Continued debt reduction and Personal Finance Reading

The fight against debt continues. I got an extra paycheck this month because there were 5 weeks in July, and did what I could do limit expenses. I had some modest success, and my credit card balances were reduced a bit to $4387.76. Still quite a way to go, and summer is an expensive time of year due to travel expenses and social gatherings.

I read a fantastic book over July 4th Weekend: The Automatic Millionaire Homeowner by Richard Bach. Very prescient too, since he wrote it prior to the subprime crisis, and makes several comments that seem to anticipate the short term collapse of the housing bubble.

While this book is primarily oriented to non-homeowners, as a homeowner I found it very helpful too. The book's main point is that paying a mortgage each month is a means of forced savings (as you pay down principle), and has nice additional tax benefits (you can write off mortgage interest, reducing your tax liability). While you have the home, you have the benefit of living there, plus in the long term, you can expect the property to appreciate. In contrast, after 30 years of renting, you've spent perhaps hundreds of thousands of dollars, with nothing to show for it at the end.

The next most interesting point was that if you live in your home and it appreciates, instead of selling it, you should convert it to a rental property, refinance to cash out some home equity and use that to acquire a new home for you to live in, while the old property continues to appreciate at a tenant's expense. Obviously, it may take several years for appreciation to increase your equity enough for this to be possible. But if it happens, you can expect market rents to make up for the larger principal mortgage balance, while you keep building equity as you use your tenant's payments to pay the mortgage. And if market rents continue to increase, eventually your tenant is not only paying off your mortgage on the first property, but providing income to pay down your new mortgage. Very interesting stuff. I recommend you read this book, especially if you're currently a renter.