10 years ago and getting my first 'real' job in the US after having lived overseas for a long time. Knowledge of personal finance is pathetic in the US in my opinion and I've really been trying to learn more. I work with guys all the time who know a lot and it's been a real pleasure picking their brains on this stuff. Knowledge is power (huge cliché I know, but true) and there's so little knowledge about the workings of banking and finance and even just personal finance like retirement planning and mortgages. Most of it is about harder stuff like derivatives or futures trading. There aren't too many secrets. You've just got to dig a bit and learn a few basic things to get started.

Here are a few basics.

1. No credit card debt. Pay it off each month. You don't need more than one either. Debt is usually bad, except for home mortgages, which are deductible. For now. There has been talk of changing this though it probably won't change for individual owners who own just one home. But high interest, non-deductible loans like credit card loans, need to not go.

2. Max out a 401(k). Or at least do what an employer will match. I don't know if your work has a retirement plan or not but if so, participate to the maximum of your ability to do so. Also, read about your investment options within such a plan. My company has a Roth 401(k) option and all but 1% of my contributions go into this. It is post-tax money and reduces my take-home now but is not taxable upon distribution after retirement. Get a Roth IRA too if you can.

You can get an account a Schwab for probably $500 or less to get started. Learn from there. Connect the account to your bank account. When you have extra cash, transfer a few bucks to a fund and watch it grow. Like a Chia Pet.

You can contribute up to $17,500 per year under the age of 50 to a 401(k) plan and this year I think it's $5500 to a Roth IRA. If your company offers this, enroll ASAP.

3. I bought my first house 6 years ago and am closing on selling it on August 6. Home ownership has taught me an enormous amount about compound interest. We all know it, but seeing it in practice means you really learn it. I've been paying extra towards principal every month but really I should have been investing that money. Still, I'm not sorry I did it. Mortgage interest is deductible. But with mortgages are low rates right now (though rising) it is probably worth taking that money and investing it in a fund that will likely see a growth rate larger than your interest rate on your mortgage, which is deductible anyway.

4. Cars are financial black holes. Lots of prestige, little value. An economy car that's paid off is a real asset. An expensive car with high payments is a huge liability.


EDIT: I see you're in Canada. Things there might be quite different than in the US. But the basics of low debt still apply. And investing in growth funds that have a low tax burden is almost always a good idea.

Seems sound 2 me...

[downtube]

Read this.
http://www.amazon.com/Millionaire-Next-Door-Thomas-Stanley/dp/0671015206