Anthony Bourdain on not having debt
wealthsimple.com
wealthsimple.com
How refreshing.
I agree with him.
Paying my taxes is a point of pride for me. It's a repayment for all those years I was poor and the government paid for me to live and go to school.
I think if the gov't was a bit more efficient and could be shown to be good stewards of money I'd probably hate paying taxes a lot less.
I guess it's fine to hate your government, but a better solution is to change it than avoid paying tax. Because if people pay less tax then then the poor and vulnerable will be affected first, not the corrupted interest group.
While whinging about taxes is a national pastime here in the US, we have one of the highest tax compliance rates in the world. These might be related. And it's not true that you can make taxes go away with accounting magic, although there seems to be a growing sentiment that "the other guy is doing it". Example: Bourdain's comment about avoiding taxes by living abroad is nonsense.
Those "transparency indexes" tend to reflect the biases (cultural and political) and the interests of the major contributors to the organizations that produce them (including organizations like OECD).
And unlike measurable data, where you can double check, here you have to agree not just on the methodology, but on the validity of various sources, self-reporting (which is often used as a proxy), etc.
You are right: It's not proof that it can't work. However, despite extensive attempts, we also have no proof that it works, and plenty of proof that government welfare systems work far better than the charitable solutions that preceded them.
Governments do that all the time. Look at the shitty schools we in USA force poor black kids to attend. It's easy to be confused by all the demonization and expectation-lowering we get from the media, if one pays attention to that shit. The end result is the same: if we changed public education at all, we might possibly inconvenience some suburbanites, therefore it's most efficient to just screw minorities and the poor as we have for decades.
[1] http://healthaffairs.org/blog/2011/09/20/medicare-is-more-ef...
Did they really, though? "Have to be" bailed out I mean. They were bailed out, yes, but... just as a thought experiment... perhaps we should have let them go under?
Edit:
Going bankrupt implies either mismanagement, failure to lower cost and increase margins, or the market does not value their service.
If it is the first two, going bankrupt will potentially allow them to sell off their assets to new management who might do a better job. If it is the last one, then they should be shut down.
All the government bailing them out does is prop up bad management and artificially lower prices at the expense of the tax payer having to pay them on the other end. (me paying for half empty train cars even though I haven't ridden a train in years)
Often they weren't bailed out; often their shareholders lost everything or very nearly. Nationalization was more akin to the government picking up the assets in a bankruptcy auction.
So no, it's not a straw man. Some conservatives really do believe this.
Weak man vs. straw man.
https://slatestarcodex.com/2014/05/12/weak-men-are-superweap...
I don't think one or the other is strictly better. You point at corruption and waste wherever you find it, then you work to make it less.
- You at least have more than one choice. If the charity you give to performs poorly by whatever metrics you value, you can give to another one next time.
- It is voluntary. Nobody with guns will put you in a cage if you don't donate to a charity, as is the case if you don't pay your taxes.
And there's the rub. You don't, and won't, have that information.
To my knowledge there's one single solitary charity that provides adequate metrics to donors to support this kind of decision and for them it's on principle rather than to open up the market.
Charities as a whole are simply not incentivised to share this kind of information because they compete for funds based on marketing, not efficiency, and there is currently no mechanism to change that.
Yes, there are organisations that audit charities in small numbers and put them on approved lists, but you're still only getting a fading rubber stamp.
> It is voluntary...
He said, casually cutting the funds available for public infrastructure, welfare, health, education and the military by a couple of orders of magnitude.
With charities you can always make your own. Don't have that option in your system.
I'm not American, but aren't some taxes that go to education/welfare/healthcare on a federal level? If so, are you going to tell people to leave the country? It's very expensive and for many practically impossible.
Besides, is the goal not here to spend the money as efficiently as possible? In that case we need as much competition and experimentation as possible. Something I think is achieved to a much higher degree with my system than yours.
Also, your suggestion still doesn't make it voluntary. In my system someone can not donate to charity, but use their money for something else. Charities are not the only way to help the worse off.
You can vote out your government.
Charities seem more PR-focused, and the press seems less interested in holding them to account. I have a lot more faith in government to spend money effectively than I do in private charity.
It's exceedingly hard to end an entitlement even if it's clear it doesn't work.
I guess I'm saying I don't mind paying taxes.
I consider the tax rate when choosing how much to charge my customers. I'm sure you do the same when choosing a job. If you paid less in tax, you'd earn less money. Obviously not at a 1:1 ratio, but it's something to keep in mind.
