Sunday, February 15, 2009

Personal Finance Thoughts: Debt Free

A while ago I started to get really interested in finance. I remember picking up a book at the library about personal finance, but I put quickly put it aside for a couple of reasons. The first was the author talking about how anyone can get out of debt (after all, she did,) but then the author admitted that she got out of debt by getting lucky and making a lot of money from the housing boom. To me that is the same as saying, "I got out of debt by winning the lottery, and I'll show you how to get out of debt too." Yeah, right, sure. The second reason I didn't like the book was that her definition of debt free was to have no debt except a home mortgage and home equity line of credit. Now I know that it's next to impossible to buy a house without getting a mortgage, but I don't want to have my mortgage for forever. And I definitely don't want to have a second mortgage of any type on my house.

I also get monthly letters from my mortgage broker about finance. Considering the source, it's no surprise that most of the time they are outlining the wealth building power of mortgages with ideas such as: money grows faster in the stock market than a mortgage, if all your money is in the mortgage then it's hard to pull it out when disaster strikes, and you'll lose all your equity in a foreclosure, and so forth. The math is convincing, but isn't it safer to pay off the mortgage as soon as you can? They say it isn't.

On the other hand, I once saw a community education class that said something to the effect of, "learn how to get out of debt completely in six months, including the mortgage. Stop putting money in savings and the 401k/IRA and get out of debt fast." Getting out of debt sounds great, but not having money in savings sounds scary for when disaster strikes. I didn't like the debt models of having as big of a mortgage as possible, but this idea seemed just as bad on the other side. I also couldn't see how someone can pay off a mortgage and all other debts in just six months.

I want a money plan that's in the middle. One that will lead to no debt whatsoever, but still allow for savings for the future. I recently found that plan, but I'll save it for another post (this one is already plenty long.)