Your home is not an asset?
For the last several years, VMI has sponsored teams in a local Bay Area Little League. Last year, the League created banners for its sponsors. I was asked what I wanted to put down for VMI’s slogan. I found it challenging to encapsulate our style of financial planning in just a few words, but eventually settled on “uncommon financial advice.” Looking back on this choice, I am happy with that slogan.
An obvious example of how we provide uncommon financial advice concerns home ownership, and specifically our recommendations on how to approach home financing.
I recently spent some time re-reading Rich Dad, Poor Dad by Robert Kiyosaki. It is an interesting book, with some interesting ideas. One concept that he spends some considerable time on is the idea that your home is not an asset, but rather a liability. For the details on his logic, take a look at the book. Suffice it to say, that on this point at the least, we strongly agree with his reasoning. It has been our experience that this way of looking your home is rare among financial planners, both amateur and professional.
Whether the issue is ownership versus renting or choice of a mortgage, the value of not having your money tied up in your residence is a cornerstone of ascensional financial planning. An asset is something that puts money in your pocket to paraphrase Kiyosaki. If you have a large amount of home equity, that is simply money that is not working for you. In addition, having money tied up in the home does just that – it ties up the money. Many homeowners were discouraged to find that when the economy shut down overnight for Covid last year, a time when emergency cash was at a premium, mortgage lenders almost entirely stopped doing cash-out refinancing. Home equity was simply unavailable for a considerable period of time. And even if it is available, unless you use it, that home equity is not working to put money in your pocket.
In fact, while Kiyosaki views home equity as VMI does, most people don’t — including many professional financial planners. As a blanket statement, mortgages are not “bad” and don’t need to be paid off as soon as possible. To illustrate the convincing reasons we reached this conclusion, we actually created a brochure with supporting facts and calculations. I was pleased to see a well-known author on personal finance such as Kiyosaki giving similar “uncommon” advice. Choices surrounding home financing may well be some of the most important financial decisions you make.
To get a copy of VMI’s brochure on home mortgages, send us a request (see contact information below). And, for more uncommon financial advice, give us a call or use the calendar link below to set up an appointment to talk with us.
Jim, Mark, and Dave
p.s. To set up a time to speak with a financial advisor, click on the calendar app below, or go to ValueMonitoring.com/Welcome.