The efficient ones have been the smaller companies in everything from decision making to process. The gov department and large corp are Kafkaesque nightmares where getting an account is a 3 page form and a 5 day SLA.
At the medical startup I was given a laptop and asked for a PR by the end of the day, at the large corp I didn't get a laptop for a week and even then I didn't get logins (yes, logins...) to the code repo for another week.
Governments are inefficent because they are made up of lots and lots of people, same as large companies. Everything needs to be triple checked, rubber stamped and have all people in the chain cover their asses because if anything goes wrong it's very important not to be anyone's fault (but it's definitely someone's fault. This isn't a blame free post mortem here!)
Wait, what? No charities exist that create these organizations? Oh darn, hoist on the reality petard, whatever will we do? Pay taxes you say?! But no, let's just have smaller government! Nevermind that we will have children with lead poisoning, plant workers with cancers, or zero safety net for the elderly, working poor, or disabled. At least I won't be paying taxes!
People are tired of paying for things that they don't agree with. I can't say that I blame them too much.
Americans always say this.
It's still a lot of money but nowhere near what you're implying.
Charities and private businesses actually succumb to corruption, inefficiency, and outright fraud pretty often. How much research do you perform on your charitable contributions versus your taxes? Do you know, off the top of your head, how many cents on the dollar actually support the cause of your favorite charity, and how many are "wasted" on administration?
For in the current system, you broadly have the choice of:
1. Wasting your money on exotic weaponry and wars of expansion whilst starving the populace and enabling a small subpopulation of rich cheaters to dodge their fair societal debt
2. Wasting money on enabling social programs that allow a large subpopulation of poor cheaters to dodge their fair share of societal debt and hinder the rich from buying a second yacht.
I believe South Park refers to this as "Giant Douche vs Turd Sandwich."
Sadly, in both cases, the upper middle class ends up footing most of the bill.
The past 2 months have illustrated the sort of alternative that can actually get elected here. Do you find this encouraging? I don't.
Go to a 3rd world country and you'll understand what government corruption and waste is.
Or, to quote some famous dead dude: "The World Is a Book and Those Who Do Not Travel Read Only One Page" - St Augustine
Or, to quote Anthony Bourdain himself: “Travel changes you. As you move through this life and this world you change things slightly, you leave marks behind, however small. And in return, life—and travel—leaves marks on you.”
If I say "boy I'm tired today, I only slept 4 hours" and you say "you're tired? I didn't sleep at all!", your being more tired doesn't make me any less tired.
In the same regard, other governments doing a much worse job than the US government doesn't mean that the US government is doing the best job that it can.
The feeling I got after listening to her discuss the obviously broken system for creating of procuring government technology is that people are earnestly trying to produce quality tools, but are forced into ridiculously slow improvement schedules due to the procurement standards and laws.
It talk includes, of course, a call to arms for tech workers to invest in their government by doing a term of service, fixing government by improving its tools.
A few years ago, I wish I still had the link, I read an article detailing exactly that topic and the gist of it pretty much boiled down to: What the US lacks in "welfare state" it makes up trough donations to charities by private citizens, one of the major differences between Europe and the US.
As nice as that might sound, it's also an incentive for the government to keep on cutting spending on social welfare as it assumes the private donations to charities are gonna make up for the difference.
The amount of waste, corruption and poor planning by the gov't [..]
Governments aren't the most efficient organisations around. But Western governments certainly aren't the worst either.
Yeah, but companies waste their own money. Not mine. Unless I'm a shareholder, I could care less if they flushed cash down the toilet.
They did this to tick a box for promotion to the next level - not the best use of the share holders money
[Citation needed.]
I think there's an important distinction to be made between two different sorts of "high taxes".
One is a high absolute amount of taxes - you made millions of dollars in a year and therefore your absolute tax payment is relatively quite high.
The other is a high percentage tax rate.
I don't mind paying a high absolute rate of taxes - I think that is the scenario in which one can think fondly of all the things that government provides - things like:
"It's a repayment for all those years I was poor and the government paid for me to live and go to school."
However, there comes a point in percentage tax rates where basic fairness comes into question. I'm sure it varies from person to person, but I think an effective tax rate north of 40% is getting in the danger zone.
As a US citizen who lives in California, in Marin, and owns land, my effective tax rate is 50%, give or take, and I think that's a problem. It's very difficult to rationalize that every 60 minutes I work, ~30 minutes of that work product is appropriated by government.
