Author Topic: Overheard at Work  (Read 13252772 times)

senecando

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Re: Overheard at Work
« Reply #4900 on: October 27, 2014, 11:11:03 AM »
Again, an assumption of mine, but are you male? I guessed yes, and probably 75% of my male friends wouldn't have a clue what a "blue box" meant.
That is unfair. Most males know what a blue box is: It is a device for recording voice or data, commonly fond in airplanes and ships.

I think you're mistaking blue for black.


Didn't we already have this conversation?

Didn't we already have this conversation?
Yup, it's right there in that blue box that says "Quote from..." on top.

frugalnacho

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Re: Overheard at Work
« Reply #4901 on: October 27, 2014, 11:41:26 AM »
Just an FYI guys it's called a black box

plainjane

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Re: Overheard at Work
« Reply #4902 on: October 27, 2014, 11:47:20 AM »
A new consultant was introducing himself at a meeting, "Hopefully I'm not late in my career.  That would mean that I'm going to die soon."

solon

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Re: Overheard at Work
« Reply #4903 on: October 27, 2014, 12:02:05 PM »
Just an FYI guys it's called a black box

Yeah, but did you know they're not actually black? They're bright orange, so they can be seen better.

ender

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Re: Overheard at Work
« Reply #4904 on: October 27, 2014, 12:06:44 PM »
Just an FYI guys it's called a black box

Yeah, but did you know they're not actually black? They're bright orange, so they can be seen better.

I thought it was called a blue box?

I'm so foncused.

arebelspy

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Re: Overheard at Work
« Reply #4905 on: October 27, 2014, 12:16:13 PM »
Just an FYI guys it's called a black box

Yeah, but did you know they're not actually black? They're bright orange, so they can be seen better.

I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
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infogoon

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Re: Overheard at Work
« Reply #4906 on: October 27, 2014, 12:20:33 PM »
Just an FYI guys it's called a black box

Yeah, but did you know they're not actually black? They're bright orange, so they can be seen better.

I've never seen a bright orange box from Tiffany's.

GuitarStv

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Re: Overheard at Work
« Reply #4907 on: October 27, 2014, 12:30:43 PM »
There is only one orange box.


gopackgo2

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Re: Overheard at Work
« Reply #4908 on: October 27, 2014, 12:34:01 PM »
I work with a woman who is in her mid-70s and can't retire because she says she doesn't have enough money.  She probably makes about 65K. 

She shops exclusively at Whole Foods, won't give up her cleaning lady and buys $100 organic facial cleanser.

She thinks I'm "lucky" to be able to retire in 17 months at age 45.  Sure, there was luck involved, but it also included the sacrifice of soap for a facial cleanser.

Josiecat

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Re: Overheard at Work
« Reply #4909 on: October 27, 2014, 12:49:07 PM »
New coworker drives a Hummer.  Now he says he is buying a sports car to be his 'commuter' car.  Apparently the Hummer doesn't get very good gas mileage.  Huh, who knew?  And he intends to keep the Hummer so he'll have two cars.  Made my head hurt.

4alpacas

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Re: Overheard at Work
« Reply #4910 on: October 27, 2014, 12:49:45 PM »
I work with a woman who is in her mid-70s and can't retire because she says she doesn't have enough money.  She probably makes about 65K. 

She shops exclusively at Whole Foods, won't give up her cleaning lady and buys $100 organic facial cleanser.

She thinks I'm "lucky" to be able to retire in 17 months at age 45.  Sure, there was luck involved, but it also included the sacrifice of soap for a facial cleanser.

WHAT?!  As a reformed product fanatic, I have no clue what she is washing her face with.  $100 for a face cream, sure.  But a cleanser?  No way. 


robotclown

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Re: Overheard at Work
« Reply #4911 on: October 27, 2014, 01:15:21 PM »
The blue box is the thing from Animorphs. 

VirginiaBob

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Re: Overheard at Work
« Reply #4912 on: October 27, 2014, 01:17:30 PM »
I work with a woman who is in her mid-70s and can't retire because she says she doesn't have enough money.  She probably makes about 65K. 

She shops exclusively at Whole Foods, won't give up her cleaning lady and buys $100 organic facial cleanser.

