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It Is Not About the Money, Silly, It Is All About the Time

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Re: It Is Not About the Money, Silly, It Is All About the Time

#61

Post by xrange »

One things I don't see mentioned is the use of a mortgage as kind of a forced savings plan. For a bunch of reasons, it is really hard for people to plan/save for the future. That's why there is thousands of years of parables and social convention exhorting people to save and not be in debt (i.e. if it was easy to do, everyone would do it). Buying a larger-than-strictly-necessary house with a mortgage is a way to start applying current money to a need in the future. By making a mortgage payment, they aren't otherwise spending that money on more frivolous items. In 30 years time they'll at least have something tangible, instead of fleeting memories of vacations. Whether that trade of as an individual is worth it is debatable, but on a societal level, it probably is.

I think there is a similar, more short-term story with IRS refunds. People could have their paycheck deductions arranged so that their "refund" was nothing. But if it comes out "unvoluntarily", then they are excited to get it back in a lump sum, even if this is the mathematically sub-optimal solution.

Re: It Is Not About the Money, Silly, It Is All About the Time

#62

Post by andy_adams »

DontBeADick wrote: post #14

I'm getting tired of all this "live debt free!" nonsense. There's good debt and bad debt, and people like this should learn the difference before giving financial advice.

My experience with average folks tells me that "live debt free" is really good advice. I'd wager that most people don't take any consideration of the cost of interest, and thus it'd be super beneficial to just eliminate debt.

It's sorta a UI problem. The simpler, the better for the average person. "Live debt free" is painfully simple and it'd be a great start for most people.

Re: It Is Not About the Money, Silly, It Is All About the Time

#63

Post by dpina »

charlieflowers wrote: post #26
DontBeADick wrote: post #14

I'm getting tired of all this "live debt free!" nonsense. There's good debt and bad debt, and people like this should learn the difference before giving financial advice.

OK, well look around. Do you know a lot of people (is it possibly even most of the people you know) who have 2 or more car loans, and at least one home loan? That's the "norm". That's what "everyone" does (everyone who is in a first world country and has a decent job). Is that somehow "smart debt"? Really? What's so smart about it? It is smart for whomever loaned that money out ... they get back free money paid consi…

Most people don't usually get two car loans just because that's what other people do or because it seems smart/cool. They do it because both people living in the same household need a personal car to get to work. Granted that maybe they could leave their white collar high paying jobs, find some other job at the groceries store in the street and trash the car loan. But the salary difference doesn't pay off. Also, for a lot of people public transportation doesn't pay off either.

As for a mortgage, as others have explained in this thread, it could be a smart debt given the right conditions. For example, if I had a bank loan to buy a house with the similar value to the one I currently rent, I would be paying a smaller amount of money to the bank than what currently is being transferred to my landlord monthly. I could live forever without a mortgage, but in 30 years time would find that I had spent a lot more then if I did.

It's not all 'several loans = bad money management vs no loans = good money management' sadly.

Re: It Is Not About the Money, Silly, It Is All About the Time

#64

Post by BadCookie »

jasonkester wrote: post #22

A lot of talk about mortgages here. I think as long as you do the math and let that guide your decisions, you'll come out ahead. Take this year, for example. I happen to have a mortgage that I could pay off completely later this year without penalties. I've been saving to do just that, and parking the balance in the market until the day comes to pull the trigger. But what's this? I'm up 11.6% on the year thus far. It…

It's my understanding that institutional money has been leaving the stock market while less sophisticated investors have been moving their money into the market (on average). If I were you, I'd be afraid of being the last one standing when the music stops, but then again, I have a history of being overly conservative (to my detriment).

Edited to add: If you aren't aware of what's happening with quantitative easing winding down, then do yourself a favor and read up on it.

Re: It Is Not About the Money, Silly, It Is All About the Time

#65

Post by chrisBob »

noonespecial wrote: post #48
artmageddon wrote: post #23

Earlier quoted context omitted.

> rafts of expensive insurances that middle class people often insist on Could you explain more on what you're referring to when you say insurances?

Health insurance for starters. Poor people will likely have a (mostly less than sufficient) government option that they pay little for, hoping that they don't get sick. Then comes the mandatory insurances of "ownerships". Mortgage insurance to cover loan default, required property insurance for that home, auto insurance (full coverage also required by your lender on a new car) etc. Fearful insurances like disability…

I agree except for life insurance. Most life insurance (at least a whole life policy) is a way to pass on wealth tax free, rather than a real insurance policy.

Re: It Is Not About the Money, Silly, It Is All About the Time

#66

Post by grecy »

noonespecial wrote: post #48
artmageddon wrote: post #23

Earlier quoted context omitted.

> rafts of expensive insurances that middle class people often insist on Could you explain more on what you're referring to when you say insurances?

