Why you should not re-finance your house. Now or ever!

It's a funny thing that we humans beings subscribe to. If you watch TV or listen to the radio, or go to the movies, or even drive around in your car, you are bombarded by pictures of what your life SHOULD be like, if only you had the money to do it...

It's taken me fully 12 years of my 33 year life so far to realise that this advertising, interruptive and invasive as it is, has been nothing but one big lie at worst and a half truth, maybe, at best...

People are running businesses (banks) that make money and exist only to make money out of preying on your ignorance and your greed (?!) and your aspirations...

Before you take offence let me hasten to add that it's not your fault... For instance, my latest gripe is with SA Homeloans, offering to finance your 'lifestyle' by lowering your monthly bond payments and allowing you to take equity out of your home to spend on your 'lifestyle'.

This is polite way of inviting you to live beyond your means. If you want to know what your 'means' actually is you need to read this article on retirement here...

I think the most abused word today is 'lifestyle'!

Let's take a look at why financing your 'lifestyle' is a very bad thing.

If you own your own home, you will discover that it is in fact a big expense. It is NOT an asset. An Asset is something that earns you money. Your own home does not earn you a cent. It costs you money, and lots of it. End of argument. End of discussion.

The banks hate this simple stark reality. They spend millions trying to correct it, by wording their advertising to reflect them doing you a favour by financing this 'asset' of yours. They portray themselves as your best friend, your most reliable and trusted personal financial advisers.

Why?

Because they want to make money, lots of it, out of you! The more debt you have with them in your home loan the more money that they make to spend on advertising to your friends and family to show them how well YOU are doing because YOU did business with them...

By taking money out of this 'asset' of yours what are you doing with it? Paying off the car so that you can buy a new one, financed? Going on holiday? Getting that new big screen TV? Installing a Koi pond? Sitting at trendy restaurants eating out? In short, doing what advertising is telling you you need to do to be happy? Living the aspirational lifestyle?

Guess what? If you can't afford to do it now, with your current bond payments already lower than they would be if you re-financed your house, you can't afford this 'lifestyle'!

Deal with it!

Your financial shortcomings are not anything to be ashamed of. Not driving a late model car should not entitle you to feel bad about what you drive. Where you eat out, what clothes you wear are important to no one other than yourself! If you think your friends genuinely care about what you wear, ask them. If they reply yes, you need new friends!

I take great pride in my battered Matiz. I love the fact that every cent I do not spend on my car is spent working for me, sweating away in my investments that I have chosen carefully because I have taken the time to learn about them. I love knowing that my house is worth 2.5 times the value of the bond on it. It means that interest rates have to hit close on 100% before I can no longer afford my own home. I love the fact that my investments are based on reality, and in solid liquid stuff like gold. I love knowing that I am in control, that I have a plan and that my plan involves NOT using retirement annuities, not using bank related investments and the fact that I pay almost NO commission or costs on any of them. In other words, every cent that I earn on my investments I get to keep for myself. I do not have to rely on teams of brokers/portfolio managers and who knows else managing my money, badly, and being paid by me to add insult to injury, on my behalf. And without me being able to have any recourse to these people or to hold them accountable for their terrible investment decisions.

If I can do it, anyone can do it. It takes time and effort, but it can be done. I have developed this site purely because I want to share what I have learned, from whom I have learned it and what is working for me right here right now. There are no guarantees. I will lose money in the future, lots of it. But it doesn't worry me because I know that my plans are sound, and that they are tested and that they work.

Learning that I am responsible for my own future has been the hardest lesson of all. Understanding why most people will end up poor and realising that I was destined to be one of them was also pretty hard. I still have a long way to go on this journey.

Realising what 'lifestyle' really means has been damned difficult. Hell, the temptation to cash in on that equity in my home is at times overwhelming. But my home is NOT an asset. If I use this cash, and something goes wrong, I will suffer a massive setback. Interest rates will rise. And when they do, home loans are going to put a lot of people under massive duress. Make sure you're not one of them and wait for the auctions to start. You will make a killing if you have ready cash in five years time when the cycle reverses. And gold is one of the best investments against the doomed US Dollar (in my opinion anyway) right now, whilst it is cheap...

US Dollar doomed? Check it out and make up your OWN mind...