Do you think there's something as "too much money"?

[eric42434224]

With all due respect, anyone who thinks that debt is a universally bad idea, simply does not have a very good understanding of debt.
Are there a plethora of instances where it is a bad idea?  Absolutely.  But there are also a plethora of instances where it is a good idea.
Calling debt bad is like calling social media, a gun, a car, or a bible bad.  They are simply tools that can be used in both good and bad ways.

[Indiscipline]

Or they may have a pretty good understanding of debt and still draw their own negative conclusions. At that point you may or may not agree with them avoiding, with all due respect, to deny their competence in the matter.

Speaking for me, I agree with you about the "universally" blanket. Still, on the micro personal level, I've always avoided debt for it's an unbearable predictment for the way I'm wired while, on the macro level, I'm afraid it has an incredible high chance to become a financial clockwork bomb. But, again, I would never dare to give universal value and extension to my opinion.

[Stadler]

I don't.  "Leveraging debt" is just as dangerous as other debt "strategies."  Not paying interest to a bank means keeping more of your income in the first place, which enables you to save and invest more.  Which in turn stands to generate a higher net worth than any debt leveraging could.

I may be presuming too much here, but "risk" - which is what interest is, really, a measure of risk - isn't necessarily "dangerous".   "Risk" is necessary to make money (yes, even in the case of labor for pay).   I'm not saying "it's a necessary evil", I'm saying it's potentially advantageous financially.  I never once ever said "risk free". 

Wow, where can you get a house for only $175k? 

My stepson's dad bought a house about 18 months ago for $175k.  Wasn't brand new, of course, but it was a nice three bedroom on a half acre.  No palace here, but for the purposes of the example, trying to keep it real (and also show that even reasonable houses are likely out of reach as a cash purchase). 

The model you are advocating for does not treat either of those as assets.  If you are in debt for them and they are not generating income, they are, by definition, liabilities.  But in any case, that "risk component" is what insurance is for.  And since insurance on both of those items is mandatory in our country, that takes it out of the equation whether you own or are in debt.

But you're a lawyer; you know that terms of art often don't mean what lay people think they mean.  "Liability" when you're talking about your rightfielder in baseball means "a bad thing".   "Liability" when talking about Jack Russell as your singer (now; he used to be great) means "a bad thing".  "Liability" in finance/accounting terms isn't "good" or "bad". From a finance/accounting level, it's a classification.   (And it may or may not be related to "income generating"; the math is done on the balance sheet, not before the balance sheet.   What I mean is, if you buy a $200,000 house - prices are going up in the neighborhood  - and appraised as such, mortgaging 80% or $160,000, you have an "Asset" of $200,000, and a "Liability" of $160,000.  As that liability depreciates, and depending on how you manage your finances (this is a technicality that is different for individual homeowners versus corporate operations) you are generating equity through the sum of that depreciating liability and appreciating asset.   

And I can't stress enough: on at least two levels, this is NOT what insurance is for.   With the possible exception of PMI (which is not required on most mortgages) no required insurance packages cover investment loss.   Most credible businesses carry insurance as that requirement you mentioned or as a catastrophic loss mitigator, but NOT as a day-to-day risk factor. 

[Stadler]

Or they may have a pretty good understanding of debt and still draw their own negative conclusions. At that point you may or may not agree with them avoiding, with all due respect, to deny their competence in the matter.

Speaking for me, I agree with you about the "universally" blanket. Still, on the micro personal level, I've always avoided debt for it's an unbearable predictment for the way I'm wired while, on the macro level, I'm afraid it has an incredible high chance to become a financial clockwork bomb. But, again, I would never dare to give universal value and extension to my opinion.

I won't speak for anyone else, but my point (and I made it in two different contexts here as you can see) was only that some words have a connotation to them that doesn't necessarily fit in all cases.     Even in your specific case - using your words, where you say it's a potential problem for your financial mindset - it doesn't mean "debt is bad", it just means it doesn't fit into your portfolio.   Buying tech stock and not, say, pharmaceutical stock doesn't make pharma stock "bad", it just means it's not a viable component of YOUR investment strategy.   

[bosk1]

With all due respect, anyone who thinks that debt is a universally bad idea, simply does not have a very good understanding of debt.

With all due respect, there isn't a modicum of respect in telling someone they don't know what they're talking about.  But for the record, I think my understanding of debt is above satisfactory. 

100% of the time, debt on your ledger subtracts from your net worth, which also usually results in less available income to save, invest, or give.  That's simple math.  If you can show me an instance from your personal experience where that is not the case, I will gladly retract.

