Yes you are paying interest on interest.
I think this reply waffles on a bit but put my thoughts down anyway.
I live off equity, via cashbonds arranged by Sue ellen in Navra's Brisbane Office.
Somethings to consider:
-Thanks to inflation the costs of the previous years interest decrease in real terms over time.
-it would take a lot of compound interest to equal the tax you would pay on similiar incomes eg. $100 pa, this year $7000 interest, next year $14000, next year $21000
-if you're increase in equity over the medium term should be sufficient to cover the equity you've spent , as well as the interest.
-For someone at my stage of life (<30) even if it all went pear shaped I could have the 5 years without working, sell domething to pay off the debt and still have had 5 years without working, If I was at a different stage I doubt I would have done anytihing differently as the numbers added up.
- you're are living of a small percentage of you're equity, I think Steve Navra reccomends less than 5%.
-not having to work is definately worth it. I have no doubt I live a truly priveleged life, I did enjoy being a teacher but Freedom is priceless. I decide what I'm doing everyday. I spend heaps of time with my wife and young son, I have another son on the way and know that I can be there all the time during the first few weeks after he's born etc etc.
- another cost/ benefit not often mentioned is it gives you time to explore other options.I made more than my first year's income in the first 6 months
Regardless of the above I have friends and relatives who could never do what I do because they couldn't sleep at night due to the debt, some have invesmtents and investment debt, but no matter how safe it looked on paper, borrowing money to live on would drive them crazy.
Hope it helps, any questions feel free to ask
