Most people don't think about debt rationally. If going into debt can accelerate your plans by a significant timeframe, why not do it, assuming it's affordable? Especially if you can get money without having to give up equity. Their funds accelerate your business, you pay them back with the increased earnings. It's literally how capitalism is supposed to work.
How I think about debt
291–300 of 445 posts
Re: How I think about debt
#292Earlier quoted context omitted.
I thought the "The more debt you have, the less financially resilient you are" was the more important message.
But this isn’t true, one has to consider the debt ratio, not just the debt. Someone with a million dollars of debt is financially resilient if they have a debt ratio of .1
It's still true though. If push comes to shove, having no debt will increase your odds of surviving volatility - it the debt ratio just expands or tightens what range of volatility you can survive (which he did write about). Even if you have $5 of debt and $5m in the bank, you would still be measurably better off to have had $0 of debt in financial "survival".
Re: How I think about debt
#293Earlier quoted context omitted.
debt for housing, which is a depreciating asset in normal times (housing wears out, land may become more expensive) is not a great idea, but it has been normalized and when you have negative real rates & inflationary policies, as we had for over a decade, it can make a lot of sense debt for productive activity in general makes sense if it isn't compounding (mortgages act like simple interest, btw, although it's compl…
> debt for housing, which is a depreciating asset in normal times (housing wears out, land may become more expensive) is not a great idea, but it has been normalized and when you have negative real rates & inflationary policies, as we had for over a decade, it can make a lot of sense Has there been a 20 year stretch of time in the US in which housing is broadly a depreciating asset? Seems that land is definitely, and…
Depends where you live! There are plenty of cities that have gone downhill. I could easily see some big sun belt cities getting too hot in 2044..
Re: How I think about debt
#294I 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…
A house is not a zero-risk investment. Any number of reasons from Natural disaster on down could cause it to lose much of it's value or even become uninhabitable. Possibly in a way that insurance wouldn't cover.
Think of people who owned houses in declining industrial cities. The local economy went bad, their house value went down and they faced a barrier to moving since they couldn't sell, move, and get a comparable house in a city with better prospects.
Re: How I think about debt
#295Earlier quoted context omitted.
Rent can increase faster than your income. Owning, even with higher carrying costs, derisks housing both from an expense and sourcing perspective.
Rent can do that. But in renting you can more easily move to a better paying job. I'm not sure you're derisking as owning is also subject to local taxes of whatever sort. Those too can increase faster than income.
And if you can’t find a job because you’re older or the employer market is raking you over the coals, you’re screwed, while your housing is mostly locked in.
Re: How I think about debt
#296I 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…
Australia is practically all variable rates after 3 years, so not much is really "locked in"
Re: How I think about debt
#297Earlier 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'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.
A mortgage as a tool is available to you. If you refuse to go into debt, is that societal failure? Affordability of housing is a serious issue, but I'm not sure expecting to buy property without debt is necessarily so.
It seems like a self-defeating position to take?
Re: How I think about debt
#298Earlier quoted context omitted.
Rent can increase faster than your income. Owning, even with higher carrying costs, derisks housing both from an expense and sourcing perspective.
> Owning… derisks housing both from an expense and sourcing perspective Except if property taxes increase beyond affordability as they have for many folks in some states recently.
> as they have for many folks in some states recently.
Re: How I think about debt
#299Earlier quoted context omitted.
Wouldn't their rent go up at a similar rate since the home owner would be copping those tax hikes anyway?
not necessarily. rent and market value are related, obviously, but they don't have to increase at the same rate. in some markets, property values can increase much faster than rent. https://www.investopedia.com/terms/p/price-to-rent-ratio.asp
Yeah, I agree. Rent is essentially capped by median income. If mortgage rates are cheap enough, housing prices will skyrocket, but median rent will barely budge.
Re: How I think about debt
#300I 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…
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.
> I can always say screw it and move to the cheapest part of the country as I am getting closer to retirement age.
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Something similar to this is why I prefer renting and why anyone who unshakeably believes renting is “throwing money away” is immediately suspicious to me.
I’ve always tried to rent the cheapest (some would say crappiest) apartment in an area that I’ve really wanted to live. I’ve done quite well financially and in terms of lifestyle as a result. I would’ve done better financially by buying a home somewhere I don’t want to live, but what’s the point?