Inflation has outpaced the rise in salaries for the first time in 14 years.

[TheKurp]

[duplicate]

[TheKurp]

Originally posted by Kilmer17

Really? Wasnt aware of that. Have they closed the loophole re: responsibility if stolen or fraud?

Even still. IF your check card is stolen or simply pilfered from somewhere, you're checking account will be out of money. It's a hassle. I'd rather simply see my Regular Credit Card maxed out (it happened to me in October to the tune of 3 grand) and simply make 1 phone call. The thought of having to deal with a zeroed out checking account scares me.

Good to know that the banks are giving credits for using the check cards now though.

Kilmer,

I've had my check-card number hi-jacked twice now. When I noticed it I called the bank and was immediately credited back the fraudulent amounts. They didn't even hold me to the $50 liability amount. They canceled the old card and immediately sent me a new one.

[Guest Gichin13]

Originally posted by NoCalMike

Your friend certainly was right, as many have said that places like Japan, India, etc it is about how much you save, and in America people are judged on how much they spend, and the more you spend on STUFF, the better you are.

Too true.

Even in my own family. I was driving my grandfather's old Caddy after he died. I loved that car, it was like keeping a piece of my grandfather alive and respecting his way of life.

After several years, I finally decided (after 13 years of practicing law, including three years of owning my own firm) to pony up and buy my first new car ever. I lease a Ford Explorer through my business.

My younger brother's tongue in cheek, but very telling, response was, "It's about time you got rid of that piece of ****."

Talk about materialism and a shallow perspective. Ultimately, I think it has eroded who we are and will rot our position internationally over time.

[Kilmer17]

Originally posted by TheKurp

Kilmer,

I've had my check-card number hi-jacked twice now. When I noticed it I called the bank and was immediately credited back the fraudulent amounts. They didn't even hold me to the $50 liability amount. They canceled the old card and immediately sent me a new one.

That's great. You have a good bank.

But the key to that is the 50.00. They could have held you liable for it if they were a-holes.

[TheKurp]

I was under the impression that the $50 liability limit is what is allowable by law for any credit card theft.

[SkinsHokieFan]

Great thread. Lots of useful advice in here.

First thing is I do agree that college kids should take a financial management class.

Virginia Tech offers a class like that, unfourtantley I could not get in it my last semester because I wanted to take a real estate class.

I am lucky enough running my own business that I don't have to worry about my "salary" keeping up with inflation. I simply got to go out and get more contracts and because I am still living with my parents I have managed to save up some money. The plan is to have my own house by the end of this year.

Also after I won a lawsuit last year I killed all of my unsecured debt. All I have is about 700 on a credit card which I pay off monthly and about 17k in student loans, which at a locked rate of 2.6 percent is nothing. That is only helping to improve my credit.

The thing is that gets people in bad shape is their habits when they are my age or younger. You get bombarded with credit card ads, you go out and spent and get more "stuff" and have no real income. By the time you leave college you are screwed because you not only owe 20k+ in student loans you probably have that much in credit card debt also.

Financial Management should be a required course your senior year of high school. Perfect time to really find out about checks, credit cards, investments, real estates and mortgages, that way you don't act a fool in college

[Guest Gichin13]

Originally posted by du7st

I think my biggest concern is that this is the peak of housing prices. If I buy say at 300g, it drops to 200g and I put 50g into it, wouldn't I be at a net loss?

As an alternative, what if I rent for a year or two and wait for prices to go down?

What geographic region are you in?

If it is anywhere close to DC, there is no way I could see a 50% drop in value ... you may see a 10-15% dip that is made up in a few years if the market completely falls apart. Even that is pretty unlikely.

[Guest Gichin13]

Originally posted by jbooma

I love talking about Money

Actually the best thing I ever bought was Quicken, when you see what you spend your money on every month you might be amazed. I created a budget and now buy EVERYTHING with my check cards, no cash and was shocked how much I spent at starbucs :laugh: :doh:

Star you might want to do that to see what you can curb, or just see what you do spend on, especially before buying a house.

