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A better rule might be: "Never go into debt unless your benefit from whatever you buy using the debt exceeds the cost of the debt." Examples: A house general
by dominik 18y ago
A better rule might be:
"Never go into debt unless your benefit from whatever you buy using the debt exceeds the cost of the debt."
Examples:
A house generally appreciates in value. Usually worth going into debt.
A new car. Unless you gain somehow from having a brand new car (e.g. you're a movie star), you can get most of the value from a used car and avoid the massive value decrease.
A computer. As a hacker, you need your computer to create. Having a computer lets you make wealth that wouldn't be possible without one.
An education. Hopefully improves your ability to create value by teaching you new and interesting things :)
- run4yourlives 18y agoYou shouldn't be going into debt to fund a computer purchase. That's the kind of stupid debt the quote is talking about. If you can't save up $1500 to buy a good computer, you probably don't want it bad enough.
- ConradHex 18y agoAnd if you're saving up the money, you may decide a $500 computer is just great.
- marvin 18y agoAnd ditto with a car. A car is so cheap almost everybody could save up enough money in a reasonable amount of time. Not so with a house, or an education.
- ashwinl 18y agoA car may be "cheap", but the primary variable cost associated with it is only getting expensive (i.e. it's approaching $5/gal in CA)
- mlinsey 18y agoWhy does this matter in a discussion of whether you need to take out loans for a car? Surely you're not suggesting that people should take out loans for gas?
- byrneseyeview 18y agoMost financial assets gradually appreciate, but borrowing to buy financial assets is a good way to eventually go bankrupt. Maybe a better rule: borrow so your consumption fluctuates less than your income, but always save twice what you think you should and borrow half what you think you can, to account for how stupidly optimistic people are in the presence of easy money and compound interest.
- nazgulnarsil 18y agoalways save twice what you think you should and borrow half what you think you can pithy, I'm going to steal this if you don't mind. I like it a lot.
- byrneseyeview 18y agoThanks!
- Tichy 18y agoI thought the house thing did not play out so well for a couple of people recently. And even in a normal economy, I don't know about the house: going into debt basically means selling your soul to "the man". For the rest of your working live, you will be a docile, scared cubicle worker, because you can not afford to lose your job (bank would take the house, huge losses). Doesn't seem worth it to me.