She thinks I'm "lucky" to be able to retire in 17 months at age 45.  Sure, there was luck involved, but it also included the sacrifice of soap for a facial cleanser.

Does she look 70+ years old with that special facial cleanser?

Louis the Cat

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Re: Overheard at Work
« Reply #4913 on: October 27, 2014, 01:29:39 PM »
Ok, I'm just gonna drag this thing back on topic:

I had a conversation with a woman who I am friendly with after a concert we played together on Saturday where, in the natural course of things, I mentioned that I wanted more paid gigs because I have $30k in student loans to pay (closer to $22k now but I still use the $30k number in conversation for some reason).

Her: "Don't talk to me about student loans, I owe $200k!!" (From previous conversations, I know that these are loans she took out for her kids who are a hair younger than me.)
Me: "Who's fault is that?!"
Her: "My kids!"
Me: "Different choices could have been made."
Her: "They refused to go to Front Range [Community College]!"

At that point, I abandoned ship because what person in their right mind says to mom and dad, who are prepared to pay your full tuition, apparently without scholarships, that they refuse to consider a reasonably priced option.

Other things I know about this woman:

1. When I first met her, she was devastated because her husband's truck had just broken down irreparably and she didn't know how they were going to afford the payment on the new car. Model year of dead truck? 1985!!!!! Who doesn't at least acknowledge that they SHOULD have planned for a 30 year old vehicle to break down even if they didn't ACTUALLY plan for it.

2. She mentioned on Saturday that she wouldn't take a job in a city about an hour north of us because she didn't trust her minivan with 287k miles to make the drive. (The job in question is a position with a part time orchestra. This is a perfectly reasonable expectation in this line of work.) I'm not sure she's good enough to get a job with this particular orchestra and she may just be saying that to lessen the blow of not getting the job but still, if you honestly think your vehicle is holding you back in your career, REPLACE THE VEHICLE.

3. She's taken a second job although I'm afraid to ask why exactly. I do know that she used the first check from the second job to buy Halloween costumes for the whole section (4 in total) for the Saturday concert at, I think, $40 a pop. I tried to pay her for mine and tried to suggest cheaper alternatives. She wouldn't hear of it.

4. To cap it all off, she was trying to talk another musician into going with her this week to get a foot massage (I didn't know you could pay to get just a foot massage) because "I deserve it after all the work I've been doing".

She's a substitute teacher and DH is a Senior Software Engineer. She probably doesn't make much but he and my DH are in similar work except he has boatloads more experience than DH so I can guess what he makes and it should be $100k-$120k as a conservative guess; in a highish COL area but not insane.

I've been saving this up for a while, thanks for letting me getting it out!

BlueHouse

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Re: Overheard at Work
« Reply #4914 on: October 27, 2014, 01:53:24 PM »
I think I might be the person at my job place that people "overhear".  I'm working on increasing my frugal factor, but not quite there yet.   I've been buying a lot of high-price items lately while I outfit my house, but I budgeted for all of it.  I also moan and complain about "how bad I have it" just to try to fit in and seem human - I don't start the conversations, but I do try to "be one of the guys" by adding in my own "woe is me" story.  I know I'm not perfect, but when people talk about money, I have no intention of saying "I'm on the right path" or even "I'm doing okay".  If I do, then someone would perceive that as I make too much money.  I have a nice car, but it's 8 years old (and it's going to keep getting older as long as I'm with this job).  I have a nice house, but I won't let anyone see it because they'd make assumptions.  People tend to make judgements about whether your pay is equitable based on whether or not they think you "need the money".  and that makes me fib about how much certain payments "hurt" my wallet. 

Elderwood17

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Re: Overheard at Work
« Reply #4915 on: October 27, 2014, 02:40:27 PM »
I found myself scratching my head after this interaction today:

CW1 - We've been in our house so long we can actually imagine getting the thing paid off soon!
Me - Congratulations!
CW2 - I can't afford to ever pay my house off, I need the interest deductions too much.
CW1 - Oh, what is your interest rate?
CE2 - I don't know, I don't really pay it much attention.

I couldn't come up with any pithy comment.  I understand some people are clueless but why not just admit it and say "I'm clueless about an area as important as my personal finances" versus the "I need the tax deduction " smoke screen?   