I bug most everything on plastic too, but I pay it off every single month.

I am amassing quite a load of Am Ex rewards points these days.

[Guest Gichin13]

Originally posted by Kilmer17

I have an industrial strength shredder. Crosscut. Icant believe some people throw away info like that all the time.

I have no idea how my cc number was taken. But it was just 1 card and they called me the next day and issued a new card.

It really is remarkable how good the companies are at picking up credit fraud even off a couple minor purchases ...

[du7st]

Originally posted by Gichin13

What geographic region are you in?

If it is anywhere close to DC, there is no way I could see a 50% drop in value ... you may see a 10-15% dip that is made up in a few years if the market completely falls apart. Even that is pretty unlikely.

I will soon be moving to somewhere in northern New Jersey; preferably as close to Manhattan as possible (my job is just over the river near Hoboken NJ).

I just used those numbers as an example to make sure I understood the concept (I think I do...somewhat). Yes 10-15% seems more appropriate.

[Guest Gichin13]

Originally posted by Ignatius J.

cho, the danger isn't just in the house losing value. If the house even remains even, you're not getting a good investment. That 8% interest on your loan is tough to beat right now, just look at all the people on this thread happy to get 3%.

God forbid it goes down, but you need prices to go up to make the investment wise.

This ignores a couple factors.

First, the income tax break from buying a home is huge, especially in the first five years when the interest on a 30yr fixed is almost 100% interest. On a five year interest only arm, everything you are paying is deductible ... plus, you can deduct the real estate taxes as well.

Right there, you are probably multiples above a standard deduction on a 1040 without including anything else.

Also, you are getting some equity compared to rent which buys you nothing.

Granted, if the market plummets, you can lose money. But for renters to be better off than buyers, I think the equation is a little more complicated. To the extent the rent and mortgage payment are equal, you would need to lose more money in equity ever year than you gain in tax savings ...

[Larry]

Originally posted by Gichin13

First, the income tax break from buying a home is huge, especially in the first five years when the interest on a 30yr fixed is almost 100% interest. On a five year interest only arm, everything you are paying is deductible ... plus, you can deduct the real estate taxes as well.

Um, just a point here.

Yes, buying may be better than renting, but. . .

Every time I hear people talk about the mortgage deduction, I cringe (at least a little).

The mortgage deduction has the effect of paying part of the interest on the loan. It means that if you've got a choice between paying extra on the credit card or the mortgage, pay the credit card.

However, it's not as simple as "mortgage is good". No tax write-off can change a loss into a profit.

One nice effect of the mortgage is that you're "leveraging" your money. If you pay 10% down on a house, and the price goes up 10%, then you've doubled your money. (OTOH, if the price goes down 10%, then you've lost everything. Fortunately, real estate goes up a lot more often than it goes down. As Will Rogers said, "They aren't making it any more".)

However, one other possible bad side to real estate as an investment: In most investments, you're taxed when you sell the investment, and your tax is based on the profit you made. In real estate, you're taxed every year, and your taxes are based on the principal. (Even if the price of your house goes down, you're still going to get taxed, anyway.)

I'm remembering a tip I'd heard from Clark Howard, years ago. It especially makes sense when you're just starting out with a mortgage: When you start out, your payments are almost entirely interest. You may pay $1,000 a month, but only $20 of that is actually principal. This also means that if you pay $1020 instead of $1000, then you're paying off the mortgage twice as fast. (Another way of looking at it: That extra $20 you put into your first payment, eliminates an entire $1,000 payment from the end of the loan.)

(He also had another tip: Divide your mortgage payment in half, and pay that much every two weeks. Aparantly, it saves you a bunch of money on interest, and if you're one of those folks who gets paid every two weeks, it makes budgeting easier. And it means that twice a year, you've made an extra payment, that goes 100% towards your principal.)

[jbooma]

Originally posted by Larry

(He also had another tip: Divide your mortgage payment in half, and pay that much every two weeks. Aparantly, it saves you a bunch of money on interest, and if you're one of those folks who gets paid every two weeks, it makes budgeting easier. And it means that twice a year, you've made an extra payment, that goes 100% towards your principal.)

