Through my life what I’ve desired and wanted has changed and went back and forth several time. When I was young I used to say I was going to be a millionaire by the time I’m 21, sadly that only leaves a year and at the rate I’m going that’s way off. As I’ve grown older I’ve came to the conclusion of being more practical. Mainly to be more in line with what the average is, or about $42,000 a year. Now does this mean my desire to be one has gone away? No, just coming to conclusion it’s unrealistic.
So when I am old(er) and I look back at all I done here is the main financial goals I want to have accomplished,
- Own my own house, which is paid off - This is your stereotypical American dream item, only without the mortgage. The greatest thing that could happen in this regard is to pay with cash, but as I’ve said in another post I would really like to pay cash, but that may not be an option.
- Run a successful Business paying good wages - This is my biggest dream is to have a decent company with several employees that will provide me with income for years, plus I’d be doing what I love.
- Have rental properties in the Black - This may be pushing it, but if I manage my money right then it could happen. This would only help to safe guard me against slow months.
- No Debt - When I am looking back I want to be in no debt, although I know I am in debt right now with my Student Loans I want to be out of debt and besides a house and/or business I don’t see myself getting into any more debt.
- Fully funded Retirement - I’ve gotten started with a Traditional IRA from ING Direct (now Capital One 360) and if I can just max this out each year and maybe even look into some type of 401(k) or the likes for my company I should be well off in retirement.
If I get those goals in line then I don’t see myself having very much money problems, now those goals coming true is an entirely different thing.
By the title of this blog many would get the impression that I don’t support mortgages. I do understand that they may be necessary. I have two different view points on this topics
View 1 – Take a Mortgage
This is the more traditional option. You generally pay a down payment of 20% and the rest is paid over 30 years. The only issue with this option is the amount of interest paid.
A $100,000 with a down payment of $20,000 would leave an $80,000 loan. At a 5% rate the amount of interest paid over the life of the loan would be around $74,600 according to mortgage-x.com. So now the house has costed around $174,600, in addition to the fees and charges of getting a loan.
View 2 – Save and pay cash starting small
To really stay out of debt you should start small. Where I live there are some fixer-uppers that are $20,000. Instead of having a down payment you own the house. During this time the payments you would have paid (about $400) could be put in savings. After five years you would have $24,000 in savings. If your house didn’t loose much value you could now upgrade to a $40,000 house, assuming you wanted to. Another five years and the same story, now we are up to over a $65,000 house. You can see where I’m going. About seventeen years after buying the fixer-upper you can now have the $100,000 house without a loan.
Positives and Negatives of each
- Start out in house you want
- Take interest deduction on taxes
- Pay out almost as much in interest as the loan amount
- Paying bank for 30 years
- Could become upside down on mortgage
- You own house outright
- No interest paid, you get interest from the saving account
- You don’t start in your dream house
- The value of the “step houses” could tank
This is over simplified but the big issue with View 1 is the interest paid and the big issue with View 2 is the value of the houses you buy in between the two could tank. One Potential solution is to stay in the starter home, so there isn’t to much to loose.
While other people may chose renting, it is a personal choice. While I cannot blame someone for picking View 1, I am going to try View 2. I would like to know your personal opinion. Which view would you prefer, or would you rent?