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Should I Pay Down My Mortgage or Make Home Improvements

Written on May 11, 2009 by George Krueger & Mary-Lynn Foster in Money

Bigg success is life on your own terms. The five elements of bigg success are money, time, growth, work and play. Today our focus will be on money.

One of our listeners, Bob, called us with a bigg question. He and his wife have some extra money and they are wondering whether they should use it to pay down their mortgage or make some home improvements.

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Hear George & Mary-Lynn answer Bob's Bigg Question on The Bigg Success Show! Click the purple player to listen while you read: Play Now | Play in Popup | Download

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Both options are very illiquid

You can’t get your money back once you spend it with either option. So make sure you have enough extra cash to cover between six to twelve months of living expenses before you do either one.

A guaranteed return

Paying down your mortgage is one of the safest investments you can make. It’s a guaranteed return equal to your mortgage rate.

For example, if your mortgage rate is 6% and you pay it down early, you’re essentially earning 6% on your money guaranteed!

That’s a decent rate of return right now.

Returns on home improvements are often more sketchy. Start by asking yourself this question:

How does the value of your home compare to other homes in your neighborhood?

If you’re one of the most expensive homes already, making improvements probably won’t do you a lot of good financially. However, this is your home. It’s more than just an investment. So ask yourself a second question:

How long do you plan to live there?

The longer you plan to stay put, the higher the emotional returns – an important point to consider because money isn’t everything. What types of improvements yield the best financial returns? Most major outlays don’t return much if anything. Cosmetic improvements usually show a better return – paint, new floor coverings, landscaping, and those sorts of things. Remodeling the kitchen or bath can yield a reasonable return, particularly if they look a little outdated, as long as you don’t go over-the-top.

Weighing your options

Determine how much it will cost for your desired improvements. Then ask a Realtor or an appraiser to find out the expected increase in your home’s value. Now calculate your return:

Return = (Increased Value – Cost of Improvements) ÷ Cost of Improvements

Compare that to your mortgage rate. If the return for making the home improvements is significantly higher, you might consider making the improvements instead of paying down your mortgage.

Just keep in mind, this is not an apples-to-apples comparison. Paying down your mortgage offers a guaranteed return. Making home improvements does not.

Choosing between improvements

If they go with the improvements, Bob wants to replace the windows. His wife wants to remodel the kitchen. Which would be better for the money?

We wonder why you want to replace the windows, Bob. Is it for cosmetic reasons or are you thinking about energy-efficiency? Perhaps it’s both.

Stimulus for you

We hate to disappoint your wife, but right how is a great time to replace windows or make other energy-efficiency improvements. The Economic Stimulus Act extended and improved the tax credit for these types of repairs.

You get a 30% tax credit up to a $1,500 limit. So you can spend up to $4,500 on qualified improvements.

A tax credit is better than the deduction you’re used to getting on Schedule A. Deductions reduce your taxes by the amount of your marginal rate. Credits reduce your taxes dollar for dollar.

So $1,500 of your new windows could be paid for by the government!

The one cash outlay that pays you back year-after-year

However, it doesn’t stop there. It’s amazing how much air can leak out through poor windows. You’ll save money on your utility bills for years with the right windows.

Your returns for making any energy-efficiency improvements aren’t guaranteed but they’re close. They may also be higher than the returns on a lot of other investments these days. Improving your energy-efficiency is a cash outlay that pays you back year after year!

Thanks for your bigg question, Bob!

Do you have a bigg question?

Please share it with us by calling us 888.455.BIGG (2444) or sending an e-mail to bigginfo@biggsuccess.com.

Please join us next time when we talk about two recent examples of saying, “We’re sorry.”

Thank you for sharing your time with us today. Until next time, here’s to your bigg success!

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Are You Throwing Money Away by Owning Your Home?

(Image in today's post by svilen001)

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Add Fireworks to Your Next Presentation

Written on July 4, 2008 by George Krueger & Mary-Lynn Foster in Presentations

We’re celebrating the 4th of July here in the United States. Fun, friends, and …

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"Fireworks! I love the fireworks. Watching them always makes me feel like a kid."

"One of my favorite stories is about a fireworks show gone wrong. I used to be in a service club called the Jaycees. Many local Jaycee chapters put on the fireworks show, particularly those in small towns. I heard about one chapter’s show, in particular. One year, at the beginning of the show … not more than a few fireworks in … they lit one that misfired. It hit the pile of all the remaining fireworks! BOOM! An amazing display … but their whole show was over in less than a minute!"

Nothing like having your grand finale at the beginning!

There is an art (and some luck) to putting on a good fireworks show. As we were talking about this, we thought it was interesting how it relates to storytelling.

The start

It kicks off with a little burst that grabs your attention right away. Then you get into the flow. There’s a certain rhythm to the fireworks, often synchronized with music. The rhythm changes throughout the show. At times, they’re firing off quickly; at other times … a little more slowly.

When you tell a story, start with an attention grabber and then get going. Vary your pace with the action of your story. Talk faster to imply that things are developing faster or slow down when it’s called for. Make your timing fit your story.

The pseudo-finale

Usually you’ll see a pseudo-finale about half way through the show. They give you a taste of what the grand finale will be like.

"Sometimes it’s so good that you think it is the finale! You get bummed that it’s almost over."

As you tell your story, depending on its length, think about how you can get them to anticipate the climax as you near the middle. This will keep them engaged and wanting more!

The grand finale

This is what everyone’s been waiting for. It’s almost sensory overload with so much going on at once – the sound, the sights, the colors exploding in the sky … one right after the other, sometimes on top of each other.

"You feel your heart start pounding faster … that rush of adrenaline. You’re in awe and you don’t want it to end."

"You don’t want your story to be like the Jaycees’ fireworks show I mentioned earlier. You want it to build, and build, and build …to your final line – the point of your story. You want your audience on the proverbial edge of their seats. Leave them wanting more … realizing why they should listen to you."