Mortgage interest as a tax deduction: Good thing?

In our Debt-Free Boot Camp class Sunday, the question arose whether it was wise to pay off the mortgage early or continue paying the mortgage an using the interest paid for a tax advantage.

I knew Dave Ramsey's answer (it is better to pay off the mortgage early), but I did not remember why he thought so. Someone came up afterward to explain why it is probably better to pay off the mortgage than to use the interest as a tax advantage.

That answer was confirmed and affirmed later when Wendi and I were at our FPU class. As Ramsey points out, on a $200,000 home where the interest rate is 5 percent a borrower will pay $10,000 in interest. When the $10,000 interest is applied to the income tax equation, it will reduce the earnings by the same amount. If someone is in the 25 percent tax bracket, then the tax relief is $2,500.

So, from Ramsey's perspective it is better to pay the government $2,500 than to pay the lender $10,000 in order to save $2,500. If someone is looking for a tax advantage, Ramsey suggests giving the money to the church or charity instead.

Town Hall for Hope - Free Dave Ramsey event

From Dave Ramsey:

Connect with families across the nation for a truly radical message: HOPE.

Tired of hearing the fear, doom and gloom that’s filling the airwaves? Join Dave Ramsey for a nationwide town hall meeting and discover what’s happening with the economy, how we got here, and where we’re going. Plus, Dave will answer your questions live throughout the event!

Join us for this free event April 23 at 8:00 p.m. EDT in one of the thousands of venues across the country as we stand together to reignite the fire of hope!

Check out the link here.

To see where the nearest event is here.

Debt Analyzer software

Debt Analyzer is an interesting piece of software (visit site here or download page here. I believe the cost is $29, however, you can download the software and try it free for 30 days.

If you enter your debt obligations into it, how much the minimum payment is and what you actually pay (in case you pay more than the minimum), then it will show you how long it will take to pay each account off and when you will be out of debt.

The software operates on an assumption that when you pay off one account, you will take that payment and add it to the next debt obligation/credit card/loan payment.

You can also tinker with the priority of those accounts. It is interesting to see how much money you can save if you can find an extra $25, $50, $100 or more each month. That money can be available to you if you give up eating out once a month and make other sacrifices now to have a better financial future for your family.

Week 2 PowerPoint Notes

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Finance Week 2

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Some pretty good information

Money Management Makes Cents

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Jaz-ercise

Our church adviser at Financial Peace University, Jaz Boon, has listed our FPU class on Dave Ramsey's Web site. You can see it for yourself, here.

The free preview is 9:45 a.m. Sunday, April 5, at the church, located at 1912 Burbank Road in Wooster, Ohio. For directions to the church, click here and enter your address.

Money a change agent?

Cyndia Lauper has a song titled, "Money Changes Everything." But does it? When we look at our spending behavior, if we really had more money would we be out of debt sooner? Unless we change how we look at money, how we relate to money and how we use money, then I believe the answer is no.

As one friend told me (after talking to a successful businessman in Wooster), financial challenges do not go away with more money -- only the scale is different. If they were living paycheck-to-paycheck when they earned less, then they will live paycheck-to-paycheck when they earn more.

Money will not change your financial standing unless you change your spending, saving and investing habits. We cannot consume more and more on credit cards and expect anything to be different.

Financial freedom comes from creating a budget, a spending plan, a saving plan and an investment plan. You need to know where every dollar is going to go before you receive it, or else you will be scratching your head wondering where all of your money went.

This Sunday, we will look at how we can wrap our minds around our money coming in and our money going out.

Dave Ramsey believes budgeting is so important that he includes his budgeting forms in all of his books, and he offers them for free on his Web site. You can visit his budgeting page here. For those of you who will take Dave Ramsey's Financial Peace University, this will give you a glimpse of what will be expected when you become a member.

If you want some motivation to begin the budgeting process and creating a spending plan, check out what Mary Hunt has to say here and here.

Sustainability

A group page has been set up on Facebook titled pccdebtfree, and you can visit it here.

On it, I pose the question (and feel free to answer here): How do we sustain this group for those who will not be participating in the other class we are going to offer (which is a paid one)?

I would appreciate hearing your thoughts.

Bobby

Debt-Proof your marriage

Back in November, Mary Hunt conducted seminars at Saddleback Church teaching couples how to debt-proof their marriages. She talks about her system. It includes giving 10 percent, saving 10 percent and living off of 80 percent; following a spending plan; setting up a freedom account; keeping a contingency fund; and utilizing a Rapid Debt Reduction Plan.