AlanStache

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Re: Overheard at Work
« Reply #4916 on: October 27, 2014, 05:59:56 PM »
I found myself scratching my head after this interaction today:

CW1 - We've been in our house so long we can actually imagine getting the thing paid off soon!
Me - Congratulations!
CW2 - I can't afford to ever pay my house off, I need the interest deductions too much.
CW1 - Oh, what is your interest rate?
CE2 - I don't know, I don't really pay it much attention.

I couldn't come up with any pithy comment.  I understand some people are clueless but why not just admit it and say "I'm clueless about an area as important as my personal finances" versus the "I need the tax deduction " smoke screen?

And can someone explain the "I need the deduction" thing, last year I thought I "got back" like a third of the interest I paid on the loan; so for every 1$ I paid; Uncle Sam 'gave me back' 0.33$.  How would I not be better off not paying the dollar and not getting the 0.33$ back - seems I would be .66$ better off?  Honest question what I am I missing?  Or does mortgage interest lower your taxable income so that someone with high income and who paid lots in interest could come out ahead?  Or would a lower income tax payer get a higher percent back of what they paid in interest?  All this ignores investing the difference etc but purely on a tax level what am I missing when people say "I need the deduction"?

On topic: Overheard a senior guy asking the company accountant to review what he was invested in and what to do to get his house in order.  Accountant asked some basic questions like 'who do you have your taxable accounts with' that he could not really answer.   +1 for being willing to ask for help.

dragoncar

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Re: Overheard at Work
« Reply #4917 on: October 27, 2014, 06:00:36 PM »
I found myself scratching my head after this interaction today:

CW1 - We've been in our house so long we can actually imagine getting the thing paid off soon!
Me - Congratulations!
CW2 - I can't afford to ever pay my house off, I need the interest deductions too much.
CW1 - Oh, what is your interest rate?
CE2 - I don't know, I don't really pay it much attention.

I couldn't come up with any pithy comment.  I understand some people are clueless but why not just admit it and say "I'm clueless about an area as important as my personal finances" versus the "I need the tax deduction " smoke screen?

I'm guessing it's more like "my financially savvy spouse/parent/whoever told me we need the tax deduction"

sol

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Re: Overheard at Work
« Reply #4918 on: October 27, 2014, 06:06:03 PM »
How would I not be better off not paying the dollar and not getting the 0.33$ back - seems I would be .66$ better off?

I suppose coworker could be up against one of the income phase outs.  Like "if I can't deduct this $5000 in mortgage interest, I don't qualify for my $5500 Earned Income Tax Credit" but that seems pretty unlikely, coming from someone who apparently doesn't know what those words mean.

Kira

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Re: Overheard at Work
« Reply #4919 on: October 27, 2014, 06:17:42 PM »
If you make charitable deductions, you might not get any benefit from them if you don't have enough deductions to make it worth itemizing.

zolotiyeruki

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Re: Overheard at Work
« Reply #4920 on: October 27, 2014, 06:39:32 PM »

And can someone explain the "I need the deduction" thing, last year I thought I "got back" like a third of the interest I paid on the loan; so for every 1$ I paid; Uncle Sam 'gave me back' 0.33$.  How would I not be better off not paying the dollar and not getting the 0.33$ back - seems I would be .66$ better off?  Honest question what I am I missing?  Or does mortgage interest lower your taxable income so that someone with high income and who paid lots in interest could come out ahead?  Or would a lower income tax payer get a higher percent back of what they paid in interest?  All this ignores investing the difference etc but purely on a tax level what am I missing when people say "I need the deduction"?

your understanding is correct. And not only would they be saving the tax-deductible interest, they would also be freeing up the cash flow that was going toward principal!

HappierAtHome

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Re: Overheard at Work
« Reply #4921 on: October 27, 2014, 07:19:05 PM »
Just overheard a coworker complaining about how her toddler throws major tantrums, and that she's "leaving that up to daycare to fix - that's why I work so much and put her in daycare, it means I don't have to deal with these things".

johnintaiwan

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Re: Overheard at Work
« Reply #4922 on: October 27, 2014, 07:52:58 PM »
Just overheard a coworker complaining about how her toddler throws major tantrums, and that she's "leaving that up to daycare to fix - that's why I work so much and put her in daycare, it means I don't have to deal with these things".

