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Eli Pollock TEN MYTHS ABOUT
YOUR FINANCES
Ioften hear “truths” about personal fi- fore borrow against their house (a home go. Granted, not everyone can afford a
nance that just aren’t true. They are equity loan) and use the money to pay off house, especially at the beginning, but
more like myths. Here are some: credit cards. Another reason is that the rent does not build equity and does not
Myth #1: The rich do not pay tax- interest rate on mortgages is much lower build wealth. The goal should be to save
es. We have all heard this one. It seems than credit cards. Yes, home equity loans up for a down payment on a home, even
that there are secret tax deductions that might save you in interest and taxes, but a small one, after which the mortgage
only the rich are aware of. They find out bear in mind that, while you can wiggle payments are often not that much more
about them from their secret accoun- your way out of credit card debt (through than rent, when you factor in the tax sav-
tants, who are the only ones who have bankruptcy and plain old negotiations), ings. That said, not every house is a great
access to them. Perhaps these deductions if you do not pay your mortgage, you are purchase. Choosing what to buy and at
are written up in a secret book called homeless. It sounds farfetched, but it is what price requires some wisdom, if not
Protocols of the Elders of Accountants. not. It is a very scary possibility. (That a downright sixth sense.
If this myth is true, why don’t these spe- said, juggling retirement plan contribu-
cial accountants ever advertise their ser- tions vs. mortgage payoff strategies is Myth #5: Leasing a car makes finan-
vices? Why doesn’t a Google search bring complex. Get professional help.) cial sense. Sorry, but there is no way this
up these secrets? is true. Clearly, some people like to have
Myth #3: You should pull out money a shiny new car every three years, but
The truth is that the rich pay a lot of from your home’s equity and invest it. recognize that desire for what it is. Don’t
taxes, possibly over 40% of their total This piece of “wisdom” hold that, since believe me? Let’s crunch the numbers.
income. So, the next time you hear this mortgage rates are low and the stock
said, please ask to see a copy of the tax market has been hot, it pays to borrow as When you lease, you typically agree
return and confirm for yourself that it is much money as you can and invest it in to use the car for three years and up to
a myth. stocks, where you will make more money 36,000 miles. Here’s what’s really hap-
then it costs you. pening: You are buying the car with bor-
Myth #2: Having a mortgage is a rowed money. Your lease payment cov-
good way to save on taxes. It is true The truth: Here, too, if anything goes ers the interest on the loan. After three
that the interest you pay on a mortgage wrong, you are homeless. Investments years, you sell it back to the dealer for
is tax deductible, meaning that you get go up and down, so people should only the depreciated value (at least 33% less
back some of it from the government. invest money they can afford to lose. than its price when new). This amount
For example, if you pay $12,000 a year Playing with your principal residence has to be low enough that the dealer can
in interest, you might reduce your tax is way too dangerous. That said, I have sell it at auction without losing money
bite by $4,000. However, you are still seen people who have started successful and for used car dealers to acquire it at
paying $8,000 out of your own pocket. If businesses with money pulled from their auction and then resell it for a profit. All
you have no mortgage, you can save that houses, but this should not be followed this is covered with your lease payment.