That is correct, the problem is banks are now charging you to do that

One good thing to do is pay one extra payment every year just towards principle, you will take I think 8 years off of a 30 year mortgage.

If any of you want to see some mortgage calcs check out www.dinkytown.net they have some great ones there you can play with.

Larry brings up another good point, the mortgage payment is not just mortgage, it consists of interest, principle, insurance, and taxes. For example on my current home we pay 1486, 50 of that is hazard insurance, I think 400 for taxes and the rest principle and interest, don't know for sure.

For the markets where the houses are expensive, an interest only is a safe bet at first since the payments would be a lot lower then normal, then you pay the principle when you want. What you are betting on is after the 5 years your homes value has increased enough so you can get into a normal fixed loan to something that is more affordable.

You can deduct any point you buy as well all the interest you pay as well, which helps come tax time.

[jbooma]

Originally posted by Gichin13

It really is remarkable how good the companies are at picking up credit fraud even off a couple minor purchases ...

yes but they are terrible about fixing issues on your credit report, that takes a lot of time

[chomerics]

Originally posted by Larry

(He also had another tip: Divide your mortgage payment in half, and pay that much every two weeks. Aparantly, it saves you a bunch of money on interest, and if you're one of those folks who gets paid every two weeks, it makes budgeting easier. And it means that twice a year, you've made an extra payment, that goes 100% towards your principal.)

Great point Larry. It cuts off 8 years on your mortgage, I think it's paid off in 21 or 22 years. It is a great tip.

On top of paying bi-weekly, you should also chip away at your principal when you can. I pay at least $100 over, sometimes $200. This also eliminates a lot of intrest on your mortgage.

As of right now, I have a 30 year fixed at 4.5% (yep, we locked in and bought 1.25points). I should have the house paid off in 15 years, with minimal intrest paid on the house. We refi'd last year, took out 40K in equity for house updates (siding/windows/lansdcaping etc.) and our mortgage payment was less then previously. We were only 10 months into a mortgage when we refinanced, so we actually made out on the deal.

An argument can be made not to pay off the house early and add to the principal, but I don't buy into that aspect.

SHF, great point about a financial planning course in college. It should be mandatory.

[lckelsey4]

Is there a GOOD website somwhere or is there someone on this board who can explain all of this stuff clearly? I know absolutely nothing about tax deductions, points, PMI, basically the whole damn process.

All I know is that I don't want to rent.

:feedback:

[chomerics]

Originally posted by lckelsey4

Is there a GOOD website somwhere or is there someone on this board who can explain all of this stuff clearly? I know absolutely nothing about tax deductions, points, PMI, basically the whole damn process.

All I know is that I don't want to rent.

:feedback:

Start at Fannie Mae

http://www.fanniemae.com/homebuyers/findamortgage/becoming/started/index.jhtml?p=Find+a+Mortgage&s=Becoming+a+Homeowner&t=Getting+Started

[Ignatius J.]

Originally posted by Gichin13

This ignores a couple factors.

First, the income tax break from buying a home is huge, especially in the first five years when the interest on a 30yr fixed is almost 100% interest. On a five year interest only arm, everything you are paying is deductible ... plus, you can deduct the real estate taxes as well.

Right there, you are probably multiples above a standard deduction on a 1040 without including anything else.

Also, you are getting some equity compared to rent which buys you nothing.

Granted, if the market plummets, you can lose money. But for renters to be better off than buyers, I think the equation is a little more complicated. To the extent the rent and mortgage payment are equal, you would need to lose more money in equity ever year than you gain in tax savings ...

this is all true. My only point is that it's not always good to buy. Your analysis here I think makes it clear that there is a lot of math to do before you can make a decision.

[Ignatius J.]

Here's the article:

http://www.economist.com/displaystory.cfm?story_id=3715895

House prices

To buy or not to buy? That is the question

Mar 3rd 2005

From The Economist print edition

Today it is often much cheaper to rent than to buy a house

Getty Images

“IT IS always better to buy a house; paying rent is like pouring money down the drain.” For years, such advice has encouraged people to borrow heavily to get on the property ladder as soon as possible. But is it still sound advice? House prices are currently at record levels in relation to rents in many parts of the world and it now often makes more financial sense—especially for first-time buyers—to rent instead.

