Thread: My sig explained (finally..and it's a fricken' novel)

Originally Posted by FunkDaMonkMan

I just turned 18, and the first thing i did was get a credit card.
I make all my purchases on the credit card.
I pay it in full at the end of the month.
I collect 1% cash back .

GOOD! If you carry the balance over ONCE, cancel the card and get an AMEX. I F'in hate credit cards and credit card companies.

Originally Posted by meddler

The way it works (I use the same system) is that you have your home loan and a savings account linked to your morgage (offset account). All your income (pay, tax checks, gifts, etc) go into the savings account. If you have a loan of $200k and $10K in the savings account, the bank calculates interest on the offset ammount. ($200k-$10k) So the interest is calculated on $190k. So obviously the more money you keep in your savings account the less interest you pay and the better off you are. Here is where the credit card comes in. You live off the credit card to keep the maximum ammount in your savings account for the maximum ammount of time as stated above. You then pay your credit card out in full at the end of every month (or statement date) In essence you are using the banks money to live off and since the money you would usually spend out of your savings account isn't touched you save on interest. I have heard of people who use this method pay off their 30 year home loan in under 10 years. It's true you still have to exercise control, but you have to think that it is your money you are using even though it is a credit card.
Hope that makes a little more sense to you WizzardPC

Big tick. Thanks for the better explanation.

Now that you all understand that, you'll understand what I mean when I say that my buying a 42" plasma for home on credit contributed $600 toward my mortgage repayments (and that's ignoring the compounding effect over the life of the mortgage).

I had the money in the bank, but instead of using that, I used one of those Harvey Norman (read: big electronics discount store) 16 month interest free deals.

Net result: I get a TV, and someone else pays for it for a while. I pay the loan out in full on the last day.

Credit can make you money. The trick is to use other peoples money whenever possible, and make sure that the cost of using that money is lower than your return.

C!

Originally Posted by C4M

Credit can make you money. The trick is to use other peoples money whenever possible, and make sure that the cost of using that money is lower than your return.
C!

Very true! And every dollar of your "expenses" you can tie to mortgage interest is money you don't have to pay taxes on. If someone else is making the mortgage payments, it gets even better!!!

Originally Posted by R32 JUhl

Very true! And every dollar of your "expenses" you can tie to mortgage interest is money you don't have to pay taxes on. If someone else is making the mortgage payments, it gets even better!!!

While that might be true in the US, mortgage interest is not deductible here in Australia. I wish it was (although I also know that if it was, then they'd just take the money off me somewhere else).

C!

33775$ to go. It's going to be hard, but keep it up! I can't really give any good advices 'cause I've never had any debts. I guess I'm too young for that. But no worries, there's plenty of time!

Originally Posted by C4M

While that might be true in the US, mortgage interest is not deductible here in Australia. I wish it was (although I also know that if it was, then they'd just take the money off me somewhere else).

C!

Sorry mate! Yeah, Uncle Sam lets us deduct mortgage interest, over here. And you're right, they get that money from you elsewhere. We have a name for the people holding that wallet. They're commonly referred to as "the Middle Class". They keep the government well funded, while the poor keep the government writing checks. The funny part is, some people are actually convinced that the rich have the role in providing jobs for the middle class. The reality of it is though, not many people who are "middle class" will work as gardeners, maids, or butlers.

So the rich basically keep their money by having the middle class pay them rent on their mortgages. And when they (the rich) need more money, they refinance the mortgage and the renter's monthly checks are no longer "income" they have to pay tax on, because that money is going to pay the mortgage interest. Meanwhile, they've got a big wad of tax free cash their renter is financing for them.

The thing about tax writeoffs is that the you don't reduce the amount of taxes by the value of the item (interest in this case), you reduce the amount of your taxable income.

Some people think that having a mortgage to pay is a tax benefit. Let's say that you can pay off your mortgage today, but you don't because you think you are getting a tax break by having the mortgage. Let's say you will pay $10,000 this year in interest and you are in the 25% tax bracket. In this case, you won't pay taxes on that $10,000--saving you....wait for it.....$2500 in taxes this year.

Think about that.

You pay the bank $10,000 to avoid paying the government $2500.....hmmmm.....

Originally Posted by wizardPC

Think about that.

You pay the bank $10,000 to avoid paying the government $2500.....hmmmm.....

Hold on... don't miss the point. You don't want to pay a mortgage on your own home!!! I agree with you. Instead, you want to carry a mortgage on OTHER real estate that SOMEONE ELSE is paying the mortgage on. See the difference? Let's use your analogy:

Mortgage interest = $10000
Rental income = $12000
Taxable Income = $2000 so you're only taxed on $2k

NOW, instead of leaving the equity in that real estate - because SOMEBODY will be happy to pay your mortgage every month FOR you - take the equity OUT.

Mortgage interest = $12000
Rental Income = $12000
Taxable Income = $0
Cash in your pocket = your Equity

There are BOOKS written on this topic and it bucks everything you and I were improperly taught growing up. But it's how the rich keep getting richer - by having the worker fund their cash advances.