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Author: pan One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121144  
Subject: Re: Tax Bubble Date: 5/31/1997 1:36 PM
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Watch out for the house trap. For many years we were told to buy the biggest house we could afford, because appreciateion would beat inflation hands down. Howerver, lately we have heard that good stock investments actually made more money over the long haul. The problem is that with a 30 year loan, you pay three times the cost of the house (with today's low rates). If inflation does kick up, and you loose that job, and can;t meet the payments, you may well have to sell for a profit, and you will owe taxes on the gain, even if the gain is only on paper due to inflation.

This happened to me, and I was luckey enough to recover before taxes were due. Unfortunately, I was forced to buy a large house again to avoid taxes, so I am now paying on a new 30-year mortgague. Buy only when you are reasonably sure you will stay put, and buy a smaller house that you can easily afford, and pay it off ASAP! In fact, if I had stayed in my first house instead of upgrading, I would still be there, and I would have a lot more money to spend on other things.

There is a book out now on Millionaires. The average Millionaire lives in a modest neighborhood, and drives inexpensive cars, and lives modestly. His neighbors would be shocked to know of his finances, because they think he is just another joe living next door.

The moral is: Use the 401K to the max, invest the remainder Foolishly, and don't be overly concerned about the taxes. Remember, you only pay taxes if you earn money. Better to earn more and pay more, than to earn less and pay less.
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