Homebuyers tend to underestimate their costs. Once maintenance costs, insurance and property taxes are added to mortgage payments, total annual outgoings now easily exceed the cost of renting an equivalent property, even after taking account of tax breaks. Ah, but capital gains will more than make up for that, it is popularly argued. Over the past seven years, average house prices in America have risen by 65%, those in Britain, Spain, Australia and Ireland have more than doubled. But it is unrealistic to expect such gains to continue. Making the (optimistic) assumption that house prices instead rise in line with inflation, and including buying and selling costs, then over a period of seven years—the average time American owners stay in one house—our calculations show that you would generally be better off renting (see article).

Be warned, if you make such a bold claim at a dinner party, you will immediately be set upon. Paying rent is throwing money away, it will be argued. Much better to spend the money on a mortgage, and by so doing build up equity. The snag is that the typical first-time buyer keeps a house for less than five years, and during that time most mortgage payments go on interest, not on repaying the loan. And if prices fall, it could wipe out your equity. In any case, a renter can accumulate wealth by putting the money saved each year from the lower cost of renting into shares. These have, historically, yielded a higher return than housing. Putting all your money into a house also breaks the basic rule of prudent investing: diversify. And yes, it is true that a mortgage leverages the gains on your initial deposit on a house, but it also amplifies your losses if house prices fall.

“I want to have a place to call home,” is a popular retort. Renting provides less long-term security and you cannot paint all the walls orange if you want to. Home ownership is an excellent personal goal, but it may not always make financial sense. The pride of “owning” your own home may quickly fade if you are saddled with a mortgage that costs much more than renting. Also, renting does have some advantages. Renters find it easier to move for job or family reasons.

“If I don't buy now, I'll never get on the property ladder” is a common cry from first-time buyers. If house prices continue to outpace wages, that is true. But it now looks unlikely. When prices get out of line with what first-timers can afford, as they are today, they always eventually fall in real terms. The myth that buying is always better than renting grew out of the high inflation era of the 1970s and 1980s. First-time buyers then always ended up better off than renters, because inflation eroded the real value of mortgages even while it pushed up rents. Mortgage-interest tax relief was also worth more when inflation, and hence nominal interest rates, was high. With inflation now tamed, home ownership is far less attractive.

The divergence between rents and house prices is, of course, evidence of a housing bubble. Someday prices will fall relative to rents and wages. After they do, it will make sense to buy a home. Until they do, the smart money is on renting.

[Ignatius J.]

and another:

http://www.economist.com/displaystory.cfm?story_id=3722894

Still want to buy?

Mar 3rd 2005

From The Economist print edition

According to our latest house-price indicators, it is now much cheaper to rent than to buy a house in many countries

WHEN The Economist launched its global house-price indicators in 2002, residential-property markets were merely warming up. Today they are red hot in many of the 20 countries we cover: in half of them, prices have risen by around 10% or more in the past year (see table). But for the first time since we started to track them, housing markets in several countries have slowed sharply.

The most dramatic slowdown has been in Australia where, according to official figures, the 12-month rate of increase in house prices fell to only 2.7% in the fourth quarter of last year, down from nearly 19% at the end of 2003. Another index, calculated by the Commonwealth Bank of Australia, which is based on prices when contracts are signed rather than at settlement, shows that average house prices fell by 7% in the year to December; prices in Sydney plunged by 16%. The Reserve Bank of Australia's quarter-point increase in interest rates this week is likely to give prices another downward nudge.

Britain's housing market has also cooled since last summer. The Nationwide index, which we use, was still up by 10% in the year to February, down from 20% growth in July. Other anecdotal evidence suggests that prices have fallen since last summer in many parts of the country.