[Indiscipline]

Or they may have a pretty good understanding of debt and still draw their own negative conclusions. At that point you may or may not agree with them avoiding, with all due respect, to deny their competence in the matter.

Speaking for me, I agree with you about the "universally" blanket. Still, on the micro personal level, I've always avoided debt for it's an unbearable predictment for the way I'm wired while, on the macro level, I'm afraid it has an incredible high chance to become a financial clockwork bomb. But, again, I would never dare to give universal value and extension to my opinion.

I won't speak for anyone else, but my point (and I made it in two different contexts here as you can see) was only that some words have a connotation to them that doesn't necessarily fit in all cases.     Even in your specific case - using your words, where you say it's a potential problem for your financial mindset - it doesn't mean "debt is bad", it just means it doesn't fit into your portfolio.   Buying tech stock and not, say, pharmaceutical stock doesn't make pharma stock "bad", it just means it's not a viable component of YOUR investment strategy.

Exactly. I was trying to state why the "bad" caregorization was strictly limited to my subjective inclinations and beliefs. Gotta thank you 'cause you explained it way better than I could. I objected with eric42434224's first statement because, while my opinion may be perfectly wrong or not agreeable, I tend to resent the equation "you think X about Y = you don't understand Y".

[lordxizor]

100% of the time, debt on your ledger subtracts from your net worth, which also usually results in less available income to save, invest, or give.  That's simple math.  If you can show me an instance from your personal experience where that is not the case, I will gladly retract.

If you're using debt to purchase a home, the hit to your net worth of the mortgage is offset by the value of the house though. The immediate hit to your net worth when buying a house is really only the closing costs.

Say you had the cash laying around for a home. It would be very easy to show mathematically that you're financially better off putting down the minimum down payment and getting a mortgage while investing the rest in index funds. Especially given where interest rates are at today for mortgages. Over a 20-30 period, the investments are extremely likely to appreciate at a higher rather than the 4% or so that paying cash for the house would save you.

That being said, I agree that debt is generally not a positive thing. By having a mortgage, it means that I must have an income to pay it, either from having a job or by withdrawing from my investments. If I have no mortgage it makes it way easier to take risks with my career or retire, take time off, etc. And while the risk of the investments not making more than the interest rate of the mortgage is pretty low over the long haul, it is a risk, which many people do not like taking.

[Stadler]

With all due respect, anyone who thinks that debt is a universally bad idea, simply does not have a very good understanding of debt.

With all due respect, there isn't a modicum of respect in telling someone they don't know what they're talking about.  But for the record, I think my understanding of debt is above satisfactory. 

100% of the time, debt on your ledger subtracts from your net worth, which also usually results in less available income to save, invest, or give.  That's simple math.  If you can show me an instance from your personal experience where that is not the case, I will gladly retract.

But, sir, if you take away the liability, in many cases you reduce the ASSET side of the ledger too.  (Or look at it the other way;  you can increase the asset side more than you increase the liability side; that's the trick). 

Let's say you have a balance sheet like this (these numbers mean nothing other than as a place holder):

                                       Asset                                   Liability
Car:                               $10,000                                   $0
Goods:                           $25,000                                   $0
Investments:                 $50,000                                   $0
Cash:                             $10,000                                   $0
TOTAL:                           $95,000                                   $0

Net:  $95,000

If you save money to buy a house cash, assume a rate of savings:   $200 a month?  $500?   At $175,000, that means 29 years of savings.   In the meantime you pay rent and that's a liability.    Pick a number for rent:  $500?  $1000?  On a yearly basis, that goes in the "Liability" column with NO corresponding asset (your ownership stake does not change on a lease.)


                                      Asset                                   Liability
Car:                               $10,000                                   $0
Goods:                           $25,000                                   $0
Investments:                 $50,000                                   $0
Cash:                             $10,000                                   $0
House:                         $175,000                                   $0
TOTAL:                         $270,000                                   $0

Net:  $270,000

In 29 years, you have paid the bulk of a mortgage.  Because you're not required to pay rent, for apples and apples, you get a mortgage of "savings" plus "rent".   Let's say with that, you can afford a house worth $275,000.  All other things being equal, after 29 years you have:

                                     Asset                                   Liability
Car:                               $10,000                                   $0
Goods:                           $25,000                                   $0
Investments:                 $50,000                                   $0
Cash:                             $10,000                                   $0
House:                         $275,000                              $10,000
TOTAL:                          $370,000                             $10,000

Net:  $360,000

The exact numbers don't really matter (though they're close; $1500 mortgage payment is a $275,000 house, ballpark, depending on down payment, taxes, etc.); the "house liability" is one year of mortgage.   All other numbers - income, expenditures, depreciation, inflation, taxes, whatever - are the same, so they are moot.    The debt allows you to accumulate wealth faster.  Yes, you're paying interest, but in the meantime, you're paying rent, which is worse, since it's SOMEONE ELSE'S interest.   Plus you have the access to the equity in real time, and the increased buying power that the equity gives you.