This happens all the time with students at my school. Often when we tell a parents that their child (6-10 years old) is not bringing books to class or finishing homework or is being disruptive in class we get the  "it's your problem." They think because the school is so expensive they can simply let us take care of all of their parenting.

(FYI - this is an after school bushiban. A mix of english classes and a daycare of sorts)

tofuchampion

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Re: Overheard at Work
« Reply #4923 on: October 27, 2014, 11:14:35 PM »
Just overheard a coworker complaining about how her toddler throws major tantrums, and that she's "leaving that up to daycare to fix - that's why I work so much and put her in daycare, it means I don't have to deal with these things".

That is really sad for the kid.  :(

Shropskr

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Re: Overheard at Work
« Reply #4924 on: October 27, 2014, 11:50:28 PM »
My daughters class has snack everyday at school.  The parent who took charge of making it happen. Set up snack weeks and every parent is to sign up for one or two weeks for snack.  When all weeks are full he would give the class an ice cream party.  Well all the weeks were duly assigned sooo.

He had the entire class walk to the ice cream shop and bought them cones at $3.00 apiece. 


What a waste.  My kids and I had a discussion about how he could have had just as great a party from the grocery store for less than half the money.


FoundPeace

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Re: Overheard at Work
« Reply #4925 on: October 28, 2014, 01:52:30 AM »
Why do these people even have children? Their kids are going to be so messed up when they grow up.

marty998

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Re: Overheard at Work
« Reply #4926 on: October 28, 2014, 05:01:03 AM »
The blue box is the thing from Animorphs.

I thought I was the only one who read that series. Andalites and Yeerks and that evil Visser Three. Jake, Rachel(?), Cassie, Marco, Tobias and Ax. That's all of them?

Remember being obsessed with the Goosebumps series too. Think I had every single one of those books.

frugledoc

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Re: Overheard at Work
« Reply #4927 on: October 28, 2014, 06:06:41 AM »
I found myself scratching my head after this interaction today:

CW1 - We've been in our house so long we can actually imagine getting the thing paid off soon!
Me - Congratulations!
CW2 - I can't afford to ever pay my house off, I need the interest deductions too much.
CW1 - Oh, what is your interest rate?
CE2 - I don't know, I don't really pay it much attention.

I couldn't come up with any pithy comment.  I understand some people are clueless but why not just admit it and say "I'm clueless about an area as important as my personal finances" versus the "I need the tax deduction " smoke screen?

I'm guessing it's more like "my financially savvy spouse/parent/whoever told me we need the tax deduction"

Yea, it is not worth engaging with people like this.

They will absolutely refuse to accept that you may be better informed than their friend/parent/boyfriend/drug dealer about money matters.


Elderwood17

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Re: Overheard at Work
« Reply #4928 on: October 28, 2014, 06:11:33 AM »
Just overheard a coworker complaining about how her toddler throws major tantrums, and that she's "leaving that up to daycare to fix - that's why I work so much and put her in daycare, it means I don't have to deal with these things".

Wow - that is just awful.  Poor kid.

infogoon

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Re: Overheard at Work
« Reply #4929 on: October 28, 2014, 06:55:40 AM »
Why do these people even have children? Their kids are going to be so messed up when they grow up.

Because you don't get out of middle management if you don't have a Brayden, Aiden, Jayden, Kayla, Kaylee, or Kayleigh to call your own.

Cheddar Stacker

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Re: Overheard at Work
« Reply #4930 on: October 28, 2014, 08:11:20 AM »
Why do these people even have children? Their kids are going to be so messed up when they grow up.

Because you don't get out of middle management if you don't have a Brayden, Aiden, Jayden, Kayla, Kaylee, or Kayleigh to call your own.

I know a little girl named Taylee. I threw up a bit in my mouth when I heard it the first time.

VirginiaBob

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Re: Overheard at Work
« Reply #4931 on: October 28, 2014, 08:18:27 AM »
Why do these people even have children? Their kids are going to be so messed up when they grow up.

