The Last Chance Millionaire by Douglas R. Andrew

Author:Douglas R. Andrew [ANDREW, DOUGLAS R.]
Language: eng
Format: epub
Tags: BUS036000
ISBN: 9780446505208
Publisher: Grand Central Publishing
Published: 2007-07-30T00:00:00+00:00

Let’s Start with Norm . . .

Norm and his wife are both management executives who make a good salary. Rich and his wife are in marketing. Max and her husband are high school teachers. The difference in their lifestyles obviously has much more to do with the way they manage their finances than what kind of paychecks they collect.

Norm was bequeathed his parents’ home when he was 35—a house in Atlanta that was purchased thirty years ago. Believe it or not, it originally cost only $31,250, and it appreciated nicely at an average rate of 7.2 percent (meaning it doubled three times over three decades). It’s now worth $250,000. He and his wife wanted to move to a more contemporary house in a different neighborhood. They recently picked out a handsome three-bedroom model in a spanking-new subdivision. It cost them $250,000—slightly higher than the median price of a new home in the United States.*

Norm feels good because he avoided having to pay a capital gains tax on the sale of his old home. Because Norm is an average homebuyer, he believes that if he pours his former home’s equity into a new home, he will sleep more soundly at night. So he plans to pay cash for his new home and avoid a mortgage altogether. Norm trusts conventional wisdom that says no mortgage means there are no costs.

Norm makes a very good income, but is it any surprise that the family budget is tight? Norm is trying to sock away $15,000 a year ($1,250 a month) into their 401(k)s and IRAs to make up for the first twenty years of their marriage when he and his wife were consuming so much. However, he loves to spend, and it seems as if he is getting taxed to death. He has $250,000 lazy, idle dollars tied up in his new home earning nothing, just as he did in his old one.

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