I haven't even approached the possibility of "flipping" that house mid-mortgage to generate even more wealth, or renting out portions of your owned house to generate even more revenue period to period. 

EDIT:  I wrote this, apparently, while Lordrazor was writing his; we're on the same page here, but I want to highlight something in his last paragraph:   none of this is absolute.  My balance sheet might not work for you for various reasons.  NONE of those are because "debt is bad", though.  They are circumstantial factors that influence ANYONE'S investment portfolio.   For many years it made no sense for me to own a house because I moved so much.  That's not the same as "debt is bad".   

[lonestar]

Yes, there is definitely too much money. A few months ago we had well known billionaire and his entourage (14 people) stay at the hotel, and on top of reserving 2 of our cooks for 24 hours a day (6 8hr shifts at 80/hr customer price), he brought 3 of his own personal chefs. This is normal for him, probably a standard hotel rider. The 4 day stay topped 100k and was a spit in the ocean for his wages. These guys can bleed money everywhere and still never go broke.

[Stadler]

No one benefited from that?  No tips were given?   

[bosk1]

100% of the time, debt on your ledger subtracts from your net worth, which also usually results in less available income to save, invest, or give.  That's simple math.  If you can show me an instance from your personal experience where that is not the case, I will gladly retract.

If you're using debt to purchase a home, the hit to your net worth of the mortgage is offset by the value of the house though. The immediate hit to your net worth when buying a house is really only the closing costs.

Say you had the cash laying around for a home. It would be very easy to show mathematically that you're financially better off putting down the minimum down payment and getting a mortgage while investing the rest in index funds. Especially given where interest rates are at today for mortgages. Over a 20-30 period, the investments are extremely likely to appreciate at a higher rather than the 4% or so that paying cash for the house would save you.

That being said, I agree that debt is generally not a positive thing. By having a mortgage, it means that I must have an income to pay it, either from having a job or by withdrawing from my investments. If I have no mortgage it makes it way easier to take risks with my career or retire, take time off, etc. And while the risk of the investments not making more than the interest rate of the mortgage is pretty low over the long haul, it is a risk, which many people do not like taking.

Okay, but we said we were going to disregard primary home mortgages. 

But even in your model, while it might technically be correct from a purely mathematical standpoint, can you tell me that you have actually done that?  Or that anyone you know has?  (i.e., had the cash lying around to pay cash for a home, but instead put down the minimum and invested ALL the remainder in an index fund)  In general, people don't.  But if we look at actual behavioral and spending models for what people actually do, I think you would find that ALMOST always, people who put down a minimum on a 30 year mortgage and do not pay it off early do not otherwise invest wisely and have a substantial net worth to offset even the compound interest they paid over that 30 years (and the other debts they likely amassed).  In contrast, you will find that most who take out a 15 and pay it off early, which then frees up more income to invest while they are still in their earning prime, come out with substantial net worths because they simply had less money going out the door to the band, and also because they likely also had the discipline to be investing in things that would yield returns in the interim. 

And that's a home.  Which appreciates.  And which we said we were disregarding.  But apply that to other things that people can (but usually don't) save up and pay cash for, like cars, which DO depreciate rather than appreciate.

[lordxizor]

Okay, but we said we were going to disregard primary home mortgages.

I didn't catch that, sorry. But honestly the same argument can be made for any low interest debt. Student loans, car loans, etc are often way below expected gains in the market.

Probably doesn't happen very often that people take out loans for things and invest the cash instead of just paying cash for the thing. But the same logic applies to paying off the mortgage faster than the minimum payment. I would be essentially getting a guaranteed 4% return on the money I spend to pay down my mortgage faster than the minimum, whereas historical returns from the stock market are closer to 10%.

Personally, I am focusing on maxing out my retirement accounts (401k and Roth IRA) before I start to pay off my mortgage or car loan faster than the minimum for this very reason. In the long run I'll end up ahead. But I will eventually start putting more toward my mortgage since I plan to be financially independent hopefully in the mid-50s if all goes according to plan. Hard to be independent if you're dependent on a bank for a loan.