Because you don't get out of middle management if you don't have a Brayden, Aiden, Jayden, Kayla, Kaylee, or Kayleigh to call your own.

+1 Lol!

arebelspy

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Re: Overheard at Work
« Reply #4932 on: October 28, 2014, 09:19:31 AM »
And can someone explain the "I need the deduction" thing, last year I thought I "got back" like a third of the interest I paid on the loan; so for every 1$ I paid; Uncle Sam 'gave me back' 0.33$.  How would I not be better off not paying the dollar and not getting the 0.33$ back - seems I would be .66$ better off?  Honest question what I am I missing?  Or does mortgage interest lower your taxable income so that someone with high income and who paid lots in interest could come out ahead?  Or would a lower income tax payer get a higher percent back of what they paid in interest?  All this ignores investing the difference etc but purely on a tax level what am I missing when people say "I need the deduction"?

I bolded the answer to your question, that you yourself posted but decided to "ignore"  :P

If I have a chunk of cash that could pay off my mortgage (let's say 100k).  And I can invest that money at a rate that will pay for the mortgage interest after taxes, then I'm definitely better off taking the mortgage interest deduction.

In other words, say I earn $1 interest (after tax) and pay $1 interest to the bank.  Then the government gives me back $0.33.  I'm ahead $0.33.

If instead I used the money to pay off the mortgage, I no longer have to pay that dollar, nor do I get the 33 cents back, but I'm not 66 cents ahead in this situation, because I don't earn the $1 of interest.  In this situation I don't earn the dollar, don't pay the dollar, and don't get the 33 cents back. So I'm even (0).

That's only counting if you can earn at the rate that your mortgage is.  If you earn higher, naturally you'll end up with even more.

But even if you can't, you may still be better paying the dollar in interest to get the 33 cents back, simply because of the opportunity cost of the money you'd use to pay off the mortgage.
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frugalnacho

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Re: Overheard at Work
« Reply #4933 on: October 28, 2014, 09:35:29 AM »
And can someone explain the "I need the deduction" thing, last year I thought I "got back" like a third of the interest I paid on the loan; so for every 1$ I paid; Uncle Sam 'gave me back' 0.33$.  How would I not be better off not paying the dollar and not getting the 0.33$ back - seems I would be .66$ better off?  Honest question what I am I missing?  Or does mortgage interest lower your taxable income so that someone with high income and who paid lots in interest could come out ahead?  Or would a lower income tax payer get a higher percent back of what they paid in interest?  All this ignores investing the difference etc but purely on a tax level what am I missing when people say "I need the deduction"?

I bolded the answer to your question, that you yourself posted but decided to "ignore"  :P

If I have a chunk of cash that could pay off my mortgage (let's say 100k).  And I can invest that money at a rate that will pay for the mortgage interest after taxes, then I'm definitely better off taking the mortgage interest deduction.

In other words, say I earn $1 interest (after tax) and pay $1 interest to the bank.  Then the government gives me back $0.33.  I'm ahead $0.33.

If instead I used the money to pay off the mortgage, I no longer have to pay that dollar, nor do I get the 33 cents back, but I'm not 66 cents ahead in this situation, because I don't earn the $1 of interest.  In this situation I don't earn the dollar, don't pay the dollar, and don't get the 33 cents back. So I'm even (0).

That's only counting if you can earn at the rate that your mortgage is.  If you earn higher, naturally you'll end up with even more.

But even if you can't, you may still be better paying the dollar in interest to get the 33 cents back, simply because of the opportunity cost of the money you'd use to pay off the mortgage.

I don't think most people think of it that way (at least people that I hear claiming they need the deduction, or that the deduction is so great).  More often than not I think they just have a total lack of financial understanding and automatically equate a deduction to something great for their financial situation regardless of the actual cost.  Very much like claiming you had to shop for new cloths at kohls because it was all 20% savings.  20% savings is great (and they totally ignore the 80% spending they had to do).

Cheddar Stacker

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Re: Overheard at Work
« Reply #4934 on: October 28, 2014, 09:38:22 AM »
Rebs, that's a well thought out example, and I'm with you, I'd rather invest than pay off debts.