How about every 60 minutes you work, 30 minutes of that is spent establishing the world around you? From the opportunities you had as a young person, and those of your children, to the safety and security of your adult life.
Half of your product is yours to spend freely, the rest goes towards the idea that you don't even have to think about mashlovs piramid. Well in a perfect euro-socialist utopia maybe, perhaps not in the U.S., but that's the general idea of high taxes.
And let's just say another 25% is misspent. In a country this big and bloated, that's also likely a low ball figure. But overall, only 50% of taxpayer money is going to anything remotely properly executed and needed.
That said, our public schools suck, we invest nothing in research, we don't provide healthcare until your old, and our interstate highways were built 70 years ago, and state and local governments handle needed construction now, yet they take the smallest percentage of our taxes. Some states like Nevada don't even charge state income tax.
In my view I'd be way happier paying taxes if this was managed right. That means cut military spending by 90% knowing we are never going to need an aircraft carrier again while completely evacuating the Middle East, and the state local government's charge more since they will be more effective at putting it to use.
Taxes should be no more than 30% total (federal, state + local) like the Apple App Store.
Yea, likely not happening any time soon. But that's what is correct imho.
I would suggest trying it sometime. Look at the US government budget, and try to cut out 25% of it. It is a lot harder than just getting rid of "bloat".
I can believe that some people might be able to find 25% that they personally don't care about. Maybe you don't drive, so (you think) you don't care about highways. Or, you're not poor, so you don't care about medicaid. And so on. But could you cut 25% of the federal budget without causing a large fraction of the American populace to become very, very angry (and vote you out of office, git reset --hard your budget in two years, etc)?
I don't mean to say that the government could not be more efficient. It certainly could. But 25% of the budget is a lot of money, and not everyone has the same priorities as you.
Don't forget we build highways with the wrong material which causes a cheaper initial cost and higher future cost. (Concrete rather than asphalt)
I am perfectly happy to look at it that way, and indeed I do.
Please don't deploy the "I'm arguing with the anti-tax guy" toolkit here - I am not that guy.
The problem I have, and that I think many people have, is that fraction:
30/60 = 1/2 = getting a bit silly.
YMMV.
If he pays 50% because he wants, OK.
But he is FORCED to pay.
This is confiscatory payment, it's theft.
Opportunities as a young person costs 50% of what he makes?! Please don't pretend to be naive.
I thought it was common sense by now that this tax money goes to highly payed politicians, corruption, bad public administration, bad public programs, lazy people, etc.
A 10% tax should be the maximum a citizen should pay in any country.
And it will be in the future, distant future, but you can be damn sure that it will be.
Sure, if by "establishing the world around you" means government spending on fighting climate change, supporting clean energy initiatives and helping the underserved people instead of spending on wars, on weapons; AND everyone pays the same rate including our current president, then YES!
I'm perfectly happy to pay more than most to support others, because I make more than most in income. I can't honestly say that in my day-to-day life I work harder than the person delivering the mail, or someone unloading crates. I was given the advantage of good and cheap education and a safe environment to grow up in (Marin) due in part to high taxes on the wealthy. I feel it's important to do what I can to return the favor.
I also strongly believe that those above a certain threshold of wealth, especially those who hoard that wealth, are doing damage to the economy through income inequality. If taxes are the means to undo some of that damage then again, I'm happy to contribute.
During my 60 minutes of work I was able to: breath clean air, have potable water, be surrounded by an orderly society, and in the event of danger have access to emergency services.
Also, you got to enjoy having a basic pension after retirement, as well as free healthcare for the elderly and poor. Who wants to live in a country with a bunch of poor and old sick people who can't afford food and healthcare? That sounds depressing as hell.
Exactly.
Or are you including payroll "taxes" (social security, medicare), sales taxes etc also?
IIUC, if you add up health insurance premiums (employer share + employee share) + all income taxes + all payroll taxes of US and compare it to the same quantity of other DEVELOPED countries, the tax burden on the US is not unreasonably high.
Keeping a developed country developed is hard/expensive. :)
I think it varies mostly depending on the services you get for it and the percieved values of it. If you get higher education, healthcare and very social safety net possible then you tolerate a higher tax level, presumably.
If the tax is percieved as being spent on things you don't agree with (some random war etc) then it's harder to accept.