[bosk1]

Hard to be independent if you're dependent on a bank for a loan.

Exactly. 

[Stadler]

I'm sorry; I missed the exclusions too.  But I will add that "poor discipline" or "human nature" (depending on how you look at it, glass half full, glass half empty) don't elevate to "debt is bad".   

[eric42434224]

With all due respect, anyone who thinks that debt is a universally bad idea, simply does not have a very good understanding of debt.

With all due respect, there isn't a modicum of respect in telling someone they don't know what they're talking about.  But for the record, I think my understanding of debt is above satisfactory. 

100% of the time, debt on your ledger subtracts from your net worth, which also usually results in less available income to save, invest, or give.  That's simple math.  If you can show me an instance from your personal experience where that is not the case, I will gladly retract.

Well first, there absolutely IS respect in telling someone that they are incorrect.  You changed it to "telling someone they don't know what they're talking about".  That might be taken as disrespectful.  But that is not what I said.  You used absolutes, and I merely pointed out that you are simply incorrect.  No disrespect there.

Second, if you think that debt is universally bad 100% of the time, then I must disagree that your understanding of debt is indeed above satisfactory.  In fact it shows a very over-simplified understanding.  But that is really OK.  You are a Lawyer by trade, and most people do not understand debt, and its uses beyond their own personal experience with credit cards.
You seem to think that paying for something with cash is always better than credit.  I would say that may absolutely be true in most cases....especially when viewed through the lense of your own personal experience.  Does it make sense to finance that TV when you have cash?  Of course not.  And with most transactions normal people deal with, that holds true.  But those transactions are not the entirety of what Debt entails.

Thirdly, and lastly, you ask me to give you a real world example where debt is the correct choice.  I absolutely can give you many.  However, you seemed to have moved the goalpost in your request.  You now ask :"100% of the time, debt on your ledger subtracts from your net worth, which also usually results in less available income to save, invest, or give.  That's simple math.  If you can show me an instance from your personal experience where that is not the case, I will gladly retract.".  Regardless, I will respond:

-Debt is always offset by the asset it purchases, so it does not always decrease net worth. In many cases the value of the assets, or future revenue, more than offset the debt on the balance sheet.
-Debt can actually create MORE liquidity on the balance sheet that can be used for savings, investments, giving.  it can allow for GREATER cash flow to be used for other things.  If you used the cash, you would have LESS cash for those purposes, and less for expenses and emergencies.

So I answered your question....though the question didnt make much sense.
The ACTUAL question was....can debt be GOOD?  Or, can debt be the CORRECT choice?
The answer is 100% YES it can be.

Here is the example you asked for, and I will expect your retraction.  I deal with specific examples like this on a regular basis.

Joe Smith has a company.  Joe has revenue of 2 million a year selling widgets.  He has been in business 10 years.  Slow and steady growth.  Has 500k in the bank in cash.
Joe lands a contract for $1 million a year, but he does not have the capacity to fulfill that order.  He has the ability to grow his revenue 50%, but does not have the cash, raw materials, machinery/equipment, or facilities to fulfill that order.

Joe goes to a financial institution to get a line of credit, to make sure he has the cash flow to support the operations for short term periods...usually the time from when he orders raw materials to when he gets paid on his receivables.
Joe also gets a term loan to finance the new upgrades to facilities, equipment, hiring new employees, etc. to support the new business.
Without leveraging debt, he loses the ability to grow his business.  The interest incurred is a non issue compared to the increase in revenue for his business.
If Joe even can pay cash for all that growth (which is very rare), Joe then cant pay his employees or suppliers as he now has no cash.

DEBT allowed Joe to spread the cost of his expansion over say 5 years, which allowed the business to grow 50%.
Without the debt, that opportunity is lost.  If he uses cash, he does not have enough cash flow to keep his company running, much less for emergencies.
Leveraging debt allowed Joe to take advantage of an opportunity to expand that would be otherwise unattainable, or by paying cash put his business and employees at high risk.

Maybe Joe has a very seasonal business.  Maybe Joe has no revenue for large periods of time, so he uses a Line of Credit for short term financing.  Keeping the doors open for the 6 slower months to pay his employees, until his receivables come in.  It allows him to keep some liquidity available for emergencies as well.

Maybe Joe Finds out he can get a 10% discount if he can increase the size of his order from his supplier and pay cash upfront....instead of the smaller normal order with 30 days net.....but he doesn't have the cash flow to cover it.  So if he gets a line of credit to pay for the much bigger order of raw supplies, he may pay 4% interest, but saves 10% on the supplies?  Joe just netted 6%. 

