Ready or Not #80:Mortgages and Leasings

The following comments are not the opinions of any newspaper or magazine writer.  They also may not be the opinion of your creative financial adviser or your hairdresser. They are my opinions:  Get your debts paid off!

I say this because I see so much “creative” financing going on and quite frankly it scares me.  You now have the option to finance your house at 110% of its value.  Who would ever pay more for something than it is worth?  Next time you go to the grocery store to buy food storage (which, by the way, is an investment too), offer to pay 10% more than the total and see how they react.

The housing market changes all the time and it is a very scary thing to owe more on your house than you could ever get out of it. The market doesn’t always go up. Or what about the mortgages where you pay nothing on the principal and have the option to only pay the interest each month?  Thirty years later, when your house SHOULD be paid off, you will still owe exactly what you did when you bought it. Or maybe just a little bit less if you threw some principal payments in every once-in-a-while to make yourself feel better.  Ouch.  Be responsible with your mortgages; don’t get variable rate mortgages no matter how tempting they might be because you may not be in the position to go to a fixed rate when you need to.  Try to stay away from second mortgages.  You are playing a gambling game with the security of your future and believe me, living with your kids won’t be nearly as much fun if you lose your house and have no other option.

Leasing cars.  Why?  I have had several different seemingly intelligent people, try to convince me that leasing a car is a smart thing to do.  I just don’t agree.  They tell me that it is a sure way to have a reliable car all the time.  Brother.  If you change your oil, have your car fluids checked and take it in for regular checkups, your car — that is PAID OFF — will be just as reliable as the person who’s latest and greatest newer model car, which is essentially just renting it and having to pay additional fees for the privilege to drive it, will be.  Who comes up with these ideas?

Most cars manufactured today, with proper maintenance, will easily go over 200,000 miles before anything major might go wrong.  A vehicle shouldn’t be a fashion statement as much as a source of transportation to make it possible for you to accomplish things like going to work, taking kids to school or lessons, shopping, shopping for food storage and maybe even going to the movies and out to dinner every once-in-awhile.  If you have the income to have a really nice car – buy it. But DON’T become a slave to the payments for the rest of your lives by renting, I mean leasing, so that you can look cool.  A responsible person that saves a portion of their disposable income and takes care of what they have is really cool.

We have all seen how the economy goes in cycles.  My parents still remember some of the leftover concerns of the depression.  I have lived through a few recessions. But as a society, we seem to have a short memory when it comes to how bad it can get during the bad times because we are currently experiencing fairly good times.  In the job that I have, I order from a supplier whose entire stock of items comes from China.  I talked to him last week and he said that it was a good thing that we had ordered our product back in May because we were just barely able to get it into the states.  Several Chinese officials have been hung (literally, not figuratively) because of the lead paint fiasco and other dangerous products that have been shipped out of that country.  He said that China is in trouble and that the people he has been talking to over there said that the entire Chinese economy is in chaos.

Don’t think that their problems won’t affect us in the United States.  The world is too small and we have all become interdependent on the different countries and economies around the world.  If something happens in their world, it will eventually trickle down to us.  I listened to a newscaster talk about how retail stores are panicking because the toys that they ordered from China for the Christmas season are simply not going to be shipped out of China.  Low Christmas sales because of lack of product (this is a real concern) means lower income for the stores, more people laid off, less disposable income, smaller tax base for the cities and so on and so on and so on.  Just think back to what happened to the economy after 9-11.

Pay your bills down, or even better yet, pay them off and then re-evaluate your spending habits.  Ask yourself if you are putting your emphasis on the really important things in life: your family, your health, your safety and your security. And get your water stored!

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