Money Matters

I want to remind folks of some financial facts.
And what does this have to do with aviation? No more than water has to do with boating!
If you have a nice plane that we can all fly free, please call me.

First a few big things:

Mortgage rates have been at historical lows for the last few years, at about 3 !/2 percent for a standard 30 year one. Just 10 years ago rates were twice that or more and I recall buying a house back in 1978 and the rate was 13%, no kidding.
So hopefully everyone has been smart about this and financed or refi at these rates, which may not be here forever and there may even be some signs of moving up.
I personally lowered my rate from 7 1/2 to 5 a few years back and am talking to the bank about lower again.
Now, of course, dealing with many, if not most mortgage people is about as pleasant as being a captive of the Taliban. The treat everyone as if you are a crook, what does that say about many of them? And the best of them have been burned by their own bad practices in the past, so unless you have so much wealth that you don't need a loan, they are going to make it complicated, and petty and drawn out, and frustrating. I once had an S & L in Ft. Worth turn me down for a loan on a new house, despite the fact that I already had a mortgage with them on my old house, and had NEVER BEEN LATE ON A PAYMENT IN 8 YEARS. There answer with that there was an oil recession in Texas, even though I was inColorado where things were going well.
But, if you have good financials and the patience of Jackie Robinson, you can, maybe , finally, really help out your situation.
There are even some govt programs for those who got in over their head with a previous bad mortgage, but if that is the case you may not be doing much flying. And beware that there are scams looking to take from the unwary, so be careful.
And a mortgage is best used to buy a house, not to get in over your head or take out cash to throw away on consumer junk.
Some folks have an aversion to debt and never have or want to have a mortgage. That's fine, but unlike all other personal debt,the interest on a mortgage is deductible from federal income tax. Few people are paying a real tax rate of 35%, but even if only 20%, the govt is will still help you with 1/5 of that bill. I do think of the day when mine is all paid off and I don't have to face that payment due every month.
But hey, it would be un American to be out of debt, and over a long time, home values may rise, just not if you bought too high in the first place.

Next is the stock market, unless you were smart enough to sell out in 2008 before the drop years ago and go into bonds or something, you probably took some big losses, maybe 25 to 45%. Hopefully, you weren't forced to sell out too much at the bottom and now, hard as it may seem to believe, we are back where we were before. The market, at least the Dow, is at a new high, so many of the losses have been made up, and we may be starting a new period of growth. Again, some people don't like to invest in stocks, which is fine for them.

Next, a smaller item that affects many is credit card debt. I was very surprised to read a survey that found 55% of people carry a balance on their credit card. Mostly, that is not smart. Interest rates on card run from 12% all the way up to 30% and very few people earn 30% annually or even 12% annually on their investments over a long period of time. Stocks might go up 9% over 50 years average, houses maybe 5%.
Carrying a balance is like playing a football game and giving the other team 5 downs instead of 4 to make a first down.
Yes, I know everyone likes to have that credit card for emergencies, but really, was buying that new pickup truck or wall size tv an emergency?


Of course, cards have their uses, you can't really rent a car or stay at many hotels without one. Do yiou carry enough cash to fill up your B-17 at the pump? But they have to be used carefully and remember they don't wipe out a purchase, they just delay the payment due for a few weeks.
THE BALANCE SHOULD BE PAID OFF IN FULL EACH MONTH. And if you should miss a payment or be late one month, they have extra fee charges which add on to the interest. You might charge $100 and in 2 months owe $145!
And if you fall behind , there goes your credit rating.

Other than convenience and building your credit rating, card use can benefit you or your organization. EAA ,AOPA, CAF, etc, sponsor credit cards whose use gives them a small benefit. I sometimes use one of these, but I also put much of my spending on a card which gives me free airline miles. I often, particularly in the past when I flew airshows all over the country, might get stranded by bad weather and with miles, I could take a free flight home till the weather improved.
And the free miles come in handy if I decide to take a last minute airline trip. Most airlines, with Southwest being the smart exception, will not refund if you change at the last minute and the best fares have to be a month or two out.
Some cards offer cash back, though I think it may not be the best plan. Some cards may be better than others, or at least some cards may be a lot worse than others.
This topic is not about high risk accounts or debit cards but there are some that really hit folks hard who are in that category.

Many people don't like any debt and some should not use it, but credit cards, like an ax, are a tool. Just know which is the sharp part and which part is where you are supposed to grab.

And why did I put this in this topic? Cause the other ones mostly are full, and I hope this may be helpful to someone.

I don't think it turned out wise to sell all stocks 5 years ago. Yes, it's been a bumpy ride, but mostly up since then.

Then there was the guy I was with in late Dec. He said he was selling most everything because of the 'fiscal cliff'. So far that didn't turn out well either. I like to be 'contrary' much of the time. When the headlines all point one direction I look the other way.

I gave up on the house loan 8 or more years ago. Yes, Turbotax usually has to ask several times to be sure I didn't miss the deduction. Look at the numbers with the interest deduction, yes, less to Uncle Sam, but including the bank, more total outgo.
As with many things, what works for one, may not be the best for another.

Hi Bill,

You forgot the most important part of your message! Once you re-fi from 5 to 2.5, you'll have more money to go flying! :rollseyes:

Jeff, you are right, having more money to throw away, ( invest) on airplanes is the point behind what I wrote.

I just spoke to a friend who is a pilot, He is a nice guy, well educated, is an engineer, but got hurt in a recent money scheme.

He has sort of an "anti" or libertarian view of the economy and markets. Instead of using some sound business info , he was listening to some right wing nut case source and the result was that he sold all his stocks and bought gold futures. His idea or the idea of the guru was that gold would be so valuable since govt defecit financing would lead to inflation and up the demand for gold.
But there was little inflation and gold came down hard the last year. Meanwhile the stock market has rallied quite a bit, and he missed all the gains.

He lost enough money to buy a nice used single.

And Joe, I am not pushing anyone to get a mortgage or take on any debt at all. Just if you need a house and most people will need a mortgage to buy one, then the rates at 4% are a lot better than a few years back at 8%. Maybe you can buy for cash or don't need house at all, you sleep in your hangar. But for others it may be something to know. And rates have started to creep up since I first wrote this.