> It's very difficult to rationalize that every 60 minutes I work, ~30 minutes of that work product is appropriated by government.
If you consider that money to be appropriated then obviously there is a political problem. The money isn't spent on the services you need or want, or it's (seems to you at least) a lot of it is wasted. But there is no point discussing an absolute limit of fairness without discussing which tax paid services you would like to cut in order to lower taxes. Taxes could be 90% or 99% and there would be nothing inherently unfair about it - it would just proably be a very inefficient society.
For this to be true, your income must be in the realm of $10 Million / year. If that's the case, congratulations—that is phenomenal. But pardon me for not crying you a river ;-)
No, the threshold is lower than that.
Of course I don't count assessed property tax, since that is based on assets, not income.
But I do count parcel taxes[1] which occur per-parcel, regardless of value. USA + CA + Marin County.
Note, I am not losing sleep over any of this and I don't identify myself as anti-tax, by any means. I just think it's worth considering that a qualitative change in taxation has occurred once you go north of the 40% number.
At some point in running your own business you realize that large portions of the tax code exist to throttle back the rate of growth of smaller companies while giving away money (tax breaks etc.) to large behemoths.
It feels like there is a huge amount of money lost on inefficient markets and efforts.
It's a feeling. But is it reality? That's a question for spreadsheets and numbers, not our feelings.
Are there countries that are 25% more efficient in government spending than the US? If so, how do they do it?
(Yes, tax evaders get off too easy with this system)
In the monetary policy environment we live in, having debt is the most sensible way to build wealth.
Dollars are a terrible store of value. Dollars invested in a savings account are almost as bad. Securities, real estate, and inventory are much better. Dollars invested in education and advertising to multiply the value of securities, real estate and inventory are still way better than a savings account.
In an environment where a savings account pays <1% and collateralized debt costs 1-8% and non-collaterlized debt costs 10-20%, the sensible thing is to borrow as much as you can and invest it wisely.
In such an environment, I'd be proudest paying cap gains tax at 15% than income tax updwards of 25%.
Using debt to generate income = good. Using debt to buy stuff you can't afford = bad.
The first pays itself back while the latter does not.
When somebody like Dave Ramsey is talking about debt, he's talking about paying off credit card bills, car loans, student loans, mortgages - payments that you're making that leave you personally saddled. Increasing your cash flow by decreasing your expenses.
When somebody like the Robert Kiyosaki (Rich Dad, Poor Dad) talks about debt he's talking about it in the context that you are: using debt to create an income generating asset, leveraging the tax advantage to increase cash flow and holding the asset as more valuable because held cash would simply result in devaluation through inflation. Increasing your cash flow by generating more cash flow.
Headlines should really start trying to clarify Bad debt vs Good debt.
Productive debt helps you make money. For someone starting out, that might be a modest car loan to get to work.
Unproductive debt just helps you consume. Once your car is past the basic point-A to point-B automobile, a loan to but it is unproductive debt.
>Myth: Debt is a tool and should be used to help create prosperity. >Truth: Debt isn’t used by wealthy people nearly as much as we are led to believe.
Having tons of money is pointless if you don't eventually spend it on improving your life or the world around you. Obviously blowing all of your cash on frivolity is also bad, but you need to strike a balance or you will end up being Ebenezer Scrooge, a miserable old rich guy with nothing to show for his life but big numbers on a piece of paper somewhere.
One debt increases your annual revenue for as long as you own it, the other increases your annual car expense as long as you own it (decreaing your revenue).
After all, if you take pride in fresh new road surfaces and good schools, you also have to take some responsibility for our foreign policy.
It is frustrating to pay taxes to a in debt state and a in debt country.
To the people saying that debt is not so bad, please realize that you get that debt from a private institution that subsequently collects interest. Said institution does not have to work for this interest, it merely has to sign your debt into existence. The monetary system we have now, where money is always created as debt by a group of elites with specials rights is not fair.
Anyone can feel free to answer this one. I'm interested in where people are drawing their own lines.
This is true in terms of "where your tax dollars go," but you can certainly draw your own lines in regards to your opinion. The latter is what I'm discussing.
Pretty sure we tried that with the Articles of Confederation and it was a total failure.
Spoken like someone who wasn't on the receiving end of bombs, troops, torture, imprisonment, or theft to enrich the already rich - you know, the bulk of government spending.
