How I think about debt • Hacker News Board

Re: How I think about debt

#211

Post by dheera » Mon, May 06, 2024, 9:44 PM UTC

sokoloff wrote: post #207

dheera wrote: post #204

Earlier quoted context omitted.

I never understood buying things that I can't afford. I always thought you earn money and when you earn enough money to buy something you can buy that something. That is always how I have lived life. For that reason I also find it ridiculous that it's the social norm to take debt to buy a roof to put over your head. A (simple, clean, functional) house is a basic need, not a luxury item. I always assumed that if I don…

It's fine to expect some people to buy a house with cash. I don't think that precludes saving for many years to do so (meaning the median income doesn't need to be $1M/yr).

Unfortunately housing prices are rising so fast that saving for years doesn't necessarily get you there, unless median income is close to ~1M by my back-of-envelope calculations, which include:

- taxes (1M is close to 500K after taxes)

- money that you need to cut out and put into retirement to sustain yourself from age 65-100

- living expenses and rent until you buy

- real estate prices rising the whole time

Re: How I think about debt

#212

Post by gr8r » Mon, May 06, 2024, 9:44 PM UTC

rKarpinski wrote: post #27

Interesting they chose to use this example of Japanese companies not having debt, when the country of Japan has the highest debt to GDP of any developed nation[1] which has contributed to its economic stagnation since the 1990s [1] https://en.wikipedia.org/wiki/National_debt_of_Japan

Interesting. Just another reason I'm convinced some of these recent non-fiction is just commentary (almost) making-up/inflating a problem and then providing a "magic" solution. The content isn't nearly as timeless nor broadly true.

Re: How I think about debt

#213

Post by roland35 » Mon, May 06, 2024, 9:46 PM UTC

francisofascii wrote: post #193

fwip wrote: post #85

Earlier quoted context omitted.

Well, you don't always know if you're going to want to sell later. Maybe you lost your job, maybe you need to move to another city, maybe you just hate the neighborhood.

Right, all it takes is for the large local employer to suddenly downsize, causing both the loss of job, and the crash of the local housing market simultaneously.

Not just one employer, sometimes the entire industry goes down! Just look at the housing market in Detroit or Youngstown

Re: How I think about debt

#214

Post by rcxdude » Mon, May 06, 2024, 9:47 PM UTC

dheera wrote: post #204

TexanFeller wrote: post #200

I have a paid off house and zero debt. Sure I might be ahead if I had used some of the cash to buy stocks instead of paying down the house early, but I’m completely happy with my decision. There is no peace of mind like not owing anyone a cent and keeping your living expenses low. Having debt was incredibly stressful and no longer worrying about making payments is the best thing that’s ever happened to my mental heal…

I never understood buying things that I can't afford. I always thought you earn money and when you earn enough money to buy something you can buy that something. That is always how I have lived life. For that reason I also find it ridiculous that it's the social norm to take debt to buy a roof to put over your head. A (simple, clean, functional) house is a basic need, not a luxury item. I always assumed that if I don…

It's more typical to think of 'affording' in terms of your expected lifetime income, and this is generally a good predictor of people's spending habits. Lending generally enables this. Avoiding debt entirely is a very risk-averse strategy. As ridiculous as house prices are, they are still generally affordable for many (and whether renting or buying is a better overall financial decision is dependent on many factors which depend on your location, how long you expect to own the house, and your risk profile for real estate vs any other kind of investment. Factors like rental rights can also factor pretty heavily).

Re: How I think about debt

#215

Post by Vegenoid » Mon, May 06, 2024, 9:49 PM UTC

WalterBright wrote: post #181

schlauerfox wrote: post #158

Earlier quoted context omitted.

A house has intrinsic worth. It is a house, people live in it, it provides shelter by it's nature as a house. How many dollars it's worth to others is extrinsic, but it certainly has intrinsic value.

> A house has intrinsic worth It's value is only what people will pay for it. For example, a relative of mine died some years ago. She had a house full of expensive furniture. You couldn't give that furniture away, even though it was in perfect condition. It had no value. The average estate value, excluding land, houses, and cars, is about $900. I have friends who ran an estate liquidation service. You'd net somethin…

You are thinking of worth and value only in the monetary sense, and the person you are responding to is referring to a house's ability to be valuable to individuals, even if nobody else will pay for it, because it provides them shelter, satisfying a basic necessity.

This is most of where its monetary value comes from (obviously not universally true, many properties have simply become investments), and its monetary value would probably only completely evaporate if the house were so degraded that it could not function as a shelter.

The monetary value of most houses is rooted in their ability fulfill a basic human need, as opposed to the monetary value of some other things, like gold or bitcoin, which are valuable primarily because of what they are worth to other people. Even if you disagree with using terms like 'worth' and 'value', you must agree that a house has utility that is not affected by its market price.