I hope these examples makes sense to you.

This is similar to the debt capital markets.  Why do you think companies issue bonds?  They need access to capital (cash) to use to expand/grow/operate their business.  If they can get a 20% return on this borrowed cash at 5% interest.....is it better to get no return because they dont have the cash to use?  Also, there is another positive effect of debt....to the people who own that debt.  Bonds are a great investment for a lot of people for a variety of reasons....be it a fixed income, or a hedge to equities, etc.

I hope this example shows you how very important debt is, and how it can be used in a positive manner.  In many cases it is a simple necessity.
If you can leverage the debt, and have your return be greater than the cost of that debt, then it is SIMPLE MATH that Debt can be good.
You seem to think that debt is always used to buy some consumer product that depreciates.  In that one view you are mostly correct that debt is not the best course of action.
But there are a plethora of scenarios where debt can buy OPPORTUNITY and many other positives other than a depreciating consumer product.  That is where you seem yo have blinders on.
I agree that there are many bad ways to use debt, but that is not what you asserted.  You said it is always bad...I'm simply, and respectfully, showing that you are wrong.

[lonestar]

No one benefited from that?  No tips were given?   

Actually no, no cooks received tips. I'm sure the room service waiters did very well, but we just made our hourly wages.

[bosk1]

Eric, you gave hypotheticals, not examples.  Those are not the same thing.

[eric42434224]

Eric, you gave hypotheticals, not examples.  Those are not the same thing.

Seriously?  Businesses actually do those transactions every day all over the world.
They use Term Loans, Lines of Credit, and issue Bonds....for very positive, and most times necessary reasons, with positive results.
This is not secret....it is common knowledge to anyone with an above satisfactory understanding of debt.
It is easily verified with a 2 second google search.

I am not sure what exactly you are looking for in an example.....do you want me to give you a real world example with a real company, real people, tax returns, financial statements, and applications?  I think that requirement of a literal example is just being purposefully difficult.

[jasc15]

I know in my case that my net worth would be less had I contributed more money toward my house and less toward my retirement savings.  That money has grown at a rate faster than my mortgage rate, and likely will over the next 30 years.*  Mortgage debt has allowed and will allow me to have a higher net worth than saving and paying cash.  Debt is good in this situation, with little risk.

If i used that money for consumption spending, the benefit of mortgage debt would disappear.

*given the fact that the stock market has not lost real value over any 20 year period (except for 1961-1981, which lost money when taxes and inflation are included).

[eric42434224]

Eric, you gave hypotheticals, not examples.  Those are not the same thing.

Seriously?  Businesses actually do those transactions every day all over the world.
They use Term Loans, Lines of Credit, and issue Bonds....for very positive, and most times necessary reasons, with positive results.
This is not secret....it is common knowledge to anyone with an above satisfactory understanding of debt.
It is easily verified with a 2 second google search.

I am not sure what exactly you are looking for in an example.....do you want me to give you a real world example with a real company, real people, tax returns, financial statements, and applications?  I think that requirement of a literal example is just being purposefully difficult.

Well Bosk?  Do you need a literal example, or can you just accept Debt can Good with the examples I gave?

[bosk1]

"Well bosk" what?  I asked for specific examples from personal experience.  I am not interested in debating hypotheticals with tons of variables that we are incapable of knowing. 

And as I also said in my post back on page 1, I'm not really interested in trying to convince other people anyway.  I have my own strong opinions on what constitutes individual financial responsibility and what does not.  If you disagree, that is between you and...well...not me.    Have at it.  Just don't expect me to think it is financially sound.

[eric42434224]

"Well bosk" what?  I asked for specific examples from personal experience.  I am not interested in debating hypotheticals with tons of variables that we are incapable of knowing. 

And as I also said in my post back on page 1, I'm not really interested in trying to convince other people anyway.  I have my own strong opinions on what constitutes individual financial responsibility and what does not.  If you disagree, that is between you and...well...not me.    Have at it.  Just don't expect me to think it is financially sound.

Well I don't really care if you try to convince anyone.  That isn't what you asked me to do.  You said you would retract if I gave an example....and that is clearly what I did.  If you want to play a game and make it so it is a "real life" example, I guess I have no problem doing just that.

I also understand what you may have your opinions based on what you think constitutes individual financial responsibility.....(and perhaps that is part of the problem, as you are basing your position only on one aspect of personal debt).....but you clearly posted that debt is a bad choice because MATH.
I merely showed you that there were many reasons to use Debt in a positive and productive way, well because MATH.

