Once you sign on the dotted line you owe the principle balance. The only thing you can control is how much interest you pay. This is why no matter what the debt is, you want to pay it off as quickly as possible. Every penny you pay in interest is a penny you’ll never see again. When the debt is for things of value such as a house, avoiding interest means tying your money up in equity. It’s not gone, it’s just not liquid. You don’t have immediate access to the money if you need it. But, it wasn’t your money to begin with. Remember that dotted line you signed? If you wanted the cash in hand rather than in equity you shouldn’t have bought that house. Equity is not a piggy bank. It’s simply the value assigned to a product.

You can either sell the house and get the cash in hand. Or you can take another loan out against the value of the house and pay it back with interest. Why would you want to pay interest on your house twice or more?

The most over sold excuse for not paying your mortgage off ASAP is that the interest you pay is tax deductible. There are two problems with this. The first problem is that $10,000 is already deducted from your taxes automatically if you don’t do itemized deductions. If you itemize deductions (thereby being able to take off the interest paid for your home) you must have paid more than $10,000 in interest to come out ahead. A home loan of $160,000 at 7.5% with the minimum payment will have more than $10,000 in interest for only a year or two.

The second problem is that it is a tax deduction. You only save your tax rate times the amount of interest you paid. Rather than saving the total amount of interest you save (the amount of interest you paid - $10,000) * your tax bracket. Because $10,000 was going to be deducted anyway.

Interest is never worth paying. Tax deductions are a break for the inevitable. Not something to seek out. You’re aways better off simply not spending the money.

The MagicJack is a small USB device that plugs into your computer and turns your typical phone into an internet phone. For awhile they were selling the device plus 1 year of service for about $20. Now you can get the device plus one year of service for about $40. Essentially if you bought MagicJack a few months ago you would have gotten the USB device for free. Even at $40 the device is a steal.

If you have a home security system there is a very slim chance you can do without a standard landline phone connection. I have such a security system. However, you can still save money. I currently have Qwest and pay $30+ a month for various features such as call waiting, caller ID, etc. With MagicJack I get all that for free plus Voice Mail. So now I can turn those features off the landline and drop the landline price to around $20 a month including taxes and fees. A savings of $10 a month. So in one year I save $120 on the landline and paid $40 for a MagicJack netting a savings of $80 in the first year. The second year will cost $20 and save $120 so I’m now ahead $100 a year.

So even if you still need a landline you can save money with MagicJack.

The second objection to MagicJack is the fact that you can’t just plug your phones into the existing phone plugs around your house. If you want to have multiple phone around the house you’ll need to invest in wireless phones which work off a single base. Only the base needs to plug into a phone jack. The rest of the phones simply plug into an electrical outlet and work off the main base wirelessly. If you have a bunch of cheap wireless phones that all need to plug into a phone jack then you can simply put all the bases by the MagicJack and buy a cheap phone jack splitter. So you don’t really lose the ability to have multiple phones around the house.

Reading reviews on Amazon MagicJack has historically not had the best quality sound. But, it seems that in late 2008 they upped the quality significantly. I’m not seeing any phone quality issues.

You do need a high speed internet connection and a computer that is always on (or at least on when you want to make a phone call). I personally have had computers running 24/7 for years in home to run various internet based applications. So there’s no additional cost on my end to plug in a MagicJack. If you don’t already have a computer running 24/7 then you may have to consider additional electricity costs. For me it costs about $10 a month to run 3 computers 24/7 every month. Your rates may vary.

If you don’t have a high speed internet connection then well you’re probably saving more money by using dial up plus a land line. MagicJack isn’t going to work for you and it won’t save you any money anyway.

The biggest savings with MagicJack comes if you call long distance. There are no additional fees with MagicJack to call long distance. So you can cut that service off your landline and that alone will quickly pay for the MagicJack.

Essentially, it’s virtually impossible to not save money with MagicJack. One review I read said that MagicJack looks like a scam and in some ways sounds like a scam but it’s not. It’s a genuinely great product that just needs a little help in the marketing department.

Setting it up is very simple. You plug it into your computer, wait a few minutes for it to finish doing it’s thing (don’t touch your computer in the mean time) and then register it when it asks you. You have an option to get a vanity phone number which was about $10 a year or you can get an automatically assigned number for free. There is also a deal to get 5 years of service for $60. A $40 savings. I’m not sure how long that will last. At $12 a year that’s only $1 a month for phone service.

If you don’t have a MagicJack, have a high speed internet connection and a computer you can leave on 24/7, you’re wasting money. It really is that simple.

As I covered in a previous post, you can retire practically a millionaire by being debt free and saving your money for only 25 years. Retirement is typically at 65 so what should you be doing for the first 40 years of your life?

