Missed Fortune 101: Required Reading

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It is subtitled “Dispel the Money Myth Conceptions- Isn’t it time you became wealthy?”

I’m going to call them missed conceptions, there are some of them.

Missed Conception #1: The best way to pay down a house is to prepay the mortgage.

I always believed that paying off your mortgage was the best way to pay off your house but Missed Fortune shoots holes through that. Douglas Andrew shows you at least three reasons why that IS NOT the way to go. One reason is simple, the only tax deduction still afforded the average guy is their mortgage interest deduction. Someone paying six percent interest is actually paying about 4.2% interest rate taking into account a 34% tax bracket.

His two books Missed Fortune and Missed Fortune 101 ” A Starter Kit to Becoming a Millionaire” go over this and the forthcoming strategies in greater detail.

Missed Conception #2: The safety of your home.

Will Rogers once said “I’m more concerned with the return of my money than the return on my money.”

Many people feel similarly about the equity on their home, they feel that because their money is their home that that is the safest place for it.

Real Estate booms (like the one that is concluding now) are all a result of supply and demand. Yes, it is an over simplification, but it is the reality. Real Estate professionals use the terms “buyer’s market” (too much supply, not enough demand) and “seller’s market” (too much demand, not enough supply) to describe the current situation

The problems arise when the equity you have disappears. In 1985, I purchased my home, only to see values drop 30%, it would take 15 years to recoup that lost equity. Every situation is different, but I wasn’t the only one, thousands were in the same boat.

Missed Fortune shows why having money tied up in your house is worse than having it buried in your backyard.

Missed Conception #3: There is a return on equity.

Let me use Doug R. Andrew’s illustration because after all, he did write the book. Assume you have a house valued at $100,000 that is free and clear of any mortgage. At the end of one year your house appreciates 5% and grow in value to $105,000. Got It? Good!

Assume now that you separated the equity from the house and invested it earning 10%. At the end of the year your investment is now $110,000 PLUS your house has still appreciated another 5% for a $105,000 value. You have just tripled your return. Of course, there is now a mortgage to contend to and I’ll leave it up to you to peruse those books.

It is to their advantage that you do that. YES, that’s right! By you prepaying, the banks are in a more advantageous position. As long as you owe them money on the mortgage, they can foreclose and take away your house. A smarter way would be using tax-advantaged ways of saving your money while paying your regular monthly payments.

Missed Conception #4: Not using available “partners” like Uncle Sam.

One of the few tax advantages left for the average person is your mortgage deduction, is it really smart to pay off your mortgage?
In 95% of the cases, the answer is probably NO!
I have heard cases of people paying down their mortgage, while leaving very little in savings only to lose there job and have NO money to meet their mortgage payment. The banks do NOT care that you’ve prepaid thousands and thousands of dollars.

Missed Conception #5: Avoiding Debt.

When Donald Trump was deep in debt with his casino holdings in Atlantic City during the 80’s, he was quoted as saying “I would rather be 1 million dollars in debt and have 1 million in the bank than have NO debt and have NOTHING in the bank”.

Think about that for a minute. Debt, if used wisely can be a great financial tool. Certainly many people have been become wealthy be simply using debt or OPM, (Other People’s Money).

So, we should not fear debt, but harness it’s potential for our benefit.

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