4 ms·

Except that you only live once. If I can buy a house with a mortgage and live in my own place for years of my finite existence versus trying to save money while

by rozap 4y ago

Except that you only live once. If I can buy a house with a mortgage and live in my own place for years of my finite existence versus trying to save money while paying for someone else's mortgage and living in a basement, what seems more rational? You only have a few dozen years left. It's no utopia, but it works well enough.

Gumbercules 4y ago
ejb999 4y ago
taking on debt for an appreciating (or incoming earning) asset, is generally OK - taking on debt for a depreciating asset is never a good idea if you can avoid it. Taking on debt to pay your daily living expenses is a recipe for disaster - and that is what the US govt. has been doing (and many individuals as well)
- SketchySeaBeast 4y ago
  > taking on debt for a depreciating asset is never a good idea if you can avoid it. Even that isn't necessarily true - if one is broke but one needs a car for a better job they need to take on debt for the car. The debt definitely isn't an appreciating or incoming earning asset, but it is a good choice.
  - ejb999 4y ago
    thus the "if you can avoid it" part of my answer.
- jrwoodruff 4y ago
  Yea but the US Government isn't a person. It's repayment timespan is, in theory, infinite. And inflation actually devalues any debt the government holds, making it easier to 'pay back.' Unpopular opinion, and maybe I'm wrong here and I've just been lucky, but I've stopped seeing debt as a bad thing. You have to use it smartly of course, but I don't think there's a one-size-fits-all answer for what that means. Use it for daily living expenses? Sure, as long as you can pay it off every month. Never take out a loan and spend years saving for a car? Nah, or at least not when that interest rate was 2-3%. And I suppose that's where increasing interest rates come in: Get the 99% to stop buying.
  - monlockandkey 4y ago
    If debt was not so widespread, then the cost of assets would be correlated to salary. Now with immediate injection of cash, assets are at prices which require money that an ordinary person will never have. They have to jump on the debt treadmill to acquire necessities.
    - ejb999 4y ago
      excellent point - buying a new car is a good example, allowing someone to take out a 7 year loan to payoff a new car, allows the car companies to simply charge more for them - as a large portion of people make their decisions based on being able to afford the monthly payment, not the total price.
      - CodesInChaos 4y ago
        I think easily available loads are largely responsible for the high cost of college education in the US.
      - nebula8804 4y ago
        That does not seem like a good example. The car industry is extremely competitive and capital intensive. Margins are so thin on the lower prices sedans that some companies (GM, Ford) have just given up on the segment.
- jedberg 4y ago
  > Taking on debt to pay your daily living expenses is a recipe for disaster Taking on unsecured debt is a bad idea. But if you are going to spend $100,000 on living this year and have $100,000 in the bank, you have two choices. Spend the $100,000 and have nothing. Or use the $100,000 to buy bonds or another income producing asset, then take a loan using that as collateral. As long as the interest you earn from your collateral is more than the rate you pay, you come out ahead. Instead of having a bank account with $0, you have an investment account with $100,000, debt of $100,000, and you're earning interest on the investment account each month that hopefully covers the interest on the debt plus provides some extra income.
  - bombcar 4y ago
    You’re also taking on risk (otherwise the bank would just skip you and buy the asset directly).
    - jedberg 4y ago
      The bank does buy the asset directly. They also buy it on my behalf because they are using my money and taking a fee.
- pixl97 4y ago
  Eh, this is an especially terrible take on your part. The 'asset' that the government is taking dept on to pay for its living expense is YOU. On the averaged timeline YOU are an income earning asset. The government takes some expenses (roads, education, water, safety) and out comes a taxpayer that has an average income earning lifespan. You as an individual don't get to play the averages game quite as well. If you are borrowing money today to pay for your daily expenses it is highly likely that will be true tomorrow. You as an individual have risks like getting fired and not getting a new job, or getting smooshed in a car accident. These are risks your lenders take on when figuring out the rate your loans will have, if you even get a loan at all.
- leetcrew 4y ago
  > taking on debt for an appreciating (or incoming earning) asset, is generally OK - taking on debt for a depreciating asset is never a good idea if you can avoid it. this is a good rule of thumb, but there are exceptions. say I want to buy something that costs much less than my net worth, but more than I typically keep in my checking account. I have the choice between a) selling investments, b) taking out a loan, or c) deferring new investments until I've accumulated enough cash. there are pros and cons to each. with a), I'm paying capital gains tax that I could otherwise defer. with b), I'm taking the risk that my cash flow dries up and I need to sell assets anyway on top of paying interest. and with c), I'm taking the risk that my cash inflates away while I'm saving up. you can't know with certainty which is best, but b) is usually optimal with a sufficiently low rate.