0 - 5: Be a kid obviously
6 - 15: Start developing hobbies and career aspirations
16 - 20: Get a job, work your way into some sort of management position
18 - 22: Figure out what you want to do for at least 10 years, go into debt for an education to qualify for that career path
20 - 25: Get started in your career and buy a house that you plan to keep until it’s paid off
25 - 40: Pay off your house and every other debt you have. Learn to live on what you make.
Stop creating new debt. Save for nice things you want.

And now it’s time to focus on retirement:

40 - 65: Change careers if you want. Save for retirement. $2000 a month at 4% interest will net you $1 million in 25 years. You don’t even have to invest in the stock market to be a millionaire.

If you absolutely must move keep your financial situation the same or make it better. Always keep track of what it will take to be debt free by the time you’re 40 and stick to that goal. If you can afford and want to pay for a larger house or a better neighborhood and still make the goal then great.

Regardless of your debt situation you should always be making enough money to pay it all off by your 40th birthday. If you’re not, then you’re cutting into your retirement.

The mistake many people make is saving for retirement their whole life and then getting there with a lot of debt. Suddenly retirement isn’t retirement because the meager amount you were saving your whole life is not sufficient to get you out of debt or even cover your debts for the next 20 years.

Look at it this way: you can put away $200 a month for 45 years at 4% interest and retire with $302,000 or you can get yourself out of debt and retire a millionaire by saving for 25 years after getting into and out of debt the prior 20.

Back in the old days people people bought a house and paid it off. Now, people can’t seem to stop moving and never actually pay a house off. “Content” is not in the vocabulary of many people. Now, there’s nothing wrong with getting a 30 year loan for a house. In fact, having a minimum payment that is low enough for you to survive a financial emergency at least temporarily is a good thing. But the thing to keep in mind is that it is a “minimum” payment. The difference between owning your home in 30 years and owning your home in 15 on a $150,000 loan at 6% interest is less than $400 a month. In 15 years or less you could be financially free essentially. Lose your job? So what. Work at McDonald’s. You own your home, it’s not going anywhere as long as you can pay the taxes and insurance. Hate your boss? Tell them to stuff it. You own your home. You don’t need their money anymore. You could live on minimum wage if you own your home.

Don’t believe me? Let’s run some numbers.

Right now I owe $2600 in various debts and bills. The house payment is $1310. The actual principle/interest payment is $1056. So now I’m down to $1550 a month I owe in other bills and debts. $1550 x 12 is $18,600 a year. Divide by 52 and you’re at $358 dollars a week I need to make to cover all my bills if my house was paid off. At 40 hours a week I need to make $8.94 an hour after taxes. At that rate I’m in the 15% bracket which is about $10.50 an hour 40 hours a week before taxes.

Now let’s go a step further and get out of debt completely. So I’m back to $2600 a month. Of that, $2015 is debt. So without debt I need all of $485 a month to pay my bills. That’s $5820 a year. Divide by 52 and we’re at $112 a week. At 40 hours a week I only need to make $2.80 an hour.

Imagine being debt free with 20-30 years left until retirement. People become so obsessed with retirement that they don’t realize that if they’d just get out of debt and own all their property they wouldn’t have to worry about retirement because they’d need next to nothing to survive. And you could be rich without risking your money.

We’ve been paying $2015 in debts so let’s put that into a savings account each month with a 3% interest rate. In 30 years you’d have $1.174 million dollars. In 20 years you’d have $661,000 dollars. So even if you waited until you were 45 to start putting money into a safe retirement account you’d have over half a million dollars to live off of for the rest of your life. And with only $5820 needed to pay bills each year, in 40 years you’d have spent $233,000 in bills leaving you with about $430,000 to spend on yourself.

Or about $900 a month for the rest of your life in spending money. On top of social security and other government benefits.

You don’t have to be rich to retire rich. You just need to get into debt early, get out of debt early and then start saving your money. Own your home. Own your cars. Stop using credit cards. Stop living in debt.

The stock market is not so much driven on company performance anymore. It’s mostly based on perception. If a lot of people perceive that a company is good they’ll buy the stock and the stock will go up.

So I’ve devised a stock picking method I call “Betting on the Herd.” The first step is to identify which stocks closed up yesterday. Those are the stocks people will be looking at today. The theory is that yesterday’s herd is going to continue running today for some amount of time.

It turns out, checking stock history data, that 100% of a sample of stocks priced between $5 and $20 that closed up two days ago hit a high the next day greater than the opening price. 60% hit a high greater than 1%.

The trick of course, is recognizing a herd and knowing when to break from it. Most people want to ride a wave until it hits its mythical peak. I prefer to pick a percentage and take my money when it’s met. Let’s say stock A closed up yesterday. I buy it. The herd continues and I make 1% so I sell. Turns out it was a stampede and the stock closes up. The next day I can buy it again and collect another 1%. In two days I earned and pocketed a 2% gain. Even if on average the stock is going down.