On her Web desk, Hunt includes a PDF version of her presentation. You can review the presentation here.

Sign, sealed and delivered?

This morning, I talked about how Wendi and I use an envelope system. The original envelopes came with our Financial Peace University membership kit, but I made a template for envelopes that can be printed out, cut and assembled using a glue stick.

Dave Ramsey writes about using envelopes here. He has a lot of good information.

If you want to use an envelope that will give you a little more ability to track spending (that is, record your spending like Mary Hunt suggests), you can download and print the envelope template I created.

How to make your own envelopes
1. Download the envelope file and/or print it (use the "More" tab on the Scribd frame). Wendi and I use about 12 envelopes for groceries, gas, restaurants, etc.
2. Before printing the document, under printer preferences, select landscape orientation.
3. Cut the envelopes out.
4. Fold the envelopes and use a glue stick, rubber cement, tape or other type of adhesive to assemble them.

Hope it helps, and check out Dave Ramsey's envelope entry (link above).

Here is the envelope template:

Envelope System

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If envelopes are not your thing, Mary Hunt offers a tip to accomplish the same thing using a different method. Her advice is here.

Great start, now let's go

We had a great turnout for the first Debt-Free Boot Camp class. We had 25 outlines printed up and needed to make more.

After class, one of the members said she and her husband have set up a G.O.D. account: Get Out of Debt! They found by looking at what they were spending and clamping down on it, they had more money to apply to debt than they realized.

The same is true for Wendi and me.

As we move toward debt-free living, I cannot express enough appreciation for the work Mary Hunt and Dave Ramsey have done to teach others about this way of living that was a way of life for our grandparents' and great-grandparents.

I encourage you to check out their Web sites:

For Mary Hunt's Debt-Proof Living (formerly Cheapskate Monthly) site, click here.

For Dave Ramsey's site, click here.

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Mary Hunt on Authentic Living

More from Mary Hunt's Debt-Proof Living site:

Authentic Living
How would you describe the life you are living? Is it authentic or is it faux?

Those who live the faux life consume as if they had a big bank balance. Their strategies? They live on credit. No one starts out living the faux in the extreme. It`s subtle. It starts with one item or a single meal on a credit card here or there because "I just don`t have enough cash until payday." As long as the charged items are seen as needs and absolutely necessary, charging them seems to be okay. And when the bill cannot be paid in full, the faux lifestyle kicks in.

What starts out as the exception becomes the norm and the person "faux-living" is always looking for validation of this new way of living. Validation comes in the form of credit card offers (you`ve demonstrated your financial responsibility, you are in an elite group of folks who blah blah blah -- you`ve read them!) and hanging with people who are also living the faux life. To say that faux living has become quite socially acceptable is an understatement for sure.

The antidote? Cash! The cash lifestyle is the authentic way to live.

How to manage your money

I found this after doing the Week 1 Lesson at Swap Meet Dave's Web site:

How to Manage Your Money:
A Practical Approach with a Biblical Foundation

These 25 practical principles of managing your money will help you get a handle on your finances and show you the benefits of planning and discipline as well as the dangers of credit cards, loans, and leases. These maxims are suitable for one person, a couple, or a family. Finances are important

The bottom line: God owns it all. List your assets. Now start thinking about them as "God's assets in my care." We are stewards, not owners. (Psalm 95:3-7, Job 41:11, Haggai 2:8, Mark 10:43-45, 1 Corinthians 4:1-2, Matthew 25:21-30)

Trust God to meet your needs. (Matthew 6:25-33)
Set your goals today!

Set long-term financial goals. (Luke 14:28-30) Goals benefit you in four ways:

1. Goals provide direction and purpose.
2. Goals help you crystalize your thinking.
3. Goals provide personal motivation.
4. Goals are a statement of God's will for your life. (Proverbs 21:5)

Tithe Give God His Share
That doesn't mean 10% of your after-tax income to charity; it means 10% off the top line to the church, period. It's amazing, but for every dollar you give, you'll get it back many times over.

When you get paid, your first payment (10%) should go to God, the second (another 10%) to savings, and the third to housing. Everything else comes out of what's left.

Start saving today!
Save, Save, Save. Yes, you have a lot of expenses, but you can't afford NOT to save. Want ten reasons to save? (I could give you 100)

1. Your car will break down someday. (Not "might," but "will.")
2. Christmas and birthday presents.
3. Babies.
4. Trips home.
5. Vacations.
6. Retirement (Who me? That's decades away!)
7. Down payment on a house.
8. Furniture.
9. Hobbies.
10. New computer.

