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How I think about debt

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Re: How I think about debt

#261

Post by rcxdude »

Dylan16807 wrote: post #232
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…

I agree that house prices should come down. But given that you need a home, what's the difference between $1000 in rent+fees and $1000 in mortgage+taxes+fees? Normally the biggest difference between renting and buying with debt is that you can stop renting. But you're not going to stop having a home.

Sadly the case in a lot of places is the difference is control over your environment, or simply stability. In a lot of places your rights as a renter are so bad you can basically do nothing to improve the place you live, and even if you were allowed you would be foolish to do so because then your landlord could just kick you out or hike up the rent (and might just do that anyway). (where I live even multi-year tenants are frequently forbidden from putting up pictures on the walls, let alone repainting them, FFS). In places with proper rental rights, rent vs buy is a lot less clear-cut, especially if prices don't have much room to go up any further (buying only looks like a non-brainer financially in the past decade's environment of extreme price increases, or if you fail to consider opportunity costs. Even if you can afford to buy a house, it's not necessarily the best use of your money, but the non-financial side can be a really big part of why people go for it anyway).

Re: How I think about debt

#262

Post by gwbas1c »

geraldwhen wrote: post #255
beryilma wrote: post #243

Earlier quoted context omitted.

Owning a house does not mean not owing anyone a cent. You still owe multiple types of taxes to the government. You still need to get insurance. You still need to make repairs. I actually find piece of mind in renting. I can always say screw it and move to the cheapest part of the country as I am getting closer to retirement age.

You can buy better neighbors with a house, and less crime.

> You can buy better neighbors with a house, and less crime.

I wish!

I built a fancy house in a fancy neighborhood, and then a real a-hole bought the house next to me as his retirement home.

Re: How I think about debt

#263

Post by lr4444lr »

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…

To each his own, but I get more peace of mind with a larger retirement account due to the low fixed rates we had in the US from 2009 to around 2022.

I can't liquidate my house piecemeal when I need money like I can my brokerage assets.

Re: How I think about debt

#264

Post by openrisk »

This thinking links to how corporate debt has being valued theoretically, starting with the work of Merton [1], by looking at debt as an option with non-linear payoff. The borrower can put the busted assets to the lender.

In practice there are countless important complications that make a naive option theoretic analysis very incomplete, e.g., getting into debt makes a lot of sense if you can count on a bailout if things go pear shaped.

[1] https://en.m.wikipedia.org/wiki/Merton_model

Re: How I think about debt

#265

Post by [deleted] »

synergy20 wrote: post #246
Dylan16807 wrote: post #232

Earlier quoted context omitted.

I agree that house prices should come down. But given that you need a home, what's the difference between $1000 in rent+fees and $1000 in mortgage+taxes+fees? Normally the biggest difference between renting and buying with debt is that you can stop renting. But you're not going to stop having a home.

my landlord friend told me, many of her tenants earn decent salary, definitely more than her income, they can even spend $8000 or more to remodel a car or things like that, but can never save up to the 20% down payment ever.

[deleted]

Re: How I think about debt

#266

Post by lisper »

Not all debt is created equal. There is a really crucial distinction here that the author doesn't mention. Debt to finance consumption is very different than debt to finance production. The former narrows your volatility window permanently, but the latter only does so temporarily. Once you get past that, the window widens again and stays wider than it would have been without the debt. As long as the productive asset returns more than the cost of servicing the debt to acquire it, you win. Of course, that's a big if, but it happens regularly, and it's something that really needs to be taken into account when making these kinds of decisions.

Re: How I think about debt

#268

Post by Cyphase »

JadeNB wrote: post #240
dheera wrote: post #222

Earlier quoted context omitted.

The moral issue I have is that simply put, if I don't have the money for something, I wasn't meant to have that something. I need to earn the money for it, after which I deserve to have that something. However, the most basic clean-and-functional versions of basic necessities (food, water, shelter, and transportation) should be accessible to everyone working a full-time job, in my opinion, without having to spend oth…

> The moral issue I have is that simply put, if I don't have the money for something, I wasn't meant to have that something. I need to earn the money for it, after which I deserve to have that something. There's a difference between having money and earning money. If you find $20, are you therefore $20 more deserving? If you are mugged and the thief gets $100, does that make you $100 less deserving? There are plenty…

Just to throw in a thought on this..

I agree that "meant to have" and "deserve" are the wrong concepts here. But reality and practicality are what they are.

If I work hard and save my earnings, with the intention to buy something which we agree is a "valid" need/want (whatever that something is), and then lose the money through some circumstance that we we agree is "not my fault", that really sucks and I don't claim that it affects how much I "deserve" the thing (whatever deserve means), but the reality is that I now don't have the money to buy that thing. Am I going to now borrow money because "I worked hard and I deserve it"? Some would, others wouldn't.

Re: How I think about debt

#269

Post by belval »

throw0101d wrote: post #42
Brajeshwar wrote: post #13

Today, I started picking up what I started some time back -- the book “Debt: The First 5,000 Years” by David Graeber goes deep into the details of Debt. I've heard good reviews and I hope this is a good book as they say. https://en.wikipedia.org/wiki/Debt:_The_First_5000_Years

> the book “Debt: The First 5,000 Years” by David Graeber Also would recommend Money: The True Story of a Made-Up Thing : > Money only works because we all agree to believe in it. In Money, Jacob Goldstein shows how money is a useful fiction that has shaped societies for thousands of years, from the rise of coins in ancient Greece to the first stock market in Amsterdam to the emergence of shadow banking in the 21st c…

> Money only works because we all agree to believe in it.

Respectfully, this is the type of true-that-sounds-deep statements that are absolutely shallow and pointless. Yes money the "paper" is not worth anything, but the same could be said of anything in an organized society. Ownership means nothing, it's just a title backed by the government which has a monopoly on violence. Ethics means nothing, it's just something we culturally decided was desirable because if you feel a-ok with murder any trip anywhere would turn into a blood bath.

At this point it should be a named fallacy (maybe it is), if we are discussing the merits of debt as a tool, saying "money isn't worth anything" as if it means something is not some ground breaking statement.

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