Perhaps also, I think that you may simply not understand what I post.  You may not have any experience with Businesses using Debt.  Maybe you dont understand the term hypothetical....it means dealing with theories or guesses.  I gave examples that weren't hypotheticals....they were merely examples, using laymans terms and rounded figures to give examples that are easy to digest.....they are examples of transactions that actually take place...not hypothetically take place.  They were generalized examples of the uses of debt in every day and extremely common scenarios....that take place every day, all over the world.

That being said, I can use this as an opportunity to educate.  Most people think Debt is "bad".  In many cases it most certainly is.  From the limited perspective of someone whose only exposure is Credit Cards and Mortgages, I can see why they may have a negative opinion.  Consumer Credit Card debt, and the Mortgage Crisis of a decade ago can certainly cast a shadow over ones opinion.

However, saying all debt is "bad" just shows a lack of understanding.  Debt is no more "bad" than a Hammer is "bad".  Debt is simply a TOOL to be used.  If it is not used properly, there can be negative consequenses.  You yourself have to disregard primary home mortgages, as you know they have benefits.  One place where debt can be used positively is with Business.
As I discussed before, the uses of Lines of Credit, Term Loans, and Bonds (among others) are great debt tools when used properly.

Now for the actual, real life example you requested:

One client of mine owns an engineering firm in the greater Ft. Lauderdale area.  His focus is on the design, construction, and installation of fire suppression systems in large commercial and residential buildings.  Like huge corporate complexes and high rise condo buildings.  He does about 5MM in revenue a year, but has done up to 7MM in years past.  He has about 20 employees.
He came to me as he had a few issues financially.  First, he does a lot of government contracts, and they take a LONG time to pay.  He said that sometimes he has to wait more than 6 months to be paid after job completion.  So he is out 6 figures for design work, materials, payroll, permits, fuel, etc. for not only the year it takes to complete the job, but then maybe 6 months to get paid.  As he obvioulsy has overhead and several other jobs going on at once, this is an issue.  We set up a 250k Line of Credit, secured with the equity in his owner occupied commercial property, and this LOC can be accessed to pay expenses for the job until he gets paid.  He pays interest only, then pays it back with the funds from the job.  This allows him to take on jobs, even though he does not have the liquidity to fund them, and keep his business going.
He also just won a contract with a national developer to do the fire suppression systems for 3 new high rise luxury condo towers in three different FL locations.  He did not have the capacity for this....not enough liquidity, not enough manpower, and not enough equipment.  We did a Term Loan for him to buy new equipment to manufacture the systems, as his current equipment cant handle the new capacity.  We also financed three new trucks for the foreman at the three locations.  It will also allow him to hire another engineer and six new installers.
If he didnt get the loan to expand, he would not have been able to go after this new contract....which may not just get him business for the next few years, but be a HUGE expansion of the business going forward with this National developer.  The term loan made this business expansion possible.  This is how Businesses do business, expand, and grow.
He is running a 15-25% margin on jobs, depending on type....so paying a point over prime on debt is 100% fantastic if it is instrumental in allowing you to secure those jobs.  That is simple MATH, not an opinion.
I will also be speaking with him, now that he has the large contract with the national developer, to re-negotiate his trade terms with his large suppliers.  By accessing the capital he has through the bank, he can get better terms, whether it be getting a discount for order size or bulk, or by paying cash instead of Net 30.  This will allow him to net more profit on each job by leveraging debt to pay for supplies, and grow his business.  Math.

I know that was a lot, but you asked for it.  I actually hope you begin to see that debt is a tool to be used, and that there are many uses for debt outside your limited exposure or experience.

If you have any questions regarding this example, please feel free to ask.  I would be glad to go over anything you like.

[lordxizor]

In defense of Bosk's opinion on debt, it really depends a lot on what you value. I personally value having more money over debt freedom, but I can completely understand why someone would look at it the other way. Not having debt (even low interest debt as we've been discussing) makes your monthly cash flow much better. It makes it easier to survive a job loss or reduced income. It allows you flexibility in a way that having more money tied up in an investment account usually doesn't.