However, I don't think that's the reason for this phenomenon AlanStache refers to. People have been brainwashed into thinking the government is subsidizing the purchase of their house, when in reality they are only picking up a portion of the interest and real estate taxes. It would serve them better to pay no interest. It would serve them best to pay interest and invest at a gain.

I have clients who've told me their old CPA said they need to buy a bigger house to save money on taxes. It's scary that a trusted advisor would say that when there are so many better options for tax planning.

When you consider the standard deduction already includes a big tax savings it also really reduces the effect a reasonable house purchase/mortgage should have on a tax return.

skyrefuge

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Re: Overheard at Work
« Reply #4935 on: October 28, 2014, 09:53:10 AM »
If I have a chunk of cash that could pay off my mortgage (let's say 100k).  And I can invest that money at a rate that will pay for the mortgage interest after taxes, then I'm definitely better off taking the mortgage interest deduction.

Ok, fantastic, but never once has someone verbalized this "invest rather than pay off debt" strategy as "I need the tax deduction". The tax deduction isn't even really relevant in that decision, except that the mortgage interest rate that you have to beat with your investments should be de-rated by your tax rate. In that case, the person is keeping their mortgage "because I can make more money with that money than I pay to service that debt", not because they "need the tax deduction".

Whenever this topic comes up, people always invent esoteric reasons why the "I need the tax deduction" guy is a really a financial wizard with an extremely rare and specific situation. No. That's never been the case in all of history. 100% of the time, the person saying "I need the tax deduction" is just a dumbass who doesn't understand how math works. The financial wizards in those rare situations who DO actually "need" the tax deduction would never actually state it that way to the random relative/co-worker/bar-patron they're blabbing to.

As always, Seinfeld's take: https://www.youtube.com/watch?v=upifaeK0B5U

Timmmy

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Re: Overheard at Work
« Reply #4936 on: October 28, 2014, 09:58:28 AM »
Rebs, that's a well thought out example, and I'm with you, I'd rather invest than pay off debts.

However, I don't think that's the reason for this phenomenon AlanStache refers to. People have been brainwashed into thinking the government is subsidizing the purchase of their house, when in reality they are only picking up a portion of the interest and real estate taxes. It would serve them better to pay no interest. It would serve them best to pay interest and invest at a gain.

I have clients who've told me their old CPA said they need to buy a bigger house to save money on taxes. It's scary that a trusted advisor would say that when there are so many better options for tax planning.

When you consider the standard deduction already includes a big tax savings it also really reduces the effect a reasonable house purchase/mortgage should have on a tax return.

I was going to point this out.  I'm glad you mentioned it.  DW and I end up itemizing most years by only a very small margin.  We essentially get very little benefit from the mortgage interest deduction. I'd imagine a large percentage of taxpayers would be taking the standard deduction instead, if they didn't have a mortgage.  Meaning the effect on their taxes should be minimal. 

AlanStache

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Re: Overheard at Work
« Reply #4937 on: October 28, 2014, 10:47:04 AM »
And can someone explain the "I need the deduction" thing, last year I thought I "got back" like a third of the interest I paid on the loan; so for every 1$ I paid; Uncle Sam 'gave me back' 0.33$.  How would I not be better off not paying the dollar and not getting the 0.33$ back - seems I would be .66$ better off?  Honest question what I am I missing?  Or does mortgage interest lower your taxable income so that someone with high income and who paid lots in interest could come out ahead?  Or would a lower income tax payer get a higher percent back of what they paid in interest?  All this ignores investing the difference etc but purely on a tax level what am I missing when people say "I need the deduction"?

I bolded the answer to your question, that you yourself posted but decided to "ignore"  :P

...

But even if you can't, you may still be better paying the dollar in interest to get the 33 cents back, simply because of the opportunity cost of the money you'd use to pay off the mortgage.

I don't think most people think of it that way (at least people that I hear claiming they need the deduction, or that ... 20% savings is great (and they totally ignore the 80% spending they had to do).

reb: I totally get how paying 3% interest to the bank and getting a third of that back from the Feds and investing what could have paid off the principle is a very good strategy (more or less follow that myself) but I have trouble seeing that most people are doing that.  Seems like most people are thinking they get 100% (or more) of the paid interest back from the Feds, or they count on not having to pay anything on April 15th because they have no savings.