$8,000. So a good goal should be to pay as the general rule. Furthermore, if you drive the car more
off your mortgage as quickly as possible. than the 36,000 miles, you are charged
A paid-off house is the ultimate luxury. Myth #4: Renting your residence is extra, but if you drive it for fewer miles,
an acceptable long-term plan. I have you are not refunded any money. Almost
This myth dates to the olden days, met people who rent expensive homes invariably, you will drive less than 36,000
when all interest was tax deductible, to accommodate their growing families. miles and are therefore paying for some-
including credit card interest. In 1987, They justify it by saying they don’t have thing you are not using. (Would you pay
under President Reagan, the tax laws the funds for a down payment. for a 36-pound case of chicken and agree
changed, and credit card interest was no to receive only 30 pounds?) Even if you
longer deductible. However, mortgage in- The truth is that, if you are going are absolutely certain that you will drive
terest remained deductible. People there- to live somewhere for more than a few
years, buying is generally the way to
102 u www.wherewhatwhen.com u
Eli Pollock TEN MYTHS ABOUT
YOUR FINANCES
Ioften hear “truths” about personal fi- fore borrow against their house (a home go. Granted, not everyone can afford a
nance that just aren’t true. They are equity loan) and use the money to pay off house, especially at the beginning, but
more like myths. Here are some: credit cards. Another reason is that the rent does not build equity and does not
Myth #1: The rich do not pay tax- interest rate on mortgages is much lower build wealth. The goal should be to save
es. We have all heard this one. It seems than credit cards. Yes, home equity loans up for a down payment on a home, even
that there are secret tax deductions that might save you in interest and taxes, but a small one, after which the mortgage
only the rich are aware of. They find out bear in mind that, while you can wiggle payments are often not that much more
about them from their secret accoun- your way out of credit card debt (through than rent, when you factor in the tax sav-
tants, who are the only ones who have bankruptcy and plain old negotiations), ings. That said, not every house is a great
access to them. Perhaps these deductions if you do not pay your mortgage, you are purchase. Choosing what to buy and at
are written up in a secret book called homeless. It sounds farfetched, but it is what price requires some wisdom, if not
Protocols of the Elders of Accountants. not. It is a very scary possibility. (That a downright sixth sense.
If this myth is true, why don’t these spe- said, juggling retirement plan contribu-
cial accountants ever advertise their ser- tions vs. mortgage payoff strategies is Myth #5: Leasing a car makes finan-
vices? Why doesn’t a Google search bring complex. Get professional help.) cial sense. Sorry, but there is no way this
up these secrets? is true. Clearly, some people like to have
Myth #3: You should pull out money a shiny new car every three years, but
The truth is that the rich pay a lot of from your home’s equity and invest it. recognize that desire for what it is. Don’t
taxes, possibly over 40% of their total This piece of “wisdom” hold that, since believe me? Let’s crunch the numbers.
income. So, the next time you hear this mortgage rates are low and the stock
said, please ask to see a copy of the tax market has been hot, it pays to borrow as When you lease, you typically agree
return and confirm for yourself that it is much money as you can and invest it in to use the car for three years and up to
a myth. stocks, where you will make more money 36,000 miles. Here’s what’s really hap-
then it costs you. pening: You are buying the car with bor-
Myth #2: Having a mortgage is a rowed money. Your lease payment cov-
good way to save on taxes. It is true The truth: Here, too, if anything goes ers the interest on the loan. After three
that the interest you pay on a mortgage wrong, you are homeless. Investments years, you sell it back to the dealer for
is tax deductible, meaning that you get go up and down, so people should only the depreciated value (at least 33% less
back some of it from the government. invest money they can afford to lose. than its price when new). This amount
For example, if you pay $12,000 a year Playing with your principal residence has to be low enough that the dealer can
in interest, you might reduce your tax is way too dangerous. That said, I have sell it at auction without losing money
bite by $4,000. However, you are still seen people who have started successful and for used car dealers to acquire it at
paying $8,000 out of your own pocket. If businesses with money pulled from their auction and then resell it for a profit. All
you have no mortgage, you can save that houses, but this should not be followed this is covered with your lease payment.
$8,000. So a good goal should be to pay as the general rule. Furthermore, if you drive the car more
off your mortgage as quickly as possible. than the 36,000 miles, you are charged
A paid-off house is the ultimate luxury. Myth #4: Renting your residence is extra, but if you drive it for fewer miles,
an acceptable long-term plan. I have you are not refunded any money. Almost
This myth dates to the olden days, met people who rent expensive homes invariably, you will drive less than 36,000
when all interest was tax deductible, to accommodate their growing families. miles and are therefore paying for some-
including credit card interest. In 1987, They justify it by saying they don’t have thing you are not using. (Would you pay
under President Reagan, the tax laws the funds for a down payment. for a 36-pound case of chicken and agree
changed, and credit card interest was no to receive only 30 pounds?) Even if you
longer deductible. However, mortgage in- The truth is that, if you are going are absolutely certain that you will drive
terest remained deductible. People there- to live somewhere for more than a few
years, buying is generally the way to
102 u www.wherewhatwhen.com u
