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items that don’t bring any lasting joy or fulfill- ment. And, more importantly, they stop working or doing anything productive to give their life purpose, meaning, and real value. What they fail to do is stop and ask themselves, “beyond money, what makes me happy?”
I am convinced that your money myths limit your thinking and impact how you approach your life and your finances. The three biggest financial myths most people have are:
1. My home mortgage needs to be paid off when I retire so I don’t have a payment;
2. I’ll be in a lower tax bracket when I retire; and
3. My home is an investment.
My father believed all three of these myths. When he retired, he and my mother moved to Florida to build the house of their dreams, on the golf course of his dreams. He was going to pay cash for that house — $500,000. He was 68 at the time. I said, “Dad, I want you to take out a mort- gage instead.”
My dad was shocked. “A mortgage! For how long?”
I said, “for 30 years.”
“Thirty years!” my Dad bellowed. “I’ll be dead before it’s paid off!”
“So what do you care?” I smiled. “You’ll be dead!”
To which my father asked, “what will your mother do?”
I said, “she doesn’t play golf, and she doesn’t play mahjong, so if you die before her, I will sell that house and move her back north!”
I convinced my Dad to put $100,000 down and finance the other $400,000 with a 30-year mort- gage at 5%. This was 1992. Bill Clinton had come
into the White House and raised the marginal tax rate from 36% to 39.6%. There went money myth #2 — the belief he would be in a lower tax bracket when he retired (a belief I am sure many of you reading this article share).
That didn’t happen. The good news was, he could write off and deduct 40% of his mortgage payments in the first 15 years because
it was all mostly interest. My dad was
now ‘leveraging’ other people’s money
(OPM) by using the bank’s money to take
out a mortgage, and Uncle Sam’s money (USM) by deducting 40% of his mortgage payments.
The net cost for my dad to borrow the
bank’s money was 3% (5% x 40% = 2%,
which he could deduct, so his net cost
to borrow that money was 3%). I said to
my parents, “If I can’t make you net more
than 3% on your $400,000, fire me as your financial advisor.” We averaged 7% to 8% on their money for the next 13 years of his life.
When my dad passed away, I sold my mother’s home in Florida, at a $100,000 loss. This was 2005, and the real-estate market in Florida was over- built, and no one wanted to be on a golf course. So much for the third money myth about your home being an investment. I than moved my mother back north and built her a home in an over-55 community. She was 79 at the time, and she said to me, with a twinkle in her eye, “son, do I get to take out a mortgage?” My mother is now 94, and she still has a mortgage — at 2.5%.
What does my mother care about? She only cares that she has enough money to pay for everything she desires to do. What do I care about? That I’m not tying up her money in a ‘dead
asset’ — her home. She can’t eat it or drink it, and it doesn’t generate any income for her. And it is not an investment. I know I can make more than 2.5% on her money by using OPM to generate her even more income.
The key to being financially successful with your money is to understand how to maximize
“I am convinced that your money myths limit your thinking and impact how you approach your life and your finances.
OPM and USM to make money on ‘the spread.’ The spread is the difference between what it costs to use other people’s money and what you can make investing your money somewhere else.
Let me add one big caveat to this discussion. If, psychologically, you must have your mortgage paid off so you can sleep at night ... then pay it off. I always say psychology trumps economics. Just remember, you may feel good having it paid off, but economically, you won’t make as much of a return on your money and your assets. u
Charlie Epstein is an author, entertainer, advisor, entrepreneur, and principal with Epstein Financial. He also presents a podcast, Yield of Dreams;; (413) 478-8580.
    ” | Fax: 413 731 7268
Life’s a Journey. L L e e t t u u s s w w a a l l k k t t h h e e r r o o a a d d w w i i t t h h y yo o u u . .
I I t t ’ ’s s w w h h a a t t w w e e d d o o . .
Pat Grenier, Principal
RR, CFP®, MBA [email protected]
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