In contrast, America's housing bubble continues to inflate. Although the rate of increase slowed in the fourth quarter, prices were still up by 11.2% over the year. In California and Washington, DC, housing prices rose by more than 20%. Alan Greenspan, the Fed's chairman, recently admitted in congressional testimony that there may be property bubbles in “certain areas” and a risk that prices could decline. There is certainly evidence that prices are being driven by speculative demand: a new study by the National Association of Realtors shows that one-quarter of all houses bought in 2004 were for investment, not owner-occupation.

House prices are still rising rapidly in continental Europe. French house-price inflation has accelerated to 16%, its fastest on record in real terms and only a whisker behind Spain's 17%. Prices in Italy, Sweden and Belgium are also rising at close to 10%. Excluding Germany, where prices fell again in 2004, average home prices in the euro area have risen by 12.5% over the past year, causing some concern at the European Central Bank.

Punishing prices, puny yields

The main reason why housing markets have cooled in Australia and Britain is that first-time buyers have been priced out and demand from buy-to-let investors has slumped. While house prices have soared, rents have risen modestly or even fallen in some cities. In America, Britain, Spain New Zealand and Australia, average net rental yields (allowing for management fees, maintenance and empty periods) have fallen to 3.5% or less, well below mortgage rates. Shane Oliver, the chief economist at AMP Capital Investors, estimates that net rental yields on houses in Sydney are only 1%. Landlords are nowhere near covering their true costs, but many still hope to make their profit from capital gains. That sounds ominously similar to the days of the dotcom bubble, when it was argued that the link between share prices and profits no longer mattered.

According to calculations by The Economist (with the help of Julian Callow of Barclays Capital), house prices are at record levels in relation to rents (ie, yields are at record lows) in America, Britain, Australia, New Zealand, France, Spain, the Netherlands, Ireland and Belgium. America's ratio of prices to rents is 32% above its average level during 1975-2000. By the same gauge, property is “overvalued” by 60% or more in Britain, Australia and Spain, and by 46% in France (see chart).

The ratio of prices to rents is a sort of price/earnings ratio for the housing market. Just as the price of a share should equal the discounted present value of future dividends, so the price of a house should reflect the future benefits of ownership, either as rental income for an investor or the rent saved by an owner-occupier. To bring the ratio of prices to rents back to equilibrium, either rents must rise sharply or prices must fall. Yet central banks cannot allow rents to surge as this would feed into inflation. Rents directly or indirectly account for 29% of America's consumer-price index, so rising inflation would force the Fed to raise interest rates more swiftly, which could trigger a fall in house prices. Alternatively, if rents continue to rise at their current annual pace of 2.5%, house prices would need to remain flat for over ten years to bring America's ratio of house prices to rents back to its long-term norm. There is a clear risk prices might fall.

Lower real interest rates might justify a higher p/e ratio. For example, real interest rates in Ireland and Spain were reduced significantly when these countries joined Europe's single currency—though not by enough to explain the whole rise in house prices. In Britain, where tax relief on interest payments has been scrapped, real after-tax rates are close to their average over the past 30 years, and so do not justify a higher price/rent ratio. In America, too, real post-tax interest rates are not historically low, in part because mortgage-interest tax relief is worth less at lower rates of inflation. For instance, if interest rates are 10%, tax relief is 30% and inflation is 7%, the real after-tax interest rate is 0%. If interest rates are 6% and inflation is 3% (ie, the same gap as before), and tax rates stays the same, the real interest rate is 1.2%.

The unusual divergence between house prices and rents does not just affect investors; it also undermines the conventional wisdom that it is always better to buy a house, because “rent is money down the drain”. Today in many countries it is much cheaper to rent than to buy.

Rent asunder

Take a two-bedroom flat in London, which you could buy for £450,000 ($865,000). To rent the same flat would currently cost £1,700 a month. In addition to a 6% mortgage rate, a buyer would face annual maintenance and insurance costs of, say, 1.25%. In the first year, the rent of £20,400 compares with total mortgage interest and maintenance payments of £33,000, a saving of £12,600. Interest payments would be less if a large deposit were paid, but in that case the income lost from not investing that money elsewhere has to be taken into account.

