4 ms·

His debt doesn't fund consumption, it funds real estate, which he rents or sells for a profit. He's not advocating to go into debt for a lush Bahamas vacation.

His debt doesn't fund consumption, it funds real estate, which he rents or sells for a profit. He's not advocating to go into debt for a lush Bahamas vacation. The value of long-term debt to fund real assets is that inflation corrodes the debt value, while boosting the asset value. Even if the asset doesn't appreciate above the inflation (meaning you do nothing all day), you can still make money if interest is lower than the inflation rate.

itsoktocry 3y ago
>Even if the asset doesn't appreciate above the inflation (meaning you do nothing all day), you can still make money if interest is lower than the inflation rate. It's a shame that lending institutions also understand this and attempt to set their lending rates accordingly.
- rmbyrro 3y ago
  They don't care. In the US, reserve requirements are very low. For every dollar of capital, they can lend 10x, 20x more. They literally create money out of thin air. When a lender pays interest, even if it's below inflation rate, banks still make profit, because they didn't have to put any real assets, so the opportunity cost is zero.
dvh 3y ago
Stupid me. I was using money to buy food the whole time.
- HenryBemis 3y ago
  Good sarcasm :) I don't know who you are and how much you make. The first thing I do when I get paid is "pay my future self". Believe it or not, food comes second. The order of business is 1) Invest, 2) Save, 3) Spend. Never the other way around. I follow a mix of "7 accounts.." (https://www.youtube.com/watch?v=auzLhKvsxnQ https://www.youtube.com/watch?v=auzLhKvsxnQ), Intelligent Investor (for investments - mostly VOO or VOOG with some SOXX). I perhaps save more than I should (I 'live less'). This is a principle you can do irrespective of the amount (as long as it's over €$1000). I don't mind changing phones every 3 years, and put those $200 to work for me instead of the other way round.
  - Novosell 3y ago
    You say every 3 years like that's a long time. Is this more sarcasm?
    - rmbyrro 3y ago
      At their income level, probably changing phones every year would be a common practice. But their communicational goal here is just to say they consume less than their income would allow in the short term.
    - HenryBemis 3y ago
      Sorry for the delayed response. No, no sarcasm. My current phone is an Oppo, 8+8GB RAM, 256GB storage, and "ok" CPU/GPU. I've removed the bloatware, using NoRoot Firewall and keep most apps NOT running in background. The main usage is Signal, Spotify, Netflix, Firefox. I don't need to upgrade it to a faster CPU/GPU/RAM any time soon, so why should I? I got a good case for it, so it survives the falls/drops. I genuinely don't see a reason to upgrade. Plus, when I DO change a phone I need to spend 2-3-4 days to reinstall apps, copy songs/ringtones/PDFs, remove bloatware, change settings on apps/battery/etc. I don't just boot and run with it.
- rmbyrro 3y ago
  If you mean you were using debt to buy food and thought it's sustainable, it's an arguably stupid behavior, indeed.
ryathal 3y ago
This works until it doesn't, and then you are screwed. Once a single property falls into foreclosure, you lose the refinance option and everything starts collapsing when payments come due you never intended to have to pay.
- rmbyrro 3y ago
  As in every business, this also has its risks. There are ways to mitigate, but not to eliminate. But hey, that's life.
Grimblewald 3y ago
I dunno if you rent, but the state of rental markets because of people like this is the definition of parasitic behavior.
- NavinF 3y ago
  He probably doesn't considering that the majority of americans don't rent. US home ownership rate is 66%. Also you seem to have cause and effect backwards. When people like him buy new homes and put them on the market, rent goes down because there are now more landlords competing on price.

itsoktocry 3y ago

>Even if the asset doesn't appreciate above the inflation (meaning you do nothing all day), you can still make money if interest is lower than the inflation rate. It's a shame that lending institutions also understand this and attempt to set their lending rates accordingly.

rmbyrro 3y ago
They don't care. In the US, reserve requirements are very low. For every dollar of capital, they can lend 10x, 20x more. They literally create money out of thin air. When a lender pays interest, even if it's below inflation rate, banks still make profit, because they didn't have to put any real assets, so the opportunity cost is zero.

dvh 3y ago

Stupid me. I was using money to buy food the whole time.

HenryBemis 3y ago
Good sarcasm :) I don't know who you are and how much you make. The first thing I do when I get paid is "pay my future self". Believe it or not, food comes second. The order of business is 1) Invest, 2) Save, 3) Spend. Never the other way around. I follow a mix of "7 accounts.." (https://www.youtube.com/watch?v=auzLhKvsxnQ https://www.youtube.com/watch?v=auzLhKvsxnQ), Intelligent Investor (for investments - mostly VOO or VOOG with some SOXX). I perhaps save more than I should (I 'live less'). This is a principle you can do irrespective of the amount (as long as it's over €$1000). I don't mind changing phones every 3 years, and put those $200 to work for me instead of the other way round.
- Novosell 3y ago
  You say every 3 years like that's a long time. Is this more sarcasm?
  - rmbyrro 3y ago
    At their income level, probably changing phones every year would be a common practice. But their communicational goal here is just to say they consume less than their income would allow in the short term.
  - HenryBemis 3y ago
    Sorry for the delayed response. No, no sarcasm. My current phone is an Oppo, 8+8GB RAM, 256GB storage, and "ok" CPU/GPU. I've removed the bloatware, using NoRoot Firewall and keep most apps NOT running in background. The main usage is Signal, Spotify, Netflix, Firefox. I don't need to upgrade it to a faster CPU/GPU/RAM any time soon, so why should I? I got a good case for it, so it survives the falls/drops. I genuinely don't see a reason to upgrade. Plus, when I DO change a phone I need to spend 2-3-4 days to reinstall apps, copy songs/ringtones/PDFs, remove bloatware, change settings on apps/battery/etc. I don't just boot and run with it.
rmbyrro 3y ago
If you mean you were using debt to buy food and thought it's sustainable, it's an arguably stupid behavior, indeed.

ryathal 3y ago

This works until it doesn't, and then you are screwed. Once a single property falls into foreclosure, you lose the refinance option and everything starts collapsing when payments come due you never intended to have to pay.

rmbyrro 3y ago
As in every business, this also has its risks. There are ways to mitigate, but not to eliminate. But hey, that's life.

Grimblewald 3y ago

I dunno if you rent, but the state of rental markets because of people like this is the definition of parasitic behavior.

NavinF 3y ago
He probably doesn't considering that the majority of americans don't rent. US home ownership rate is 66%. Also you seem to have cause and effect backwards. When people like him buy new homes and put them on the market, rent goes down because there are now more landlords competing on price.