I pay my taxes in order to avoid being a victim of state violence, but when I do, I say a prayer for the victims of my failure to be strong enough to do the right thing, which is to deprive the state of the means to do evil.
Not to mention an investment in the costs you'll impose upon the state in your dotage.
there are those who don't know how much they pay, they just know what they take home
there are those who know their income tax, medical, etc, deductions are
and then there are those who see other avenue of taxation that effects the price of goods and services we make use of
I have no problem paying my taxes but why would be happy about it when I cannot recall a single government out there that is using them responsibly?
http://democracyjournal.org/arguments/keep-it-simple-and-tak...
It's an interesting thought. There are plenty of reasons it's not going to happen in a vacuum - if Pelosi did it tomorrow she'd be mauled by both parties. But as part of something larger? It could be incredible. William Proxmire made his career with the Golden Fleece Award, attacking stupid and wasteful spending (sometimes quite inaccurately). I don't know why there's so little effort on the left to clearly, emotionally show the good that gets done.
Imagine if every budget fight involved someone coming forward and saying "I grew up being fed on WIC. I'm a civil engineer now, and WIC helped make that possible. Out of every tax dollar you paid, I got .000002 cents. Do you really want to take that away?"
(I hope I got that math right.)
I thank my lucky stars for those things and am very glad the government did it.
Of course, given the amount I pay in taxes, the government made an absolutely terrific investment. I have returned that value to it many, many times over.
All else being equal, of course I would prefer to pay lower taxes. That's what efficiency means, and the government is not very efficient.
But "Taxes are what we pay for a civilized society." (Oliver Wendell Holmes, Jr.), and I kinda like civilized society.
https://supreme.justia.com/cases/federal/us/275/87/case.html
Maybe if they provided some kind of itemized receipt? "You paid $x in taxes. This was distributed as $y to infrastructure, $z to education, $w to defense" etc.
https://www.nationalpriorities.org/budget-basics/federal-bud...
Even if you just look at discretionary spending, debt payments are not a large portion of spending.
New borrowing is also larger than the interest payments.
Simple calculation:
With $20T of debt, at 3% interest rate (30Y bond), the interest on the debt is adding 600 billion dollars to the deficit per year (and it compounds).
600 billion with respect to the 3.8 billion federal budget is almost 16%.
And the interest rate is so low only because debt rates have been artificially suppressed by central banks using financial tricks such QE, the Fed buying its own's governments' debt, etc.
With interest rates bound to rise sooner or later, we are sitting on a financial time bomb.
But you don't pay for the national debt, mostly. Recent payments on the national debt are around $420 billion - about 11% of the federal budget. God knows that's not small, but it's far from 'mostly', and 2/3 of the debt is even held inside the US.
http://www.bbc.co.uk/news/business-29898083
The story contains an image of what they provide, as well as some suggestions for making it better.
Progressives in particular are sensitive to the idea of the government messaging them and tend to worry about the perception. Meanwhile, private interests have no compunction against advertising heavily and constantly to get their message across. It's a huge advantage for industrial incumbents over the government.
The interest rate is so low on them that the growth is basically a slap in the face to whoever is receiving it and cash would be better because they could at least use it at the present time. Remember, once you buy a bond like that, the interest rate is locked in so you're stuck with the crap 2% for 27 years on the bond you bought from the government 3 years ago.
People also used to gift corporate bonds (e.g. from railroad or utility companies) and that's a dead practice as well for the same reason.
The internet performs many of the functions that our species previously required government to do, but does so without the need for a centralized authority claiming a monopoly on the initiation of force, which brings with it inevitable corruption, violence, division, and victimization of the world's poor.
https://en.wikipedia.org/wiki/The_Californian_Ideology
See the following documentary:
http://topdocumentaryfilms.com/all-watched-over-by-machines-...
And yes, I'm glad that the EPA (and DoJ!) have occasionally done the right thing. But I don't think they've done the right thing often enough to suggest that the model they represent is the best humans can do.
The causes they take up are mostly morally questionable. If people are going to organize on the internet places like 4chan will lead the way, for whatever that means.
Taxes destroy money (and create demand for dollars, which is important :)
Hyperinflation doesn't happen when there is too much money, it happens when there isn't enough stuff to buy with it.
Lots of ignorance of monetary theory on HN!
Source for this claim? I've never heard this before and it sounds quite absurd.
So the limitations on spending are elsewhere.
