Your Home is Not the Best Investment You’ll Ever Make.

I just laugh when people say “Your home is the best investment you’ll ever make.” The fact is that this is simply not true, unless your home is the only investment you ever make. I don’t even like to refer to it as an investment. To me, a home is a place to live; a sanctuary from the cares and pressures of the world, an environment of peace, rest and relaxation. It is my own little corner of the world where I am surrounded by my family, friends and stuff that makes me happy. I’m sorry, but if you really think that your home is a good investment, you’re bad a math.

An associate in California once told me that he had made a million dollars on his home. He spoke “seminar speak” because he was somehow confused or convinced that since the market value of his home was a million dollars higher now than it was when he bought it 20 years ago, he had made money. Not only had he not “made” a million dollars, the million dollars in equity that had built up (thanks to inflation) for all intents and purposes, was dead equity. I say that because it had no lifestyle benefit to it. If he were to sell his house and use the money to buy a replacement, assuming he was not going to add a big chunk of debt to his list of liabilities, all he could do would be to buy a house like the one he already owned in a neighborhood like where he already lived. Give me a break. It’s not like he was going to somehow be a million bucks better off. His position would not have changed. He would not be trading up, he’d only be trading over. So what!

However, your home can be critically important to your retirement. Here’s how.

Let’s say you pay $1,500 per month in house payments. In order to make those payments, if you are in a 35% combined marginal tax bracket, you need to make at least $28,000 per year just to make the mortgage payments. So jump ahead 25 or 30 years and now, if you’re smart, your house is paid off. You’re going to retire and all of a sudden, happy day, since you don’t have a house payment, you can now maintain your exact lifestyle while making $28,000 per year less! And if your real investments continue along providing your income at the same level it was before retirement, you’ve got an additional $18,000.00 to spend somewhere else since you no longer have to send it to your mortgage company.

Your home is an important part of your retirement, but it’s really not an “investment” per se. Financial planning, wealth development and economic security is not brain surgery. At its root, it is a simple process that anyone can follow. If someone makes it out to be too complex, too difficult or too confusing for you to do, I’ll bet that they’re trying to convince you to pay them to do it for you. With the right understanding of financial principles at work for you, you’ll not only understand your situation, but you’ll be in the pilot’s seat in getting to where you want to be.