Assume that rents rise by 3% a year, in line with wages, while house prices from now on rise in line with inflation of 2%. At the end of seven years (the average time before the typical homeowner moves), you would be almost £35,000 better off renting, taking account of the capital appreciation and buying and selling costs. In other words, even without a fall in real house prices—which many believe to be likely—buying a house in Britain today seems a poor investment.

The figures look even more striking in the San Francisco Bay Area, where it is possible to rent an $800,000 house for $2,000 a month. Making the same assumptions about rents and house prices, but also deducting tax relief on a fixed-rate mortgage and adding property taxes, a buyer would pay $120,000 more over seven years than if he had rented. House prices in San Francisco would need to rise by at least 4% a year (2% in real terms) for it to prove cheaper to buy a house. Since 1950 American house prices in real terms have risen by an annual average of just over 1%. To expect them to rise faster from their current dizzy heights smacks of irrational exuberance, to say the least.

[Ancalagon the Black]

The most dramatic slowdown has been in Australia where, according to official figures, the 12-month rate of increase in house prices fell to only 2.7% in the fourth quarter of last year, down from nearly 19% at the end of 2003. Another index, calculated by the Commonwealth Bank of Australia, which is based on prices when contracts are signed rather than at settlement, shows that average house prices fell by 7% in the year to December; prices in Sydney plunged by 16%. The Reserve Bank of Australia's quarter-point increase in interest rates this week is likely to give prices another downward nudge.

This is why I rent.

[Guest Gichin13]

Originally posted by jbooma

yes but they are terrible about fixing issues on your credit report, that takes a lot of time

Credit reporting companies are a total utter nightmare.

I got hired to help someone try to unravel some credit reporting problems a few years ago and it was a real pain. This is an area that really should be better regulated because those credit reports have a huge financial impact on people.

[Guest Gichin13]

Originally posted by Ignatius J.

this is all true. My only point is that it's not always good to buy. Your analysis here I think makes it clear that there is a lot of math to do before you can make a decision.

I see you live in LA too -- I have read California is really bad in terms of real estate pricing.

[Larry]

As to rent or buy,

I think, if the payments were the same, it would be a no-brainer.

But if, say, your rent is $750, and the alternative is a $1500 mortgage, then is buying really better than, say, renting and putting the other $750 towards a down payment?

I don't think it's always better.

(I remember a long time ago. The apartments I was renting were thinking of going condo. I asked my boss if he thought I should buy my apartment. His response was that there's a simple way to tell when it's time to buy your first house.

Your wife will tell you so.

[tex]

I pretty much followed the trend. My salary went up a modest 1% in 2004 while the cost of my health insurance increased by 20%.:doh:

http://biz.yahoo.com/pfg/e01tax/art021.html

Popular Stupid Tax Strategies

A Suze Orman exclusive

The Most Popular Stupid Tax Strategy

I know this may sound like heresy, but the mortgage interest deduction is the most overrated tax strategy in existence. I constantly hear happy homeowners boasting about how much money they “saved” with their mortgage interest deduction. Folks, you are really not saving a dime.

If you are in the 28 percent tax bracket each dollar you pay in interest is only going to "save" you 28 cents. So let's do the math together: that means you are still spending 72 cents to save 28 cents. Please explain to me what is so great about that.

And you're so happy with this so-called tax break you aren't thinking clearly about what is really happening. In the first years of a mortgage the majority of your payment goes toward paying your interest on the loan, not the principal. And homeowners think that's fine and dandy; it means a bigger tax deduction. But if you can bring some logic to this you would realize you're not building up any equity because of your payments. You may be building up equity yes, but that is because real estate prices are going up. The question has to be asked, what happens if they ever start to go down or just tread water for a while? But let's just look at why the mortgage companies really have you pay the majority of the interest up front. First, the stats show that homeowners tend to move every six or seven years. So that means when you go to sell you've only paid interest on your mortgage; you haven't really paid down any of your principal. The upshot is that the lender has been getting paid a ton of interest while you haven't been paying off much of the principal. So that makes money for the lender, but at your expense.