This is a good intro:
http://elliswinningham.net/index.php/the-basics/us-currency-... http://elliswinningham.net/index.php/the-basics/us-currency-... http://elliswinningham.net/index.php/the-basics/us-currency-...
Also maybe:
http://bilbo.economicoutlook.net/blog/?p=9281
A rant on deficits:
http://elliswinningham.net/index.php/2017/01/10/deficits-mat...
For more, just look up modern monetary theory.
i.e. if I have debt now, I must go to work in the future to pay it back.
Because I have no debt, I don't have to go to work, and can spend the next two years driving around Africa.
I'm so passionate about saving money I even wrote an e-book on how to do it: http://theroadchoseme.com/work-less-to-live-your-dreams
I do not however like to save money, I prefer to invest it.
I will get your ebook, thanks for the info.
And how do you feel about venture capital?
Ten years ago I bought a small flat in London to live in. I paid a respectable deposit and didn't over-leverage. We were at the end of decade long property boom, there were huge concerns about the level of borrowing and ability to repay, predictions of mass repossessions if the BoE raised rates by even a quarter percent, the BoE would regularly "jaw-bone" the fact that the rate must rise[1].
The bank wanted to lend me 5x the amount I borrowed. I could have bought an entire 3 bedroom house rather than just a 1 bed flat situated in the same property. I borrowed within my bounds, priced the debt relative to an upward BoE rate, played it sensible.
What a missed opportunity! In retrospect I should have taken all the cash the bank wanted to throw at me and bought the whole house. I would have been able to manage the repayments fine, and financially I would be light-years ahead of where I am now.
All because the government will literally burn anyone to keep those vested in the housing market safe (particularly I reference the U.K/NZ/AU, I assume the U.S.A is similar).
Behave badly in droves and the government will never raise that BoE rate. They will burn savers, they will continue to inflate the housing bubble, they will set fire to the hopes of anyone under the age of 30 buying a house to live in. Literally anything to save the retirement nest-egg of a generation of baby-boomers, aided and abetted by a generation of baby-boomer politicians.
Only external factors will bring an end. In the U.K that may be Brexit (as external as that is), in AU that may be Chinese capital controls.
Until those external factors are applied you're fine misbehaving. For me, behaving respectably was a mistake.
[1] The rate today is 0.25%, an all-time historic low. The rate when I bought was 0.5%, at the time an all-time historic low.
Saving in the U.K the last decade? Sucks to be you: https://qz.com/750443/the-bank-of-england-just-cut-interest-...
You made the correct decision with the information you had. In Ireland, people who made the opposite decision are still underwater after a decade. So it could easily have gone the other way.
I've known people in places where the property market collapsed and its ugly. And I know people think it can't happen in London, but 'it can't happen here' is about as myopic as it gets.
What I think I underestimated is the length the government or reserve bank will go to in order to protect borrowers at the expense of everyone else.
But the government sets the BoE remit to use the rate to keep inflation within acceptable bounds, and Gordon Brown decided to move from RPI (which includes some measure of mortgage payments) to CPI (which doesn't).
It does seem madness that we would control monetary supply without consideration of inflation in the largest asset group that lose monetary policy impacts (actual house prices, not just mortgage payments), but then I'm no economist so what do I know.
In other words unless you've got a foolproof method of predicting the future, or you love the thrill of huge financial risks, I think you made the right decision to live within your means.
I'm not castigating the guy because I think the prudence you're advocating for is far more wise than getting oneself into a financial jam, but there are ways to approach a risk like a house payment and reduce it.
[0] - http://www.abc.net.au/news/2017-03-16/super-for-housing-depo...
When confronted with a golden goose that pumps money into the economy no politician wants to take a long term view of impacts, particularly when it's their generation making easy money at the expense of those who follow.
Appraising the current net value of a job is always a bit shaky though, because there are so many variables.
It used to be common to view personal debt this way.
I noticed a big change in the way debt was perceived by during the late '80s. Since then, debt is seen as normal. I'm pretty sure the finance industry has pushed 'Fractional reserve banking' to the limit to allow unchecked borrowing for land and housing. [0]
Reference
[0] "fractional-reserve banking permits the money supply to grow beyond the amount of the underlying base money originally created by the central bank" ~ https://en.wikipedia.org/wiki/Fractional-reserve_banking
It is certainly an efficient way to keep money moving.
[1] http://www.bankofengland.co.uk/publications/Documents/quarte...
thx @soVeryTired, plz excuse lack of financial knowledge. What is the definition of "reserves"?