Quote
Ok, fantastic, but never once has someone verbalized this "invest rather than pay off debt" strategy as "I need the tax deduction".
yep.

RyanAtTanagra

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Re: Overheard at Work
« Reply #4938 on: October 28, 2014, 10:47:28 AM »
That's only counting if you can earn at the rate that your mortgage is.  If you earn higher, naturally you'll end up with even more.

But even if you can't, you may still be better paying the dollar in interest to get the 33 cents back, simply because of the opportunity cost of the money you'd use to pay off the mortgage.

I understand the 'invest money at a higher rate of return than your mortgage', but can you explain that last part of still being worth it even if you can't earn a higher or equal rate of return?

Cheddar Stacker

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Re: Overheard at Work
« Reply #4939 on: October 28, 2014, 11:00:49 AM »
That's only counting if you can earn at the rate that your mortgage is.  If you earn higher, naturally you'll end up with even more.

But even if you can't, you may still be better paying the dollar in interest to get the 33 cents back, simply because of the opportunity cost of the money you'd use to pay off the mortgage.

I understand the 'invest money at a higher rate of return than your mortgage', but can you explain that last part of still being worth it even if you can't earn a higher or equal rate of return?

$1 is worth $1, until you use it for something. If you use it to pay off the mortgage, it completely loses it's utility since it's now gone. By electing to pay interest of 4% you are paying 4 cents to use someone else's $1. Now you can do whatever you want with that $1, including just holding it in an emergency fund, investing it, buying something, rolling a joint, etc. But you can only do one thing with it, after that it's gone.

http://en.wikipedia.org/wiki/Opportunity_cost

RyanAtTanagra

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Re: Overheard at Work
« Reply #4940 on: October 28, 2014, 11:25:33 AM »
That's only counting if you can earn at the rate that your mortgage is.  If you earn higher, naturally you'll end up with even more.

But even if you can't, you may still be better paying the dollar in interest to get the 33 cents back, simply because of the opportunity cost of the money you'd use to pay off the mortgage.

I understand the 'invest money at a higher rate of return than your mortgage', but can you explain that last part of still being worth it even if you can't earn a higher or equal rate of return?

$1 is worth $1, until you use it for something. If you use it to pay off the mortgage, it completely loses it's utility since it's now gone. By electing to pay interest of 4% you are paying 4 cents to use someone else's $1. Now you can do whatever you want with that $1, including just holding it in an emergency fund, investing it, buying something, rolling a joint, etc. But you can only do one thing with it, after that it's gone.

http://en.wikipedia.org/wiki/Opportunity_cost

Ok, so there could be something better to do with that dollar from a values perspective, even if not from a purely financial one.

GuitarStv

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Re: Overheard at Work
« Reply #4941 on: October 28, 2014, 12:59:42 PM »
frothy.

arebelspy

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Re: Overheard at Work
« Reply #4942 on: October 28, 2014, 01:26:20 PM »
That's only counting if you can earn at the rate that your mortgage is.  If you earn higher, naturally you'll end up with even more.

But even if you can't, you may still be better paying the dollar in interest to get the 33 cents back, simply because of the opportunity cost of the money you'd use to pay off the mortgage.

I understand the 'invest money at a higher rate of return than your mortgage', but can you explain that last part of still being worth it even if you can't earn a higher or equal rate of return?

Because the math isn't a straightforward comparison, there are other factors.

For example, say your mortgage is 4%, and you can earn 3.75%.  If you're getting 1/3 of that mortgage back, you're still coming out ahead even investing at a lower rate, versus paying off the mortgage.

You have to include all factors when you run the numbers, not just "investment rate < mortgage rate, pay off mortgage" (including all the factors would include things like if you take the standard deduction).

Naturally if you're going to just spend that money, it's better to pay off debt.  But the cliche you hear all the time in personal finance circles of "it's dumb to pay $1 in interest to the bank to get $0.33 back in taxes" is flat out wrong - lots of times it's well worth it to pay interest to the bank to get part of that back in taxes depending on what you are doing with the money that you would be paying off the mortgage with.

That's my point, that the cliche you hear there isn't correct.

