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There's good debt and then there's bad debt. Good debt is one where you use other people's money to build your own wealth in appreciating assets. Bad debt is

There's good debt and then there's bad debt. Good debt is one where you use other people's money to build your own wealth in appreciating assets. Bad debt is where you borrow on credit to buy yourself a momentary satisfaction, like a trinket. Most people think they're richer than they actually are. Which is why it's so common for people to "spoil" themselves. Learning to live cheaply is a skill and takes a bit of pride swallowing as the people around you live more lavishly on less income. Unfortunately there a lot of people who are quite a bit overconfident about their financial state due to swollen housing prices.

josephdviviano 9y ago
I predict people taking out ostentatious lines of credit on their mortgages (esp. in GTA and Van) will lead to very high rates of default if the housing prices drop dramatically (~10-20 %).
bluGill 9y ago
It is hard to live within your means when you see everyone else around you get nice things. I know that when I retire (possibly early) I will be glad I saved all my life as I can afford more nice things when I have time. However there is the desire for now. Worse, nothing is guaranteed. I knew people who died young. All my savings will be wasted if it turns out I'm one of those who don't make it to retirement age. The best thing to do could be charge my credit cards to the max and enjoy life as best I can now - letting my estate be bankrupt. We have no way of knowing until after I die what I should have done.
- bittercynic 9y ago
  Your savings wouldn't be wasted if you left them to a cause/person that you believe in.
- J-dawg 9y ago
  I know exactly what you mean. I've been slowly moving towards a "Mr. Money Mustache" style of frugal living, but I still wonder whether I'm doing the "right" thing. Maybe I'm missing out on all sorts of opportunities to enjoy life and grow as a person. I do, however, look at friends who make significantly more than me and see that their lifestyle has grown proportionately with their income. Many of them could probably retire early if they embarked on 5-10 years of MMM-style extreme frugality, which to me seems like a missed opportunity.
  - Chris2048 9y ago
    > Many of them could probably retire early if they embarked on 5-10 years of MMM-style extreme frugality Depends on where the wealth comes from, and if it's related to the spending of money (networking in expensive bars, for example). There's another argument: what is retirement? Time spend on 100% leisure? But in this case we live frugally (100% work) in order to get that retirement. the reason we take so long to retire if we don't live frugally, is that we split time among work and leisure - i.e. we are partly doing what we'd do if we retired anyway.
    - nunez 9y ago
      Exactly what I've been saying. I actually enjoy working. I don't see myself not working when I retire. It will probably be more casual work at my own pace, but I'd still like to be useful. Many of the "retire early" people I've interacted with on /r/personalfinance are doing it because they hate their jobs and want to spend their life travelling or otherwise not working. To do that, they spend as little as possible (and save as much as possible). Many people are okay with that. I'm not. I tried simulating that again for the first few years out of college to pay down some student loan debt. I stopped the minute I was able to refinance all of my existing debt into one with lower interest. I think I dislike living frugally so much because I grew up poor and being poor sucked.
      - J-dawg 9y ago
        I understand what you mean. For me "retirement" would be about having enough FU money to provide a basic income, so that I could choose to work on things I find fulfilling. Then again if you already find your work fulfilling and expect to continue to do so, I understand that there wouldn't be the same urgency to retire (with the caveat that everyone should save something for retirement as well as having an emergency fund).
- hamstercat 9y ago
