Paying Off Your House
By Dave Ramsey
Author, The Total Money Makeover
These days it pays to be smart about money. That's why it's important to take this wise counsel from financial expert Dave Ramsey.
Travel sports are a luxury
My husband lost his job a few months ago. He’s found another one since then, but we’re still trying to rebuild our finances. At the same time, our daughter plays softball on a travel team. It’s a great character-building experience, but the costs involved can be pretty high. Do you think we should cut down on the travel team activities for a while?
You’re right. Playing sports can be a great part of the character-building process. But she can learn character lessons playing in a softball league at your local park. She doesn’t have to travel all over the place to learn those kinds of things.
If you have kids, there’s a pretty good chance you’re going to spend some money to help encourage their hobbies and interests. That comes with the territory, and it should be a fun and rewarding experience for everyone. You just have to take a look at your financial situation—and the kid’s desires and abilities—and make sure it’s a reasonable amount of money.
In your situation, playing on a travel team right now is a luxury. You don’t need to be footing the bill for hotel rooms and gas and stuff while you’re trying to get back on solid ground financially. Chances are, this child is not going to make a living playing softball. Even if she is that good, she can still sharpen her skills in a home town league until you guys are back on your feet.
I’m not opposed to kids playing on these kinds of teams per se. But you can’t allow the cost and time involved to undermine the needs of your family or blow your budget!
Dave explains paying off the house
My wife and I are following your plan, and we’re in the middle of paying off our debts using the debt snowball. When we told my mother-in-law that by doing this we’d be able to pay off our house within 10 years, she told us that would be a stupid move. She couldn’t give us a reason why she thought it was stupid, but we couldn’t convince her otherwise. How can we explain things to her?
Okay, she’s telling you it’s a bad idea, but she has no idea why it’s a bad idea? It sounds to me like she’s the dumb one if she thinks you should behave a certain way, but can’t even tell you why. If someone can’t tell you why they have an argument against something, then they have no argument in the first place!
A lot of talking heads think it’s smart to not pay off your home. They’ll tell you things like it’s better to borrow money against your house and invest it in the stock market. What they won’t tell you is that there’s virtually nothing there by the time you adjust for risk and taxes. Why in the world would you take a chance on losing your home over something like that?
Another line they’ll throw out is that you don’t want to lose your tax deduction. This one’s really silly! If you have a $200,000 loan at five percent interest, you’ll pay about $10,000 a year in interest. Now, let’s also say you make $70,000 a year, and you’re in the 25 percent tax bracket. That $10,000 tax deduction is saving you $2,500 in taxes. In essence, you’re sending $10,000 to the mortgage company to keep from sending the government $2,500. That’s pretty stupid! You’d be better off to be debt-free and give $10,000 to some charity or your church. That way, you’ll save on taxes and do some good with the money.
By paying off your home, you decrease risk and gain a ton of security!
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Dave Ramsey is a nationally-syndicated radio talk show host and author of the New York Times bestselling books, Financial Peace Revisited and The Total Money Makeover. His life-changing advice in the area of personal finance helps people get out of debt, stay out of debt and build wealth that will last a lifetime and beyond.
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