Are those reserves (capital) fluid? From the tier-1 you refer I get the impression these are real physical assets and in flux. Interesting. How do the UK banks handle market runs? (I must read more about the banking system) In Aus major banks are government backed with minimal competition.
Unless you have no financial discipline, there's no reason to use debit over credit.
Just for that, I now prefer a CC, not using the "Credit" part of it. Edit: well, technically, I'm using it, but only as a buffer.
But it's always awkward to be asked "single payment?" for ridiculous amounts like $20. Huh, yeah, why? are people really paying such amounts in multiple installments?
And credit cards (in the UK ) provide protection for buyers against shoddy goods
It depends. On a lot of things.
What's risky about using a credit card to buy a kayak?
And how does investing money you already have in small cap equities represent a debt?
I think for the vast majority of individuals just trying to make good personal finance decisions, "don't take on debt" is (on average) great advice.
If you don't pay back the debt, in 72/(interest rate) (interest rate period) the kayak will cost twice the price.
http://www.investopedia.com/ask/answers/04/040104.asp
I think we're agreed on the core principle here though:
> I think for the vast majority of individuals just trying to make good personal finance decisions, "don't take on debt" is (on average) great advice.
100%
> What's risky about using a credit card to buy a kayak? If you unexpectedly lose your job or are otherwise unable to pay off the card on the schedule you expected, you'll incur significant interest on the debt and end up having to pay far more than you originally planned. Compared with saving up money and paying in cash, there are clearly additional risks incurred when using the card.
(If you had the money to pay off the card already and are just using the CC as a convenient method of payment, the risk is obviously far lower.)
Right, but you're still taking on debt for the month and then paying it in full. What is the risk?
Also, a credit card you're paying down monthly isn't really 'debt', isn't it usually something you do for the air miles or cashback?
Not when you account for the stolen card scenario. When someone steals your debit card and racks up charges, it locks up real money (your bank account balance) that you can't use until it's resolved. A stolen credit card just locks up a credit-line.
However, even if you ignore that, I'm still missing what risk you see with a credit card that results in it being higher risk than a debit card. What is the risk I'm missing?
>Also, a credit card you're paying down monthly isn't really 'debt', isn't it usually something you do for the air miles or cashback?
It's very short term debt. I do it for two reasons, air miles/cashback, and for better protection when things go south. In addition to the stolen card scenario above, some credit cards (e.g. an amex I have) will provide additional protection for things like rental cars (additional insurance) or even stolen goods (refunds for electronics stolen from your vehicle).
Most debt requires you to give a lot of personal information, tell a bank what you are buying, and then stick to a fairly arbitrary payment plan with various penlties for non-compliance.
So it's perfectly sensible to minimize your debt for non-financial reasons.
It is for people really sensitive to privacy that are distrustful of institutions.
They differ only if the metric you choose to measure against the debt is "money". But some of us do things for other than money; happiness comes to mind.
Bordain is being very specific. This is about personal debt and being risk adverse, "I am fanatical about not owing anybody any money. I hate it. I don’t want to carry a balance, ever." The whole article is explaining his prior life as working chef.
Notice he has a lone but tries to avoid risky debt?
Now you could make a ton of money by taking risk, but its kind of like playing the lotto. Few winners lots of losers.
Debt has risk, just as investment has risk.
The risk comes from the underlying reason to borrow.
Of course, you need to fully understand the risk/return profile of any leveraged investment you make AND be careful not to be overleveraged at any point. It's a fine line to walk, but it can be a valuable part of your investment portfolio.
However, if you are taking on debt for an expense (a vacation, a new car when you have a working one already, a new toy), then you are gaining nothing in return for the interest. You could easily wait until you have the money saved up, since those expenses have no extra return for purchasing early.
The worst debt, of course, is when you are taking it on because you simply have more expenses than you do income. This is often the source of credit card debt. If you are growing in debt but not growing in investments, you need to take a hard look at your lifestyle.
One can easily pay for a vacation or years of eating at nice restaurants every day all in cash, and also go into debt for an education.
Also, one individual taking out an auto loan and a loan from Sallie Mae isn't 1 good loan and 1 bad loan. You could've foregone the high-interest loan on the big depreciating asset and used the savings to fund the education instead of the loan from Sallie Mae. In that scenario both loans were probably a bad idea, regardless of the return the education nets you.
I think another key metric beyond interest rate and rate of return, is degree of necessity. That's harder to measure though.