The original question asked was "How would I not be better off not paying the dollar and not getting the 0.33$ back - seems I would be .66$ better off?  Honest question what I am I missing? " -- that's what was missing, the opportunity cost of the money.   
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AlanStache

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Re: Overheard at Work
« Reply #4943 on: October 28, 2014, 01:57:19 PM »
That's only counting if you can earn at the rate that your mortgage is.  If you earn higher, naturally you'll end up with even more.

But even if you can't, you may still be better paying the dollar in interest to get the 33 cents back, simply because of the opportunity cost of the money you'd use to pay off the mortgage.

I understand the 'invest money at a higher rate of return than your mortgage', but can you explain that last part of still being worth it even if you can't earn a higher or equal rate of return?

Because the math isn't a straightforward comparison, there are other factors.

For example, say your mortgage is 4%, and you can earn 3.75%.  If you're getting 1/3 of that mortgage back, you're still coming out ahead even investing at a lower rate, versus paying off the mortgage.

You have to include all factors when you run the numbers, not just "investment rate < mortgage rate, pay off mortgage" (including all the factors would include things like if you take the standard deduction).

Naturally if you're going to just spend that money, it's better to pay off debt.  But the cliche you hear all the time in personal finance circles of "it's dumb to pay $1 in interest to the bank to get $0.33 back in taxes" is flat out wrong - lots of times it's well worth it to pay interest to the bank to get part of that back in taxes depending on what you are doing with the money that you would be paying off the mortgage with.

That's my point, that the cliche you hear there isn't correct.

The original question asked was "How would I not be better off not paying the dollar and not getting the 0.33$ back - seems I would be .66$ better off?  Honest question what I am I missing? " -- that's what was missing, the opportunity cost of the money.

Question was intended to be more narrowly focused on taxes rather than ones bottom line or preserving/creating options.  I will infer an answer that in 99.99% of cases one will not make back the interest paid to the bank directly from Uncle Sam after filing a 1040.  Not paying down the mortgage is a very good option but it could still be a good option if the mortgage credit did not exist at all (math would be tighter but still might work).

frothy: does anyone else remember the Red Dwarf episode "Balance of Power" where Rimmer starts black carding Lister to end conversations? :-p

HairyUpperLip

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Re: Overheard at Work
« Reply #4944 on: October 28, 2014, 02:02:14 PM »
Just overheard a coworker complaining about how her toddler throws major tantrums, and that she's "leaving that up to daycare to fix - that's why I work so much and put her in daycare, it means I don't have to deal with these things".

:( stupid useless fucking parents...

HairyUpperLip

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Re: Overheard at Work
« Reply #4945 on: October 28, 2014, 02:03:36 PM »
Why do these people even have children? Their kids are going to be so messed up when they grow up.

We need people to be our bosses and managers.

HairyUpperLip

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Re: Overheard at Work
« Reply #4946 on: October 28, 2014, 02:06:52 PM »
I'm gonna try to blow the foam off the top of this foamy cup of blue box....



And guess what everyone? Nobody knows what the fuck the blue box means or is until they've already learned it. So nobody is weird or dumb for not knowing it. The only thing weird or dumb is thinking you are weird or dumb for not knowing it. :)


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Re: Overheard at Work
« Reply #4947 on: October 28, 2014, 02:15:20 PM »
I'm gonna try to blow the foam off the top of this foamy cup of blue box....



And guess what everyone? Nobody knows what the fuck the blue box means or is until they've already learned it. So nobody is weird or dumb for not knowing it. The only thing weird or dumb is thinking you are weird or dumb for not knowing it. :)

Ok. Is it just me or is that Orange?

solon

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Re: Overheard at Work
« Reply #4948 on: October 28, 2014, 02:16:38 PM »
Must be their Halloween Sale.

Pooperman

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Re: Overheard at Work
« Reply #4949 on: October 28, 2014, 02:23:50 PM »
I'm gonna try to blow the foam off the top of this foamy cup of blue box....



And guess what everyone? Nobody knows what the fuck the blue box means or is until they've already learned it. So nobody is weird or dumb for not knowing it. The only thing weird or dumb is thinking you are weird or dumb for not knowing it. :)

Ok. Is it just me or is that Orange?

I bet there're hats in that orange box!