Re: How I think about debt

#216

Post by dheera » Mon, May 06, 2024, 9:49 PM UTC

rcxdude wrote: post #214

dheera wrote: post #204

Earlier quoted context omitted.

I never understood buying things that I can't afford. I always thought you earn money and when you earn enough money to buy something you can buy that something. That is always how I have lived life. For that reason I also find it ridiculous that it's the social norm to take debt to buy a roof to put over your head. A (simple, clean, functional) house is a basic need, not a luxury item. I always assumed that if I don…

It's more typical to think of 'affording' in terms of your expected lifetime income, and this is generally a good predictor of people's spending habits. Lending generally enables this. Avoiding debt entirely is a very risk-averse strategy. As ridiculous as house prices are, they are still generally affordable for many (and whether renting or buying is a better overall financial decision is dependent on many factors w…

Why is avoiding debt a risk averse strategy?

I actually do a lot of high risk investments with a small percentage of my net worth -- bitcoin, options, you name it. But I do it with hard cash to my name. If I lose a chunk of that I don't owe anyone anything.

I just never thought spending someone else's money and then owing them was even anywhere close to my moral radar of things I would do.

The only one time I took a debt is for a car when I had the cash to buy it but it was 2022 and I took a loan at 2% and put the balance of the car in treasury and municipal bonds at ~5% and paying back the loan slowly while selling off the bonds. I wouldn't take a loan if I didn't have the money. Before I could afford a car I just rented cars.

Re: How I think about debt

#217

Post by booleandilemma » Mon, May 06, 2024, 9:49 PM UTC

dheera wrote: post #204

TexanFeller wrote: post #200

I have a paid off house and zero debt. Sure I might be ahead if I had used some of the cash to buy stocks instead of paying down the house early, but I’m completely happy with my decision. There is no peace of mind like not owing anyone a cent and keeping your living expenses low. Having debt was incredibly stressful and no longer worrying about making payments is the best thing that’s ever happened to my mental heal…

I never understood buying things that I can't afford. I always thought you earn money and when you earn enough money to buy something you can buy that something. That is always how I have lived life. For that reason I also find it ridiculous that it's the social norm to take debt to buy a roof to put over your head. A (simple, clean, functional) house is a basic need, not a luxury item. I always assumed that if I don…

I'm in the same spot. I'm in the middle class, I've been renting for years, and I refuse to go into debt by taking out a loan for a house. This is a societal failure.

Re: How I think about debt

#218

Post by rcxdude » Mon, May 06, 2024, 9:53 PM UTC

dheera wrote: post #216

rcxdude wrote: post #214

Earlier quoted context omitted.

It's more typical to think of 'affording' in terms of your expected lifetime income, and this is generally a good predictor of people's spending habits. Lending generally enables this. Avoiding debt entirely is a very risk-averse strategy. As ridiculous as house prices are, they are still generally affordable for many (and whether renting or buying is a better overall financial decision is dependent on many factors w…

Why is avoiding debt a risk averse strategy? I actually do a lot of high risk investments with a small percentage of my net worth -- bitcoin, options, you name it. But I do it with hard cash to my name. If I lose a chunk of that I don't owe anyone anything. I just never thought spending someone else's money and then owing them was even anywhere close to my moral radar of things I would do. The only one time I took a…

because the risk with debt is not being able to pay it back - and you are paying the lender for their side of that risk (generally paying less the more of that risk falls on your side, like secured debt). It's a service they are freely offering (and in fact benefits them disproportionately on average), I don't see how it's a moral issue at all.

Re: How I think about debt

#219

Post by chinchilla2020 » Mon, May 06, 2024, 9:53 PM UTC

tombert wrote: post #6

I don't think all debt is equal, and I don't think all debt hurts your ability to handle volatility. I have a 30 year mortgage on my house with a 2.75% interest rate. That has effectively given myself "rent control"; outside of a potential rise of property taxes, my "rent" payment will not exceed a certain number of dollars. That means that if the housing prices rise rapidly, I'm covered. If I had decided not to leve…

Covid is one example. The PPP loans provided by the federal government to businesses were forgiven. That sort of stimulus, combined with massive inflation, is favorable to a debtor, not a saver.

For many, taking on debt in 2018 to buy a house for 200k would have paid off greatly by selling in 2022 for 500k. In an inflationary environment, you should grab as much cheap debt as possible.

Re: How I think about debt

#220

Post by llukas » Mon, May 06, 2024, 9:56 PM UTC

francisofascii wrote: post #193

fwip wrote: post #85

Earlier quoted context omitted.

Well, you don't always know if you're going to want to sell later. Maybe you lost your job, maybe you need to move to another city, maybe you just hate the neighborhood.

Right, all it takes is for the large local employer to suddenly downsize, causing both the loss of job, and the crash of the local housing market simultaneously.

Shouldn't this be priced into the house value in this local market?