Be Disciplined
Save at least 5 to 10% of your income. Use dollar averaging (the same amount every month or every paycheck). It's tough, but if you don't put it away for yourself, who will?

Be impatient to get your money working for you; be patient to let it keep working for you.

Spend less than you earn over the long term. In other words, live within your means.
When you get a job that pays you more,
Continue to live as you did before.

Adopt a nonconsumptive lifestyle.
Live simply, live frugally. (Luke 12:15) Make tithing and saving your first priorities.

Don't be "penny wise and pound foolish."

Economize in sensible ways. Two mix-and-match outfits and three scarves will get you more mileage than six separate outfits and cost a third as much.

Remember the "opportunity cost" of consumption. If you buy something you really don't need, you aren't just losing the amount of money that it cost you are losing what that amount could have grown to over time with compounding (interest or investing).

Compounding can be your best friend or your worst enemy!
Understand it. If you put $1,000 in a bank CD paying 5%, in 25 years that will be worth $3,400. If you put the same $1,000 in the stock market and if it grows by 10% per year (about its historical average), your $1,000 will grown to $10,800 in 25 years. Conversely, compounding can work against you of you don't pay off your credit card bill and it works against you at a whopping 19.9%. If you owe $1,000 on your Visa card and pay it off over 5 years, you will actually pay $1,500.

Here's a direct comparison of compounding at its best and worst:
• Invest $10,000 in a bank CD at 5% for 10 years and you get $16,289, a gain of $6,289.
• Invest $10,000 in stocks at 10% for 10 years and you get $25,937, a gain of $15,937.
• Pay off $10,000 in credit card debt at 20% for 10 years and you pay $61,917, a cost of $51,917!

Danger - Debt!
Debt of any kind is BAD. Debt always presumes on the future; if you take on debt today, you must repay it tomorrow. And who knows what tomorrow will bring? (Romans 13:8, Psalm 32:21, James 4:13-17).

Four reasons to avoid debt altogether:
1. Compounding works against you.
2. Getting in debt is much easier than getting out.
3. Debt mortgages the future, i.e., because of the interest payments you must make, you are sentencing yourself to a lower standard of living in the future.
4. Debt robs you of your freedom of choice. When you have debt, repaying it becomes your overriding number one financial priority.

Say NO to loans. Don't take out a home equity loan or a bill consolidation loan. Both treat symptoms; neither solves problems.

Don't lease anything. Ever. (Unless the lease rate is less than the interest you can get on a bank CD of the same duration.)

Buy insurance only for catastrophic losses. Don't insure against mishaps you can afford.

Pay all the taxes you owe -- but not a penny more. (Romans 13:1-7)

Income tax refunds make no sense at all. Far better for you to invest the money for the year and pay your taxes in April than overpay the government and get a refund in June.

Take care of your car. Do routine maintenance (oil changes, washing, etc.) yourself. Use high-quality lubricants and parts. Keeping your car in a garage will add 20% to its life. (One cold start is the equivalent of driving 100 miles.)

Think before spending. Don't ever buy anything in response to a telephone or TV sales pitch.

Know yourself.

Finances are part of the marriage partnership. Communicate with each other! (Eph 5:33, 1 Cor 1:10, 13:4-7, Gen 2:18, 21-24, Ps 34:3, 128:1-4, Prov 5:18, 17:1, 17:14, Eccl 9:9, Mal 2:16, Matt 19:3-8, Phil 2:2, Col 3:8-9, 1 Tim 3:4-5, Tit 1:6, 1 Pet 3:8-9, James 1:19-20)

Dave Ramsey rants on credit cards

Don't buy stuff you cannot afford

Mary Hunt on debt-free living (CBS)

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You can get out of debt!

No matter where you are financially, you can get out of debt. It will require you to control spending, pay as much as you can toward debt, put some money away for an emergency and, of course, earn money.

The Bible says that the borrower is a servant to the lender. Being in debt affects your life, what you can do, where you can go, what you will eat ... everything.

Mary Hunt offers some tips on her Web site, Debt-Proof Living, which is full of sage advice and practical tips. The document below is a PDF print-out of an article that appears on the site. I encourage you to check out the site, and see if the modest annual fee makes financial sense for your family.

Here are Mary Hunt's tips to becoming fiscally fit:

Mary Hunt - Become Financially Fit

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Here is some advice from Zen Habits:

Zen Habits - 73 Tips for Debt Elimination

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