WBS Blog

“A fool and his money are soon parted.” This saying by Thomas Tusser in the 1500’s is still true today. Why, because people just do not understand the most important thing that they deal with on a daily basis – money. We are not educated in school by our teachers, little is taught in most homes about handling money and the only real education that we get with money is trial and error. We make mistakes and then hopefully learn the reasons by which we made the mistake in order to not do THAT again. What the saying should say is the “Fiscally uneducated and their money are soon parted”.

Sometimes though, the little education that we get from our parents or grandparents and even through those experiences is good for the period of time learned and then becomes obsolete as the future evolves. Let’s take the last one first – learning from our experiences. Let’s assume that in college or right after you run up some credit card debt, you had bought some furniture on installment and you put 20% down on that new car and then you lose your job. Not only did you lose your job but the industry that you were trained for and worked for a few years goes through a downslide; say technology and there just are not any jobs paying the amount of money you need. Circumstances become difficult, there is no one to turn to for help and you are forced into bankruptcy at 28 years old. A truly bad experience in your financial education.

The first thing that most folks do at that point is swear off debt of any kind – exactly the wrong thing to do. It was not debt that got you in trouble, but poor planning that debt and/or circumstances beyond your control. Once your debt is forgiven and you miraculously find a job (mainly because your worries are greatly reduced and your attitude in interviews is not one of desperation but hope) and start to rebuild your life. If you have sworn off debt, and then you pay for everything with cash, this is good for some period of time until you need to buy something like a home which needs to purchased with debt. With no history of credit established you have put yourself in a pickle and probably cannot purchase that home without re-establishing credit. You should have worked debt back into your short and long term financial plans to re-establish yourself, this time with experience, in the financial world.

The lesson learned is that the bankruptcy should have taught you a lesson that handling money they way you did needed to be re-evaluated for the future but not to swear off debt entirely.

In future blogs I will try to give real life examples of why I say, “The fiscally uneducated and their money are soon parted” with the help of the writings of some well known tax professionals, financial planners and attorneys.

"You don't know what you don't know", a saying popularized by Douglas Andrew of Missed Fortune fame says a lot.  It is especially important with the tax professional-client relationship.  If the client does not offer the information, the tax professional does not know to include the information in plans and if the tax professional doesn't know what the client's plans are he (or she) cannot help with the planning.

Specifically I am writing about the tax deduction for deferred interest in a paid-off Option ARM mortgage.  This happens when the client pays less than the interest-only payment and the difference is added to the balance owed.  I have been told by tax experts that this deferred interest is tax deductible when paid off on a refinance or a sale of the home.  Obviously every situation is different and you should always speak to your tax professional to its applicability to your situation.

If the client does not tell the tax professional that the home has been sold or refinanced, the financing tool used was an Option ARM - AND the client made less than the interest only payment the tax deduction might be missed.  A scenario that I ran recently for a client was that his $300,000 loan at 7.5% for 30 years with a minimum payment of 1.25%.  The difference between the interest only payment and the minimum payment over 36 months was $31,508.  This makes for a potential healthy lump sum interest deduction for the client if the tax professional only knew.  The tax advisor is your friend - give them the tools that they need to help you.

Hello Everyone!

I wanted to put the idea to you of the Home Ownership Accelerator a new and innovative tool for paying off your mortgage in half the time with no change to your spending habits. 

Take a look at this short movie and give me your comments.