We talked about investing your time and investing yourself, so today we finally get down to investing money, which is probably what you think of – no, strike that, it’s DEFINITELY what you think of – when I say “investing”. 

Everyone invests money.  All the time.  No, really.  You invest money every time you buy so much as a sandwich.  Now, we hardly ever think about it like that, but it is not the less true.  And as with all investing, the smarter the decision we make on the front end the better the results will be on the back. 

Let’s make sure that we get one thing straight right at the beginning, though: the purpose of investing is not money.  Money is a vehicle, not a destination.  Having money is lovely, but only because that money is a store of value that allows you to do things.  If you cannot do things, money is irrelevant.  Think of Bill Gates adrift at sea on a wooden plank.  Still a billionaire, yes, but what good is his money doing him?

The reverse thing is also true.  Try this on: for the rest of your life, there’s a fellow that will follow you around and pay for everything you do, no matter how expensive it is.  The catch is, you can never have so much as a dime in your own pocket.  Deal?  Believe it or not, I know people that wouldn’t agree to that, but man, I would, and I bet you would, too.

Point is, we need to think of money as the car that takes us to the Grand Canyon.  It’s not the Canyon itself.  That will save us many a heartache down the road.

So now that we have the foundation, what are we going to invest our money in?  Well, the biggest investment most of us will make is the investment in our home, so here are some yeses and nos of mortgages and homebuying.  Remember, only a private consultation can give you the answers for you.  These are just guidelines.

Yes, you should buy a home if you’re renting and the payments are within 20% of each other.  Purely as a financial matter, you’re going to get about that much benefit from being able to build equity in your own home rather than in someone else’s.  So if rent and mortgage payments are within 20% of each other, take a close look at pulling the trigger.

No, you shouldn’t buy a home if you have to stretch to make the monthly payment.  By stretch, I mean if you are in a position where a fairly common event makes it a scrape to get the money together for the mortgage.  Something like needing new tires, or fixing the washer.  That stuff happens to everyone, all the time.  If that’s enough to stop you from being able to make your payment in the first half of the month, then you’re too tight.  Save a little more or get something smaller.

Yes, you should pay your house off early.  I know all about the tax deductions you get for home interest.  This is not a benefit to you unless you don’t have any choice but to pay the interest in the first place.  Don’t believe me?  Here’s the math: I have $500 and I pay that money in interest on my mortgage.  Then I take a deduction on my taxes.  This deducts at 35%, meaning I get essentially one dollar of tax savings for every three dollars of expense.  In the end, I have $175.  You, on the other hand, don’t pay the $500, and lose the deduction, meaning you lose the $175.  But you have $325 left – $150 more than I do. 

No, you shouldn’t base your decision about whether to buy a family home on whether you think the market is going up or down.  A home is an investment but it is not primarily an investment.  And whether you believe it or not, you don’t know what the market is going to do.  If it’s a home you like, at a price you can afford, that’s far more important.

Since mortgage rates are spectacular and this topic is on everyone’s mind, here are three yeses and nos about refinancing:

Yes, you should probably refinance your home if one of the following is true:

1.      You can get 1% or better reduction in your rate

2.      You have credit cards or other high-interest debt that you could pay off

3.      You are lowering your interest rate and plan to stay in your house more than 5 years

4.      You have an FHA or VA loan you got in the last 4 years

No, you should not refinance your home if one of the following is true:

1.      You want to invest your home equity in the stock market

2.      You don’t have a budget or control over your expenses

And Yes, you’re going to be better off in the long run if you have a full-time professional that not only handles the mortgage itself but will put your mortgage under management and watch the rates for you in the future.  Ideally, you should get a regular statement telling you what your loan status is, not the dollars and cents of the amortization, necessarily, but your current mortgage as compared to the available options.  In short, your mortgage broker should deal with your mortgage the way your stockbroker deals with stocks, and you should expect to get regular advice and anytime, all-the-time information about your situation.

If you’re not getting that, and let’s face it, you’re not, then you need to come and see me.

Next week – the stock and bond markets!  AAAAAAAAAAAAAA!