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My ONE Piece of Advice
By JLP | July 23, 2007
This post is a favor to FMF as he is working on a project of “best advice.”
Last week, FMF sent me an email asking me for my one piece of personal finance advice that I have to offer. That’s a tough one. I responded to his email with the following:
Then he asked me if I had a particular blog post that illustrated my point. I said no but that I would write one up and so this is that post.
Seriously, when it comes to personal finance, my advice is to make sure you understand and research all your options. A lot of the decisions we make regarding our finances are decisions that will have lasting consequences. If they are bad decisions, they will most likely have bad consequences. On the other hand, if they are good decisions, they will most likely have good consequences.
Case in point: picking a mortgage. Mortgages have been in the news lately. It seems lots of people are facing the consequenes of bad decisions made a few years ago. Many people either bought more house than they could afford or purchased a house with a bad mortgage like an adjustable rate interest-only mortgage. Intentionally or not, these people made bad decisions. Sure, some of them were lied to and taken advantage of by the mortgage broker. However, had these people taken the time to research their options, they would have figured out quickly that they were doing the wrong thing.
As for challenging conventional wisdom goes…
I have written numerous times challenging the conventional wisdom that a person should pay off their mortgage as quickly as possible regardless of the interest rate. Sure, you’ll save thousands on interest expense. However, what gets left out of this particular piece of conventional wisdom is the opportunity cost of money used to pay off that mortgage quickly. In other words, that money has to come from somewhere. Each dollar used to accelerate the payoff of that mortgage is a dollar that could be invested elsewhere.
It’s important that you don’t misunderstand what I’m saying here. I’m not saying that it is always best to not pay off a mortgage early. What I am saying is that it makes perfect sense to research your options and to investigate conventional wisdom. For more on this, check out these posts:
Which is Better: a 15-Year or 30-Year Mortgage?
Ever Wonder What a Mortgage Amortization Looks Like?
How an Interest-Only Mortgage Works
Check Out the Latest Dave Ramsey Poll - The topic was mortgages.
A Follow-up to the Dave Ramsey Mortgage Post - This is Interesting
10 Great Reasons to Carry a Big, Long Mortgage
The Mortgage Deduction and Taxes
Should You Prepay Your Mortgage? - This was a popular question of the day.
How Much House Can You Afford?
So there you have it, short and sweet. That’s my one piece of advice. Take it for what’s it worth.
Topics: Mortgages |