By the numbers I will almost certainly end up with a higher net worth focusing on investing over paying off my mortgage, but there is one situation where it could all fall flat. Say the bottom drops out of the market and home values drop again. I get laid off because my company is making cutbacks due to the poor economy. Now all my investments lost 40+% of their value, I have only unemployment as income and I lost most of the equity in my home. I still need to come up with the cash monthly to pay my mortgage. I am going to be extremely cash strapped. If this goes for more than 6 months or so I'm in a position where I may lose my home. Tapping my investments to save the house is a possibility, but I'd be pulling out at the bottom of the market, which is a terrible thing to do. I have no equity to tap to help me through this lean period. Now if I owned my home free and clear, my monthly expenses are much less and the loss of income stings way less. I will almost certainly be able to keep my home even in a prolonged jobless state. I can even tap the equity if I really need to.

So really, paying off your mortgage (or other low interest debt) early is almost like an insurance policy against when times are tough and the stars align in a negative way. I completely understand why people would value this more than having a higher net worth.

[eric42434224]

Agreed.  The use of debt in any fashion requires a thorough analysis of the potential risks and benefits.  That was my point being that Debt is merely a Tool.  If you personally don’t like how it’s used, that is anyone’s prerogative.  However, to say that Debt is universally a bad idea, well that is simply false.

[cramx3]

I don't see anything wrong with things often called "good debt" such as a mortgage.  It's better for me to be paying that every month than paying for rent.  And while of course it's better to pay cash, it's also not easy to save the cash necessary if I am paying rent.  Of course there are things I can do to help myself here like live a lower quality life or try to live at my parents.  But as an adult, I'd rather take care of myself and a mortgage has helped me to do that while building up every month more equity. 

[The Walrus]

After attending ProgPower I can safely answer this question with a resounding NO. 

[lordxizor]

Not to beat a dead horse, but here's a pretty good article on why paying off your mortgage early is not as great as you think.

https://www.msn.com/en-us/money/realestate/making-extra-mortgage-payments-not-so-fast/ar-BBNhf5j?li=BBnbfcN

[bosk1]

Not to beat a dead horse, but here's a pretty good article on why paying off your mortgage early is not as great as you think.

https://www.msn.com/en-us/money/realestate/making-extra-mortgage-payments-not-so-fast/ar-BBNhf5j?li=BBnbfcN

  Good article that raises some good points.

I'm not going to dismiss it because (1) as I said above, while I firmly believe that, as a general rule, going into debt is generally always a bad thing, I was exempting primary residence mortgages from that and take a bit of a softer stance on that because it is generally a necessity, and (2) the article does raise some good points.

It is a good article.  But that said, a couple of points:

First, this:

Each regular monthly payment you make applies to the next payment due, and any extra payment applies to the last payment due.

This is true, but it misses the point of paying off the mortgage early.  That is certainly true the way most banks handle their mortgages.  And someone who just pays extra without specifying where it goes will unknowingly or knowingly fall into this trap.  But this statement in the article seems to assume that this is ALWAYS what happens when you pay extra (it assumes that because a lot of the "negative" consequences the article discusses flow from this very scenario).  But it ignores the fact that, most often, the smart way to pay down a mortgage early is to specify that the extra money be devoted to principle, not an early payment of the next mostly-interest payment that is due.  Paying down the principle avoids many of the "negative" consequences cited in that article. 

Second, that writer has a bias.  And the fact that he plugs refinancing at the end of the article is a tell.  A refi can be great and save money for those disciplined enough to pay off the mortgage early and stay at or above their payoff pace on their current loan.  Otherwise, the saving of money is a bit of an illusion because while it lowers the monthly payment (assuming you are doing a refi to get a better rate), it resets the clock on the either 15 or 30 year term.  Which means the bank makes money.  That line was a bit of a tell, and caused me to look him up and see what he does for a living.  That doesn't mean to disregard what he is saying.  Again, he makes some good points.  But, as with all things, be aware of the bias and take what is said with a grain of salt, as necessary.

Third, he rightly cites many of the advantages of paying of a mortgage early in the section that follows his statement that "There are some valid reasons someone might want to pay off their mortgage early."    As a general rule, those will usually outweigh the negatives he cites (and, again, many of those negatives simply vanish when they early payoff is done properly rather than in the manner the article assumes).

[lordxizor]

Third, he rightly cites many of the advantages of paying of a mortgage early in the section that follows his statement that "There are some valid reasons someone might want to pay off their mortgage early."    As a general rule, those will usually outweigh the negatives he cites (and, again, many of those negatives simply vanish when they early payoff is done properly rather than in the manner the article assumes).

I think this is really where personal thoughts/beliefs/emotions come in because I would say in general, the method that leaves me with the most money in the end is the best one, which almost certainly would be not paying off the mortgage ahead of schedule and investing. Ultimately, there is no wrong thing to do, investing versus paying off debt. Both are going to get you ahead in the long run and both are significantly better than spending more money on crap that brings fleeting happiness.