Now while I know most people need a mortgage in order to purchase a home, there will come a time in your life when it will make sense to get rid of your mortgage. So I don’t want you to just keep paying a mortgage under the guise that it is your only tax write-off. A long time ago, I learned to do what the rich people do; very few seriously rich people have a mortgage. They simply write a check. And an interesting tax fact is that did you know that if you buy a primary residence and you have to mortgage it, that any interest on a mortgage above $1.1 million cannot be written off. You read that right, mortgage interest is only deductible up to a $1.1 million dollar mortgage.

My advice: Once you live in a house that you intend to stay in for the rest of your life, do everything you can to pay off the mortgage ahead of time. Yes, you will lose your tax write-off, but now you understand it’s really just a phantom value. And in return for paying off the mortgage ahead of schedule you will save tens of thousands of real dollars in interest you never have to pay. That sure sounds like a good deal to me.

And don’t worry about having to find oodles of money to make those extra payments. Make just one extra payment a year and you will slice 5.3 years off of your 30-year 6 percent mortgage.

Payoff Tip: Lately the buzz has been simply to set up a bi-weekly mortgage payment plan with your current lender and you will shave years off your mortgage. Bi-weekly means that you pay your mortgage every two weeks rather than once a month. To set up that bi-weekly payment plan, many lenders will charge you up to $500, plus a $5 fee charged with each payment. That’s a waste of money, since you can easily do this on your own. Simply divide your current mortgage payment by 12 and send that extra amount with your current mortgage payment every month and you will accomplish the same thing. And by the way if you think those fees don’t add up. If you invested that $500 along with the $10 every two weeks over 25 years and earned 8 percent you’re talking about $13,680. That is a lot to pay a lender to do something that you can do on your own.

he Second Most Popular Stupid Tax Strategy

Leasing a car makes no sense. It's the same problem as the mortgage interest deduction. For every dollar you spend you are "saving" 28 cents (assuming you're in the 28 percent tax bracket.) So let's review this one more time: why are you so excited about paying 72 cents to save 28 cents? And don't get me started on all the other problems with leasing, such as the costs for exceeding the mileage limit, or getting a dent or two, let alone addressing what happens if you cannot make the lease payment and you have to turn the car back in. In future columns I will address why in my opinion leasing is the stupidest thing most of you will ever do in your life.

Refunds Are a Sign You Have Screwed Up

Tax refunds are not gifts. It is literally a refund of money you paid. More to the point: it’s a refund of money you overpaid. You’re excited about getting a refund when in reality you’re simply getting money back from Uncle Sam that you needlessly forked over. You gave Uncle Sam an interest free loan. I don’t think you would give your own uncle an interest-free loan, so why are you giving it to Uncle Sam? And don’t tell me it’s your way of saving money. I know about your type. You get the refund check and instead of investing it, you spend it as if it’s funny money. Come on guys, let’s get a grip. If you receive a refund you need to either contact your employer’s payroll department and increase your withholding (so less is taken out of each paycheck for taxes) or if you’re self-employed, adjust your quarterly estimated tax payments. And if you think that cannot make a difference I am here to tell you it can. The average refund is $3,000. What if you took that $3,000 or $250 a month and used that money to fund your Roth IRA each month? As I showed you above, that adds up to serious money over time. Now that is what is called retirement planning, not just tax tips.

Capital Gains Tax

I’d also like you to think strategically if you have any assets you plan to sell in the coming years. Remember that the 2003 tax bill lowered the capital gains rate for many of us to 15 percent. (It’s 10 percent for those in lower income brackets.) That’s a nice decrease from the former 20 percent rate. But remember that right now that break is only good until 2008; if Congress doesn’t act to keep it in place after 2008 we could see the cap gains rate shoot back up. So if you’re sitting on a big capital gain, be strategic. That five percentage point difference can add up to big savings.

Okay my friends, those are the main tips to leading a tax-smart life. Follow this advice and I guarantee it will provide you far more financial security than any annual deduction-chasing, tax-credit-searching exercise.