When to fire your financial advisor!

Our financial expert Dave Ramsey advices a debt-free couple on how to remain debt-free.

We’re in the process of building a house. There’s no need to take out a mortgage, because we’re in the top tax bracket. We could pay for it all, out of our pocket. Plus we have no debt.

But our financial advisor says we should get a mortgage anyway, invest the money in mutual funds and get a great tax deduction. Does this make sense?

-- Alvin

Dave says: No, it doesn’t make sense. And neither does your financial advisor. You need to get rid of him today!

Let’s say you take out a USD 200,000 (Rs 7,895,999) mortgage at 6 per cent. USD 12,000  would go to the bank in interest payments alone. Since you’re in the top tax bracket, you’d be able to write off USD 4,200 (Rs 165,816) of that USD 12,000 (Rs 481,655).

So, in a layman’s terms, your “advisor” told you to take out a mortgage and pay the bank USD 12,000 in interest so that you can avoid sending USD 4,200 to Uncle Sam.

Now, do you see why I’m saying this guy needs to take a hike?

Very few people are blessed enough to be in your situation, Alvin. Pay cash for the house. Then you’ll be debt-free, and you can invest like a crazy man and retire mega-wealthy!

A little about Dave:
 
At 26, he had a net worth of a little over a million dollars. Life couldn't be more perfect. And then he lost it all, thanks to debt. That's when Dave went on a quest to find out how money really works, how he could get control of it, and how he could have confidence in handling it. On our pages, Dave will guide readers on all things related to money!

For more financial advice plus a special offer for our readers, visit www.davesays.org. This column is part of a series of columns by Dave, exclusively for you, dear readers!

Dave's earlier columns:

Are you financially ready to own a home?
To get out of debt, get mad first!
Save money, be happy
Who holds the key to your house?