AS YOU BEGIN to plan for 2016, leave in the past some financial advice you may have learned.
I wrote a column recently using Yoda from the Star Wars franchise as inspiration. In The Empire Strikes Back, he gave some advice to Luke Skywalker. The Jedi master told Luke: "You must unlearn what you have learned."
I had questions from readers about some things on my list that they should unlearn, so I wanted to further explain three pieces of financial advice.
* Unlearn that there's good debt and bad debt. When it comes to a mortgage or education loans, you have probably heard that this debt can be a "good investment." Bad debt is characterized as carrying credit-card balances or taking out payday loans.
But debt is debt. The problem with so-called good debt is that people take on too much by rationalizing that in the end, they'll be better off financially. That's not always the case. We see an increasing percentage of borrowers with burdensome student loans. And too many people are still reaping the negative consequences of mortgages they couldn't afford.
I characterize debt as a monkey on your back. If you embrace the thinking that no debt is good, maybe you'll borrow less and work harder to get out from under it as soon as possible.
* Unlearn that it's OK to hold onto your mortgage even into retirement. People are told that they either should keep or get a mortgage for the tax break. Or, if they have extra money, they should invest the funds rather than paying down their mortgage.
Let me first address the point of the tax deduction. If you itemize deductions on your tax return, you can usually deduct the interest you pay on a mortgage or for a line of credit tied to your home. But the tax break isn't enough to offset all the interest you'll pay over the life of the loan. Many people - most of them middle- and lower-income families - don't even take the tax break, because they don't owe federal income taxes or they claim the standard deduction rather than itemize deductions, according to the Center on Budget and Policy Priorities.
As for investing any extra money, there comes a time when it make sense to aggressively pay off your mortgage - before you retire.
Earlier in your life, I can understand the decision to divert extra money to build up an emergency fund or get rid of other debt such as student loans or credit cards. If you have children, you should save for their college education. You want to take advantage of time and invest for retirement beginning in your early 20s. Once you're on the path to reach those goals, it's time to tackle the biggest financial monkey on your back - your mortgage.
Sure, extra funds could be invested. But there is no guarantee that the market will beat what you save for sure by paying down your mortgage early. Don't deplete all your savings or sell all of your investments to pay off your mortgage, because you don't want to be house-rich and cash-poor. But make it your mission to eliminate your mortgage before you retire. In retirement, your expenses need to be as low as possible.
* Unlearn that renting is throwing away money. Take into 2016 this message: You are not a financial failure if you rent.
Although home ownership can be a net-worth builder, it also comes with a lot of expenses many people can't bear. Talk to folks with a home that's 10 years old or older, and they'll tell you about the maintenance and home-improvement costs that are draining them. The furnace gives out. Your roof starts to leak. Major appliances act up. If you rent, you call the landlord.
One of the advantages of owning a home is the fixed cost of the mortgage. However, in some areas, renting is still cheaper than purchasing a home. Got a better job offer in another city? Renting allows you to relocate a lot easier.
And homes don't always increase in value. Eight years after the housing crisis, 13.4 percent of homeowners owe more on their mortgage than their home is worth, according to Zillow.
I hate the argument that renters are throwing away money, because this attitude puts too much pressure on people to buy a house. Buy one before you're ready and it can be a financial disaster.