"Living debt free is the worst advice you could give"
What advice can one give me, an individual who does not wish to live the life of a tape worm?
What advice can one give me, an individual who does not wish to live the life of a tape worm?
> “A lot of people use debt to buy liabilities,” he said. “I drive a Ferrari. Guess what? It’s paid off 100% because it’s a liability. I drive a Rolls-Royce. It’s paid off 100% because it’s a liability.”
There's your answer. And this is actually sound advice. You don't want to accrue interest payments on depreciables. But in the current money printing macro environment, it makes sense to leverage, depending on your time horizon and the prevailing interest rates.
I’m also curious to see how all these debt gluttons using “OPM” are going to fair in an environment of rising interest rates. When the tide goes out we’ll see who was swimming naked. I’m sure we’ll see many people get humbled.
Debt glutton is a very loaded term. I bought 2 houses in the pandemic but I did so thoughtfully, after much research. My income can fully cover both mortgages and living expenses.
In the US, interest rates are usually locked in and the monthly payment on the mortgage is not affected by the rates of today. Everyone I know who did "the real estate thing" is playing the long game. All of our assets are illiquid for now and that's okay.
There are always reckless people, unlucky people, foolish people. But vilifying debt is not the answer.
By "exception" I interpret that to mean "someone who is capable of financial forethought".
I don't think I'd classify someone in your situation as a debt glutton (from the very little I know). I'm more talking about the people who live at the edge of what debt will afford them. The nicest house, cars, clothes, etc that they can get with the least amount of money down while living paycheck to paycheck to keep up with the payments.... or doing something similar with businesses/real estate, where their plan assumes we'll always be in good times and can't weather a storm.
Even when done thoughtfully, there is still risk. It's good that your income can cover the mortgage on both homes and you aren't assuming a tenant is going to reliably pay the rent every month when the mortgage payment is due, but there is the question of the security of that income during a financial downturn. I wish you nothing but the best and do hope the long term play works out for you. I just don't want people to ignore risk in their calculations. The more debt someone has, the more risk they have. The average American has a lot of this type of risk wrapped up in liabilities, not even assets.
As far as being unlucky, some people have been dealt bad hands that will knock anyone down. But preparing in good times can make someone appear more lucky during the bad times. Only time can tell what that looks like. That extra home, if a good tenant is paying rent, could be a big benefit and make you appear very lucky in future bad times. For me, I paid my house off in the good times to reduce my costs if/when bad times come. Different strategies, but hopefully similar results of stability.
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.
It's a shame that lending institutions also understand this and attempt to set their lending rates accordingly.
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.
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), 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.
But their communicational goal here is just to say they consume less than their income would allow in the short term.
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.
But hey, that's life.
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.
Society is built from people producing economic output.
But this guy just buys low, sells high, and uses other people's money to do so?
1. People who love taking advantage of capitalism. 2. People who begrudgingly take advantage of capitalism. 3. People who understand capitalism but pout about it. 4. People too stupid to understand capitalism.
x: understanding capitalism y: success in capitalism z: supporting capitalism
All of these are slightly correlated, but only in rough outline.
That's a very idealistic image. People producing economic output are a not that large fraction of society.
There are a lot of people in the society who are useless or harmful from the point of view of economic output. Military, advertising, retirees, children and full-time learners, significant fraction of bureaucrats and political class, successful rent seekers. They are all part of society. I don't have the numbers but I think, altogether they are majority.
I think emotional opposition to what I wrote comes mainly from the fact that people tend to give moral valuation to economic usefulness. If you are not useful, you are bad. And since they don't want to think about large amount of people as bad, cognitive dissonance arises and forces them to extend the definition of economic utility till they feel comfortable again. Till they narrowed down the amount of bad people to fit their comfortable world view.
I think much healthier way is to say that economic utility and morality are orthogonal and it's perfectly fine that retirees or learners don't have economical utility without any additional justifications. This approach allows making moral judgements more freely and accurately. In this framework, being economically useful can't be used to cover immoral behavior and lack of usefulness can't be used to stigmatize perfectly harmless people or even those useful in other ways.
Elder care, child care, education, health, etc. are all services that benefit society. I don't mean to complain about people who need those services. The military and politicians have their roles too (though I bristle at 'policital class').
> But this guy just buys low, sells high, and uses other people's money to do so?
Other people who entrust him with their money, and expect a return. It's not like he's stealing it, and I'd argue he's the one doing the most work in that transaction.
> “If I go bust, the bank goes bust,” he added. “Not my problem.”
If you would need to sell something in a time there aren't many buyers and you needed the money, that kind of people can help you liquidate your asset.
A lot of the times this happens because people make bad investments, but I'm not sure it's his fault.
Being super patient is also a key attribute for financial success.
There's a vector of progress in some direction and you are deciding the direction by choosing what you are investing in.
And if you are using other people's money you are just increasing the power of the vector in the right direction by more than you could have on your own. So if you have that ability, it's a very wise thing to do.
Money is a tool to organise/decide where the direction should be at and magnify that direction.
This man, and people like him are tape worms and I want nothing to do with it. I don't want to live a life of struggle or suffering, but I don't want my life of ease to be at someone else's expense.