by rozap 4y ago

Gumbercules 4y ago

ejb999 4y ago

taking on debt for an appreciating (or incoming earning) asset, is generally OK - taking on debt for a depreciating asset is never a good idea if you can avoid it. Taking on debt to pay your daily living expenses is a recipe for disaster - and that is what the US govt. has been doing (and many individuals as well)

SketchySeaBeast 4y ago
> taking on debt for a depreciating asset is never a good idea if you can avoid it. Even that isn't necessarily true - if one is broke but one needs a car for a better job they need to take on debt for the car. The debt definitely isn't an appreciating or incoming earning asset, but it is a good choice.
- ejb999 4y ago
  thus the "if you can avoid it" part of my answer.
jrwoodruff 4y ago
Yea but the US Government isn't a person. It's repayment timespan is, in theory, infinite. And inflation actually devalues any debt the government holds, making it easier to 'pay back.' Unpopular opinion, and maybe I'm wrong here and I've just been lucky, but I've stopped seeing debt as a bad thing. You have to use it smartly of course, but I don't think there's a one-size-fits-all answer for what that means. Use it for daily living expenses? Sure, as long as you can pay it off every month. Never take out a loan and spend years saving for a car? Nah, or at least not when that interest rate was 2-3%. And I suppose that's where increasing interest rates come in: Get the 99% to stop buying.
- monlockandkey 4y ago
  If debt was not so widespread, then the cost of assets would be correlated to salary. Now with immediate injection of cash, assets are at prices which require money that an ordinary person will never have. They have to jump on the debt treadmill to acquire necessities.
  - ejb999 4y ago
    excellent point - buying a new car is a good example, allowing someone to take out a 7 year loan to payoff a new car, allows the car companies to simply charge more for them - as a large portion of people make their decisions based on being able to afford the monthly payment, not the total price.
    - CodesInChaos 4y ago
      I think easily available loads are largely responsible for the high cost of college education in the US.
    - nebula8804 4y ago
      That does not seem like a good example. The car industry is extremely competitive and capital intensive. Margins are so thin on the lower prices sedans that some companies (GM, Ford) have just given up on the segment.
jedberg 4y ago
> Taking on debt to pay your daily living expenses is a recipe for disaster Taking on unsecured debt is a bad idea. But if you are going to spend $100,000 on living this year and have $100,000 in the bank, you have two choices. Spend the $100,000 and have nothing. Or use the $100,000 to buy bonds or another income producing asset, then take a loan using that as collateral. As long as the interest you earn from your collateral is more than the rate you pay, you come out ahead. Instead of having a bank account with $0, you have an investment account with $100,000, debt of $100,000, and you're earning interest on the investment account each month that hopefully covers the interest on the debt plus provides some extra income.
- bombcar 4y ago
  You’re also taking on risk (otherwise the bank would just skip you and buy the asset directly).
  - jedberg 4y ago
    The bank does buy the asset directly. They also buy it on my behalf because they are using my money and taking a fee.
pixl97 4y ago
Eh, this is an especially terrible take on your part. The 'asset' that the government is taking dept on to pay for its living expense is YOU. On the averaged timeline YOU are an income earning asset. The government takes some expenses (roads, education, water, safety) and out comes a taxpayer that has an average income earning lifespan. You as an individual don't get to play the averages game quite as well. If you are borrowing money today to pay for your daily expenses it is highly likely that will be true tomorrow. You as an individual have risks like getting fired and not getting a new job, or getting smooshed in a car accident. These are risks your lenders take on when figuring out the rate your loans will have, if you even get a loan at all.
leetcrew 4y ago
> taking on debt for an appreciating (or incoming earning) asset, is generally OK - taking on debt for a depreciating asset is never a good idea if you can avoid it. this is a good rule of thumb, but there are exceptions. say I want to buy something that costs much less than my net worth, but more than I typically keep in my checking account. I have the choice between a) selling investments, b) taking out a loan, or c) deferring new investments until I've accumulated enough cash. there are pros and cons to each. with a), I'm paying capital gains tax that I could otherwise defer. with b), I'm taking the risk that my cash flow dries up and I need to sell assets anyway on top of paying interest. and with c), I'm taking the risk that my cash inflates away while I'm saving up. you can't know with certainty which is best, but b) is usually optimal with a sufficiently low rate.