  My only advice is don't go overboard with it, but keep sticking to your plan. Spending more money doesn't automatically bring you more happiness, even if a large part of society makes it seem so. Buying a new car seems fun, and it may be for a couple of days, but the fun wears out after a while. Eating out at a restaurant can be a great experience, unless you do it everyday and it becomes a routine.
  - creepydata 9y ago
    Yeah, I can relate to restaurants. We started going to them more often (not really sure why laziness?) and they not only became routine it became somewhere of a chore to leave the house when you're hungry. We cut back a lot and when we went out again last Saturday it was literally one of the most fun I've had in quite a while.
- scaryclam 9y ago
  Personally, I like to save up some money specifically to blow on stuff I don't need. That way I can save for the future but still feel like I'm being irresponsible, albeit only sometimes.
- lukas099 9y ago
  "I knew people who died young... The best thing to do could be charge my credit cards to the max and enjoy life as best I can" This argument relies on the assumption that 'getting nice things' yields 'enjoy[ing] life as best I can now' This isn't necessarily true. Some people, myself included, feel much more satisfied living below our means. Above a base level, I don't think 'stuff' really makes us happier, and the security of having savings gives me peace of mind that is much more valuable and happiness-inducing than, say, an expensive car.
curioussavage 9y ago
I think the concept of good debt does nobody any favors. The people who make real money using debt get money at very low to 0 percent interest rates. There are always exceptions but for most people this concept is BAD. I would beg you not to tell this nonsense to people but I suspect you will think you know better. What appreciating assets should people get in debt to buy? Surely you aren't trying to label houses as appreciating assets.
- deleted 9y ago
  [deleted]
- throwaway99951 9y ago
  >What appreciating assets should people get in debt to buy? You should go into debt to buy any assets that you know will appreciate at a rate greater than the interest you pay on debt incurred to finance them. >Surely you aren't trying to label houses as appreciating assets. Real rate of return on real estate is slightly positive in historical data.
  - creepydata 9y ago
    You absolutely can't "know" ahead of time what assets will appreciate at all, let alone their rate of appreciation. If you knew that for sure you'd be a guaranteed millionaire. Even if you say "real estate historically appreciates," most communities (esp small ones) are prompted up by 1-2 big employers or industries thus house prices in a community are not as secure as you might believe (see Detroit). Plus neighborhoods change over time. Plus you're ignoring the carrying cost of a property and the transfer costs. However, a house can provide a lot of enjoyment so I am not advocating you don't buy one, just be realistic about what you are buying.
    - throwaway99951 9y ago
      >You absolutely can't "know" ahead of time what assets will appreciate at all, let alone their rate of appreciation. Also, water is wet. I "knew" when I bought corporate bonds paying 15% in 2008 that they would appreciate. >house prices in a community are not as secure as you might believe You're grabbing anecdata as evidence. I'm looking at the data. Yes, Detroit is bad. How about we look at Mountainview, too? >Plus you're ignoring the carrying cost of a property and the transfer costs. Real returns
sbarre 9y ago
Ironically, "You're richer than you think" is a major marketing slogan for one of our big national banks. :-/
gwbas1c 9y ago
"Good debt is one where you use other people's money to build your own wealth in appreciating assets." I'd say a new car loan is good debt, even though it's a depreciating asset. For the last 15 years or so, the interest rates are so close to inflation that it doesn't even make sense to pay cash for a new car. At times when I was in the market for a used car, I opted to buy new because the interest rate was lower on the new car and it was irresponsible for me to pay cash for the used car.