Health insurance for starters. Poor people will likely have a (mostly less than sufficient) government option that they pay little for, hoping that they don't get sick. Then comes the mandatory insurances of "ownerships". Mortgage insurance to cover loan default, required property insurance for that home, auto insurance (full coverage also required by your lender on a new car) etc. Fearful insurances like disability…

To give a concrete example to artmageddon -

I drive a $450 car so I have the absolute minimum insurance on it required by law. Even after only one year of not paying for full comprehensive, I will save money if it gets stolen or burns to the ground and I walk away. (I do have high third party - so if I hit a Porsche, damage to it and people is covered). I pay $300/year for the car insurance I have.

I currently don't have any kids, so I've opted out of Life Insurance at work, instead getting more money into my bank account. In all honestly my savings account would cover my funeral expenses, so why would I want my family to get $250k in the event of my death? It's not going to make them happier.

I also opted out of the health insurance at work, so I get a bigger paycheck. I'm 32, fit and strong, and I can count on one hand the number of times I've been to a doctor in my life. Obviously this circumstance will change as I get older and have kids, and I'll re-work my approach.

EDIT: I live in Canada - basic health care is more than good enough.

Re: It Is Not About the Money, Silly, It Is All About the Time

#67

Post by JoeAltmaier »

jahewson wrote: post #59

I'm tired of seeing "people who are in debt waste their money" or "people who are in debt live beyond their means" as the default explanation for indebtedness. I'm in debt. I have debt for a car, furniture, and medical expenses. (despite the fact that most of my furniture was acquired for little cost, and insurance covers most of my medical expenses) I also have a new MacBook Pro (I'm a developer), much to the chagri…

Huh. Starbuck habit of $5/day (conservative?) over a 200-day work year amounts to $1000. Have to spend $100,000 to make that just 1%.

Re: It Is Not About the Money, Silly, It Is All About the Time

#68

Post by falcolas »

NickPollard wrote: post #29

Some sensible advice here, but also ignoring all debt is not a good idea. I used to have a similarly black-and-white view, but now I realise that debt is simply another trade-off to be considered. Remember, your life is precious. Don't live your 20s and 30s as an ascetic just so you can retire to a golf course in your 50s. I spend a lot now (but not beyond my means) because these are some of the best years of my life…

I can't agree with this enough.

If you're not taking 3-5% of your monthly income and just blowing it on something fun (it doesn't have to be material things, trips, fancy dinners, and financially helping friends have the same effect here), you're missing out on life. It's a conscious decision which may not maximize your earnings across your entire life, but I've found that it significantly increases your enjoyment of your entire life.

Re: It Is Not About the Money, Silly, It Is All About the Time

#69

Post by NickPollard »

tomp wrote: post #57
NickPollard wrote: post #29

Some sensible advice here, but also ignoring all debt is not a good idea. I used to have a similarly black-and-white view, but now I realise that debt is simply another trade-off to be considered. Remember, your life is precious. Don't live your 20s and 30s as an ascetic just so you can retire to a golf course in your 50s. I spend a lot now (but not beyond my means) because these are some of the best years of my life…

> I spend a lot now (but not beyond my means) because these are some of the best years of my life, I agree with the second part of the statement, but not with the first one. In my life, there is almost nothing that could be further improved by spending more (or a lot of) money on. Currently, my biggest expenses are rent (allows me to live in London and have a very good job) and food (I buy the best, mainly because I…

I agree with most of what you say; different people have different tastes though.

Like you I spend most of my money on rent (I also live in London) and food - in the case of rent, probably 50% of that is paying for location. I moved recently to be closer to work, and now I walk to work in 25 minutes rather than spending 45 minutes+ on the tube. This costs me several hundred a month, and it's worth every penny. It gets me back 30-60 minutes a day of time, I get extra exercise, and I get to enjoy being outside in the sun. It has literally made a significant difference to my happiness.

Outside food and rent, the other main expenditure for me is travel - I have friends around the world, and enjoy exploring new places, so I spend a few thousand a year at least on travel. I could certainly cut back some of that by staying at cheaper locations, but that's a trade-off I'm willing to make.

I think the difference between myself and a lot of consumers these days is that I spend primarily on experiences, not posessions.

Re: It Is Not About the Money, Silly, It Is All About the Time

#70

Post by tomp »

throwaway283719 wrote: post #34
brightsize wrote: post #19

Earlier quoted context omitted.

Dave Ramsey, who, for lack of a better term, one might describe as a "personal finance turn-around guru and radio personality", poses the question you ask in a different way. I paraphrase: "If you owned your house outright, would you go out and get a mortgage on it so that you could invest in the stock market?". Financial management is about much more than maximizing returns. It's also about managing risk. For most p…

I didn't mention anything about the stock market. I said if you can invest somewhere with a return greater than 3.5% after tax . Implicit in that was that the investment is risk-free i.e. it's a government bond or something. But it could be a risky investment, if the risk-return trade-off is high enough. If I had the opportunity to invest at a 10% rate of return with a stdev of 5% then absolutely, I'd remortgage my h…

If it's too good to be true, it probably is.
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