[eric42434224]

Bosk, seeing how you are still engaged with this thread enough to research a writer of an article, have you taken any time to digest my post?  I hope it wasn’t too much to take in, which it can be if you are unfamiliar with the use of debt in business.  Just let me know if you have any questions and I will be happy to address them

[Indiscipline]

I think this is really where personal thoughts/beliefs/emotions come in because I would say in general, the method that leaves me with the most money in the end is the best one, which almost certainly would be not paying off the mortgage ahead of schedule and investing. Ultimately, there is no wrong thing to do, investing versus paying off debt. Both are going to get you ahead in the long run and both are significantly better than spending more money on crap that brings fleeting happiness.

That's exactly - and I'm not criticising the discourse here in any way - where I was ideally placing the discussion when I first came up with "too much debt". I'm no hypocrite (at least I try); I pay people to manage my money/assets and I know contracting/buying/selling debt is heavily involved in their task, not mentioning said money comes my way from companies that simply wouldn't exist without the notion of debt. Hell, being the nations' deficits as they are, I had public debt to my name the instant I came to the world.

The philosophical side of the matter (a horse very still alive and unbeaten) fascinating me would be - imo - Is it "puts more money in my pockets" reason enough to peacefully define debt as a good thing? Is my "right to pursue happiness" reason enough to accept a way of life based on giving up indipendence in order to get more than I can afford instead of enjoying what I can? If we're all paying "later", who's paying when someone demands his pound of flesh "now"?

Honest questions.

[bosk1]

Bosk, seeing how you are still engaged with this thread enough to research a writer of an article, have you taken any time to digest my post? 

Yes, it was easy to digest.  But for reasons I have already posted, I'm not interested in engaging on that. 

[eric42434224]

Bosk, seeing how you are still engaged with this thread enough to research a writer of an article, have you taken any time to digest my post? 

Yes, it was easy to digest.  But for reasons I have already posted, I'm not interested in engaging on that.

You asked me specifically to give you personal examples in order to retract, did you not?  To me that is being engaged.  You then ignore or dismiss it with no reason?  That does not show the type of behavior you, as a mod, expect from everyone else here.

I showed you specific support for my position (which is easily going with a quick google search).  If you disagree, then show some evidence to the contrary.  If you admit debt is a tool that can be used positively, then just admit it and move on.  Don’t ask for proof, get it, then ignore it.  That is just poor form.

[bosk1]

Eric, quit baiting.  I told you from the get-go that I was not interested in debating the issue or trying to persuade anyone.  There is no "behavior" issue here.  I am not interested in debating you.  T

hat said, I did say I would "retract" (not further debate), but only IF you could provide a specific example from your personal experience.  You didn't.  You provided a hypothetical.  When I pointed that out, you again failed to provide a specific example from your own personal experience and instead provided an example of a client.  I have no idea whether you are intentionally avoiding providing what I asked for or simply don't understand the request, but either way, I'm not interested in debating it. 

Not sure why you are so intent on debating someone who has no interest in debating you, but I find it to be very odd behavior.  So going back to the "behavior" issue that you mention above, declining to engage someone that a forum member does not want to engage is not in any way looked down upon.  On the contrary, when someone insistently pursues another forum member who does not want to engage or be pursued, the general advice we give is to try to ignore that user and/or to use the "block" feature, if applicable.  Unfortunately, as forum admin, I have to be able to keep track of all things going on on the forum, so I don't have the luxury of blocking forumers whose posts I find harassing or out of bounds.  That's just the way it is.

[lordxizor]

Is it "puts more money in my pockets" reason enough to peacefully define debt as a good thing?

I personally think it is. As others have said, debt is a tool. There are risks involved with taking it on, but if done right you can come out ahead using it. Businesses use debt all the time to grow their bottom line, why can't we as individuals? Of course I'm talking about debt used to purchase appreciating or revenue generating assets here, not credit card debt.

Is my "right to pursue happiness" reason enough to accept a way of life based on giving up indipendence in order to get more than I can afford instead of enjoying what I can?

For most people it is. They're willing to live life on the edge of financial ruin in order to pursue what is ultimately mostly fleeting happiness from buying things. For me, I am only willing to go into debt for my home, my education (paid off a few years ago now), and modest used cars (though hopefully I'll be paying cash from here on out). Most people don't think of debt as giving up independence though. I would guess if you asked, they would say loans and credit cards give them the freedom to buy what they want.