Personal Finance – Caffeinated

Jolting For More Jingle Jangle

A Response to BudgetsAreSexy February 1, 2010

Filed under: Uncategorized — coffeecents @ 6:01 pm

At Budgets are Sexy, J’s tagline reads that his mortgage difference versus his rent difference for the year was 24000.  And numerically, this is correct.  However, to really do the right analysis, we need to make sure that we’re comparing apples to apples.  J treats mortgage as equal to rent, which it actually isn’t, because some proportion of that payment is principle.  And principle, unlike rent, gets recovered when the property is sold.

So what J should do, with this comparison, is subtract out his principle payment (discounted for time) so that we can take away the forced savings effect of a mortgage.  Then the comparison works better (and yes, owning is still more expensive than renting, but then add in the tax effects and other bonuses and they SHOULD cancel out.  If they don’t the market is unbalanced.

Now, of course, perhaps that extra principle could be better invested elsewhere.  That’s certainly a point.  But, I think the comparison isn’t quite right and would suggest that fix

J,

Your analysis is incomplete.  Your principle payment stays with you as forced savings, so you would want to deduct that from your mortgage side for a better comparison.

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One Response to “A Response to BudgetsAreSexy”

  1. J. Money Says:

    haha….this is true good sir. but I still don’t like owning 😉


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