Home Interest

Being tax day, I thought it would be nice to post on a tax topic.  Before you stop reading, this won’t be about teaparty, flat tax, fair tax, or the royal wedding.  On the contrary, I would like to talk about working within the system we have.

For a long time the push was to get a mortgage.  The idea was that you could get a mortgage, get a tax deduction and make money when you sell the house. (Almost no matter how long you lived there.)  The reason was that home prices increased so fast that the home’s value would increase quickly to recover the closing cost on the house.  But that whole issue is for another day…

The issue I want to discuss is the tax deduction.  If you own a mortgage in the United States, you are allowed to take a tax deduction on the interest spent on the mortgage. 

The first issue with this is the misconception about what a tax deduction is.  A tax deduction does not mean you get the money you can deduct.  It simply means you are not taxed on it. A tax credit on the other hand is an amount that will directly reduce your tax bill.  Therefore, people often times think that having a mortgage is good because of the deduction.  But the problem is that you still have to pay the interest on it.

This leads me to next problem.  If the mortgage is considered an investment, which they once were, the increase in value of your house must be greater than the interest you pay on the mortgage.  Let’s look at an example.

If you buy a$150,000 house at 5% interest, the first year of interest would cost about $7,450.  Plus the sunken closing cost around $4,000.  In order to sell your house for profit, after one year, the house would have to sell for $161,450 or 7.6%!  Not likely in today’s housing market.

This example didn’t take out the savings you would have for the reduction of taxes, but I encourage you to look at you previous return to see the net effect of the interest you paid on your tax bill.  (Spoilier! It comes nowhere near the interest expense.)

However, if you don’t have a mortgage and you don’t have cash to pay for a house outright, what do you do?

Now obviously if you rent house, you won’t own any of it.  EVER.  However, if your life is unstable and you don’t know if you can live in a place for long, it may be a good idea to rent.

So, if you choose to buy a home and don’t think you’ll stay longer than five years or so, consider your home an investment where you won’t lose ALL your money.  If you pay a dollar, you may make $0.95 back on it.  But if you’re able to stay in that one horse town for a while you could make $1.05.  

The Grocery Game

When Heather and I go to the grocery store to stock up goodies for a week or two, we usually go out to eat before we do our shopping.  Our dinners, for two of course usually cost us (with tip) average $22.00 a meal.  This always makes me think about the efficiency of making dinner at home.  So let's think about this a moment.  If, a couple like ourselves were to only eat out for an entire week, what would that cost.  Let's say dinner is average of $22.00, lunch $15.00, and breakfast $4.00.  That's $41.00 a day/ $287.00 a week and that doesn't include the evening treats like cookies and ice cream. So I may have to add another $20.00 a week for some frozen yogurt/Baskin Robins...

So what can we save when we buy groceries?  This is the question that for us has yet to be fully determined.  For one thing, we still eat out atleast three or four times a week.  Not including lunch.  Which I can give a whole sermon on the benefits of bringing your lunch.  However, buying groceries has many different variables and angles to take for savings. 

For one thing, the ability to shop in bulk can help. We have a Sam's club card, and this is great for some things like paper products, and frozen foods.  We don't buy a great deal of things there because we don't have room for them...But buying in bulk can be beneficial, just make sure it is actually cheaper and worth while to store.

Health is another option.  I don't know if you've noticed it or not, but buying healthy groceries is expensive.  If all you care to do is fill the belly, you can get buy cheap. But premium products and fresh fruits and vegetables impact the bill.

To cap, we usually spend about $120.00 on groceries every other week.  This of course on top of eating out some as well. I just wonder how much groceries we would have if we only ate in and spent the same amount of money we do to eat out.  How about you?