josephdviviano 9y ago

I predict people taking out ostentatious lines of credit on their mortgages (esp. in GTA and Van) will lead to very high rates of default if the housing prices drop dramatically (~10-20 %).

bluGill 9y ago

It is hard to live within your means when you see everyone else around you get nice things. I know that when I retire (possibly early) I will be glad I saved all my life as I can afford more nice things when I have time. However there is the desire for now. Worse, nothing is guaranteed. I knew people who died young. All my savings will be wasted if it turns out I'm one of those who don't make it to retirement age. The best thing to do could be charge my credit cards to the max and enjoy life as best I can now - letting my estate be bankrupt. We have no way of knowing until after I die what I should have done.

bittercynic 9y ago
Your savings wouldn't be wasted if you left them to a cause/person that you believe in.
J-dawg 9y ago
I know exactly what you mean. I've been slowly moving towards a "Mr. Money Mustache" style of frugal living, but I still wonder whether I'm doing the "right" thing. Maybe I'm missing out on all sorts of opportunities to enjoy life and grow as a person. I do, however, look at friends who make significantly more than me and see that their lifestyle has grown proportionately with their income. Many of them could probably retire early if they embarked on 5-10 years of MMM-style extreme frugality, which to me seems like a missed opportunity.
- Chris2048 9y ago
  > Many of them could probably retire early if they embarked on 5-10 years of MMM-style extreme frugality Depends on where the wealth comes from, and if it's related to the spending of money (networking in expensive bars, for example). There's another argument: what is retirement? Time spend on 100% leisure? But in this case we live frugally (100% work) in order to get that retirement. the reason we take so long to retire if we don't live frugally, is that we split time among work and leisure - i.e. we are partly doing what we'd do if we retired anyway.
  - nunez 9y ago
    Exactly what I've been saying. I actually enjoy working. I don't see myself not working when I retire. It will probably be more casual work at my own pace, but I'd still like to be useful. Many of the "retire early" people I've interacted with on /r/personalfinance are doing it because they hate their jobs and want to spend their life travelling or otherwise not working. To do that, they spend as little as possible (and save as much as possible). Many people are okay with that. I'm not. I tried simulating that again for the first few years out of college to pay down some student loan debt. I stopped the minute I was able to refinance all of my existing debt into one with lower interest. I think I dislike living frugally so much because I grew up poor and being poor sucked.
    - J-dawg 9y ago
      I understand what you mean. For me "retirement" would be about having enough FU money to provide a basic income, so that I could choose to work on things I find fulfilling. Then again if you already find your work fulfilling and expect to continue to do so, I understand that there wouldn't be the same urgency to retire (with the caveat that everyone should save something for retirement as well as having an emergency fund).
hamstercat 9y ago
My only advice is don't go overboard with it, but keep sticking to your plan. Spending more money doesn't automatically bring you more happiness, even if a large part of society makes it seem so. Buying a new car seems fun, and it may be for a couple of days, but the fun wears out after a while. Eating out at a restaurant can be a great experience, unless you do it everyday and it becomes a routine.
- creepydata 9y ago
  Yeah, I can relate to restaurants. We started going to them more often (not really sure why laziness?) and they not only became routine it became somewhere of a chore to leave the house when you're hungry. We cut back a lot and when we went out again last Saturday it was literally one of the most fun I've had in quite a while.
scaryclam 9y ago
Personally, I like to save up some money specifically to blow on stuff I don't need. That way I can save for the future but still feel like I'm being irresponsible, albeit only sometimes.
lukas099 9y ago
"I knew people who died young... The best thing to do could be charge my credit cards to the max and enjoy life as best I can" This argument relies on the assumption that 'getting nice things' yields 'enjoy[ing] life as best I can now' This isn't necessarily true. Some people, myself included, feel much more satisfied living below our means. Above a base level, I don't think 'stuff' really makes us happier, and the security of having savings gives me peace of mind that is much more valuable and happiness-inducing than, say, an expensive car.

curioussavage 9y ago

I think the concept of good debt does nobody any favors. The people who make real money using debt get money at very low to 0 percent interest rates. There are always exceptions but for most people this concept is BAD. I would beg you not to tell this nonsense to people but I suspect you will think you know better. What appreciating assets should people get in debt to buy? Surely you aren't trying to label houses as appreciating assets.

deleted 9y ago
[deleted]
throwaway99951 9y ago
>What appreciating assets should people get in debt to buy? You should go into debt to buy any assets that you know will appreciate at a rate greater than the interest you pay on debt incurred to finance them. >Surely you aren't trying to label houses as appreciating assets. Real rate of return on real estate is slightly positive in historical data.
- creepydata 9y ago
  You absolutely can't "know" ahead of time what assets will appreciate at all, let alone their rate of appreciation. If you knew that for sure you'd be a guaranteed millionaire. Even if you say "real estate historically appreciates," most communities (esp small ones) are prompted up by 1-2 big employers or industries thus house prices in a community are not as secure as you might believe (see Detroit). Plus neighborhoods change over time. Plus you're ignoring the carrying cost of a property and the transfer costs. However, a house can provide a lot of enjoyment so I am not advocating you don't buy one, just be realistic about what you are buying.
  - throwaway99951 9y ago
    >You absolutely can't "know" ahead of time what assets will appreciate at all, let alone their rate of appreciation. Also, water is wet. I "knew" when I bought corporate bonds paying 15% in 2008 that they would appreciate. >house prices in a community are not as secure as you might believe You're grabbing anecdata as evidence. I'm looking at the data. Yes, Detroit is bad. How about we look at Mountainview, too? >Plus you're ignoring the carrying cost of a property and the transfer costs. Real returns

sbarre 9y ago

Ironically, "You're richer than you think" is a major marketing slogan for one of our big national banks. :-/

gwbas1c 9y ago

"Good debt is one where you use other people's money to build your own wealth in appreciating assets." I'd say a new car loan is good debt, even though it's a depreciating asset. For the last 15 years or so, the interest rates are so close to inflation that it doesn't even make sense to pay cash for a new car. At times when I was in the market for a used car, I opted to buy new because the interest rate was lower on the new car and it was irresponsible for me to pay cash for the used car.