It’s a rare stock that gains 300% in a year. Every day there are stocks gaining a percent. By taking those small daily gains from a wide variety of random stocks, I’m far more likely to end up with a larger return than trying to find a few stocks that go up 10 or 20% for the year.

The other issue with betting on the herd is that you need a lot of money to start. With a $9.99 transaction fee through TD Ameritrade you need to invest around $4000 just to be able to break even on a 0.5% gain. The lowest next day gain after closing up the prior day.

At Bankrate.com I entered in 152000 for the mortgage, 7.13 for the interest rate and 1024.57 for the monthly payment.

For some reason my loan calculations were off from Bankrate.com. Excel gave me 216839.12 as the total interest paid on the loan while Bankrate returns 216843.46. A difference of 4.34.

Then I noticed the amount being applied to principle and interest on Bankrate. Bankrate is putting 121.23 on principle and 903.13 on interest. 121.13+903.13 = 1024.56. A penny less than our payment.

So apparently Bankrate.com is doing Superman math. By the end of the loan, all those pennies eaten by Bankrate’s calculations cost 4.34 in additional interest.

If you listened to each individual lender you would find that what you owe them is the most important thing you need to pay. But what if you need to maximize your reserve because little to no money is coming in?

The first debts you need to pay are the ones that will land you in jail if you don’t pay. Even if you’re on a payment plan you don’t know how long your reserve will last and you may run out of money before you finish paying the debt. So pay it off or at least pay several months of it. Whether you pay it now or later, it doesn’t matter so it’s best to just do it now so you don’t have to worry about it.

The second most important debts are the ones that keep you in a position to find and hold a job. That means your car and car insurance. You’ll also need a phone. I highly recommend TracFone. In some areas you can get a phone with double minutes for life for $30 and then get 400 minutes (200 minute card doubled) for about $40. You now have a private line that only companies you applied for will be calling you on. So if it rings, answer it. 400 minutes is 6 and a half hours of talk time. Plenty of time to set up interviews and do phone interviews.

With your car and a phone all that’s left is an internet connection. If you don’t have Microsoft Office then get OpenOffice which is a free alternative. Use that to write your resume on your cheap as you can get internet connection to send it off to various companies. A lot of companies can get you broadband for about $30 a month. You don’t want a dial up connection because that means you need to pay for phone service on top of the dial up connection.

Next up, pay the minimum on all debts (except the house) with a montly payment. Credit cards, medical bills, loans, etc. If you’re renting, now might be a good time to get out and bum it with a friend or family member for a few months.

Next you have utilties; cable, water, electricity, etc. Cut out the things you don’t need like cable. Cut back usage of the things you do need like water and electricity.

And finally, make your house payment. Unless you’re a lonely friendless sad person, chances are you will manage to find a roof to put over your head if you lose your house. Skip the house payment until you find a job unless you have enough money for all your other bills as well for at least 3 months. Keep the money in a bank account so that if you find a job and the money is still there, you can make up the missed payments. You have a month or two before you’ll have to deal with threats of foreclosure. If you do get to that point you may just have to let it go.

Until you have a job, it’s more important to make sure you have everything you need to find a job and live. A house just isn’t that essential. When you’re jobless it’s a luxery. Try to work with the bank so they know you’re not trying to screw them over. But don’t lose more important things trying to save the house. You’ll just end up losing everything.

A rich person is someone who has lots of nice things.  A wealthy person is someone who has lots of money. It’s the difference between looking rich and being rich. A person who looks rich spends all their money on nice things. A person who is rich keeps their money. The reason a lot of people don’t move up in life is because they mistake looking rich for being rich. Looking rich is the biggest roadblock to being rich. This is why many wealthy people don’t look rich. They drive modest cars and live in modest houses.

Being able to look rich and be rich at the same time is not an easy task. If you have 1 million dollars that seems like a lot of money. And it is if it’s in your bank. But what if you want to look rich? 1 million dollars doesn’t go very far. The clothes, the house and the car will quickly devour 1 million dollars and by the end of it you’ll look rich but have nothing left in the bank. It’s as silly as buying a $100 safe to put your $100 bill in. Once you have the safe you no longer have anything to put in it.

And this is where being smart with your money is important. You have know when it’s okay to spend money and when you need to continue building wealth. Instead of running out and emptying your bank account or taking out loans to get the nice things you want you should simply make a list of all the nice things you want. Keep a list of the name of the item and the price. Order the list by what you want first, second and so on.

Now, keep a savings account that is dedicated to buying those things. You’ll find that by being smart with your money it may take awhile to get the first item on your list but as time goes on soon you’ll be accumulating wealth faster and faster because instead of wanting things right now, you waited and paid off debts first. While you were in debt you may have only had $100 a month to put into the savings account. But as you became debt free you may now have thousands of dollars going into your savings every month.

Becoming wealthy is a long term thoughtful goal. You have to take the time to think about where your money is going and where you want it to go. You have to learn patience to wait for the things you want.