The proper use of debt is to match the debt with the asset. If you are buying a house, a 25-year mortgage matches the value of the house. If you are buying a car, a 5-year loan matches the value of the car. If you are buying a sandwich with a credit card, well... you should pay off your credit card at the end of the month because that sandwich is long gone.
The exchange price of the house does not have any intrinsic value, while generally speaking the cash money you owe to some external entity like a bank tends to keep its value in most of the cases (the Venezuela- and Zimbabwe-like cases are few and far between). In other words, you're betting that a real-estate crash won't happen before you end up paying your debt.
You still have the option to continue to pay the mortgage payments and pay off the loan, regardless of the current value of the house.
I'm not in US, but I believe they can reduce their own risk by using debt to buy a house. They can put, say 10%, in equity. If the real estate market crashes, the lose that 10% and walk away, leaving the bank with the house.
I was referring to "don't use any debt" and "debt is manifestation of risk" and "With great power comes great responsibility" and "use debt for investments, not expenses".
But both your idea and mine are still rules of thumb, notwithstanding how much you wish to elevate yours to a different status.
Note the gotcha: if enough people borrow money and buy something because they think it will appreciate, it will. In other words, according to your rule, speculation can make itself appear worthwhile.
That's still basically true for most things that look sort of vaguely like assets, such as new cars, appliances, and whatnot.
Very few of the things the average person chooses to incur debt to acquire are even remotely plausible as appreciating assets.
Using debt for appreciating assets vs consumables will not be mentioned. As an example, a car doesn't appreciate, but a loan for it is fine.
Oddly, debt is supposed to help with seeing that. It breaks down the lump sum payment into monthly payments where you can compare to your monthly income.
If you are in debt you are more likely to tolerate conditions you don't enjoy, e.g: if you live paycheck to paycheck, being happy at your job is not your top priority.
Sage advice. Here's the link to the book publishing mentioned ~ http://www.eater.com/2012/2/22/6611779/the-lineup-for-anthon... / http://www.publishersweekly.com/pw/by-topic/industry-news/pu...
I pay my credit card, pay my taxes and my mortgage, but that takes almost all my money away. So if I look at it my net worth it is basically negative.
Only way I'll get to the debt free nirvana is if I get rich somehow. It's not a real choice. So the entire premise of the article is pretty weak.
No, that certainly is not the case. Slow and steady saving and investing is the way to become wealthy. Check out www.reddit.com/r/personalfinance or www.mrmoneymustache.com as examples of this.
It might work if you are alone with no attachments or your SO has the same views, but not for anyone else.
I'm trying to become less attached to things and have gone a long way, but telling your wife and kid to not want to eat out, for instance, is almost impossible...
Anyhow, the article is an interesting anecdote about Bourdains life, but has little to do with money. He makes money from TV and books, can live comfortably because he makes quite a bit, but he's no financial savant.
It's actually amazing how little most Americans pay in taxes yet we complain. This year my effective tax rate was ~8%. Of course this is by using every legal tax shelter available.
Considering what I get from the Federal government here in the US, I think 8% is actually fair. If it spent more of my money doing thing like taking care of home and quit with the empire building I'd be happy to pay more.
TurboTax put my effective tax rate this year at 26%.
Anyways, at one of his shows he straight up said that each of his stops pays for a year of private schooling in NYC for one of his kids. Thought it was an interesting way of looking at things.
If anything it's a fake-cautionary tale. "Don't do what I did kids, even though I'm rich and did more blow and had way more fun than you'll ever have in your whole life!"
Ugh.
https://news.ycombinator.com/newsguidelines.html.
We detached this comment from https://news.ycombinator.com/item?id=13882117 and marked it off-topic.
He lived his life the way he wanted to, there were some rough times. Now he has a family, different priorities and resources, so is taking those into account but still generally living the same way.
My tl;dr would be "I was always in debt when I was young. Now I have a bit of money and prioritize those I care about, but after that's funded I'd rather have great experiences than a larger bank account."
He has since settled for dating/marrying beautiful women, noticing that chain smoking would probably kill him and started doing Krav Maga instead, and becoming smart about money.
His dayjob's not so bad either.
Anyone who has ever spent any of their money on class 'A' drugs is not in any position to dispense any type of wise financial advice.
This isn't advice on how to maximize your wealth, it's a personal account of how he lived and how debt and wealth influence him on an emotional level.