I love to kid myself especially when it comes to the lottery. When the big jackpots come around I gather up my coins and have been known to spend up to $3 on tickets. Once I get the tickets I start dreaming of what to do with the prize money. I begin forming the categories to assign where a portion of the largess will be going. There is the family, the housing, the toys, the charities and a large miscellaneous part of the plan.
I take a long time to sort out my ideas and assign dollar amounts to the various categories. Then I spend another period of time reevaluating my plan. Finally I am ready for the drawing and the end of the mental adventure. Unfortunately there hasn't been a real adventure yet,(winning the lottery) but I can still dream.
I bring all of this craziness up because I want to discuss a great percentage of the American public who kid themselves in ways that cost them money both now and in the future. These people kid themselves about the way they are going to become wealthy by changing the method they have always used in paying down their home loan. The most popular ways to kid themselves are as follows:
1. Telling me and themselves that they will take a 30 year and take the difference between that payment and a 15 year payment and invest it. This is a terrific idea, however I have never seen anyone even start it let alone carry it through for any reasonable time.
2. Take a 30 year loan and telling me and themselves they will pay it as a 15 year as long as there aren't any problems arise during each and every month. The silliness of this idea is they are paying 1% more for the privilege of not doing anything but overpaying. (Note: When you use this approach you are most assuredly going to find about 360 problems in a row).
3. Adding a fixed amount to their 30 year payment each month to affect a quicker payoff. Works periodically but they are still paying 1% more in interest.
Let's now look at the other way of conducting your financial life. I am on the radio every morning with a disc jockey, a young lady in her 40's I believe, and have been advertising with her for about 9 years. The other day she told me that it has been 7 years and 1 month ago I put her into a 15 year loan. She and her husband, also a disc jockey, do not make a lot of money but in 7 years and 11 months they will be without a house payment. As I recall we probably rolled some of her debts into the loan to make it affordable and the rest of this story looks great!
The final chapter to this story includes those who tell me, while taking a 30 year loan, that they are only going to have it for a short period: 5 to 7 or 8 years. Then they are going to sell and get another house, and yes they will again take a 30 year loan, and so on and so on!
These folks are on their way to show everyone that 30 years can be expanded to 35, 40 or even 50 years if you play your cards right.
An update before I close. I didn't win the lottery but I was close: about 400 hundred miles from the winner in San Jose!