Comments on: Debt Aversion? http://2cworth.com/2006/03/07/debt-aversion/ Building my Internet Worth Thu, 11 Mar 2010 03:14:23 +0000 http://wordpress.org/?v=2.0.2 by: BlueDaze http://2cworth.com/2006/03/07/debt-aversion/#comment-83 Thu, 09 Mar 2006 14:36:34 +0000 http://2cworth.com/2006/03/07/debt-aversion/#comment-83 I will not debate the merits or demerits of debt-free living. Except to say that "good debt" can all too easily turn bad suddenly (eg. retrenched, or property bubble burst...) Personally, I believe we must live "under" our means and have a savings rates of at least 20% net-income. It is this firm belief that made me pay off my house loan in 5 years. Now, I am 100% debt-free. I will not debate the merits or demerits of debt-free living. Except to say that “good debt” can all too easily turn bad suddenly (eg. retrenched, or property bubble burst…)

Personally, I believe we must live “under” our means and have a savings rates of at least 20% net-income.

It is this firm belief that made me pay off my house loan in 5 years. Now, I am 100% debt-free.

]]> by: mbhunter http://2cworth.com/2006/03/07/debt-aversion/#comment-79 Wed, 08 Mar 2006 05:16:22 +0000 http://2cworth.com/2006/03/07/debt-aversion/#comment-79 2 Cents, thanks for referencing my post! Very thoughtful comments from you and the above folks. I still view my house as a liability because it's not bringing in any money for me (the Kiyosaki definition of liability) -- hence the reason I'm paying additional principal. If I could find a motivated house seller who was giving me half of market for his house, would I borrow? Sure! But when the return is not clear (as is the case with the Missed Fortune 101 strategy I mentioned in the post) it doesn't make good sense to borrow. 2 Cents, thanks for referencing my post! Very thoughtful comments from you and the above folks.

I still view my house as a liability because it’s not bringing in any money for me (the Kiyosaki definition of liability) — hence the reason I’m paying additional principal.

If I could find a motivated house seller who was giving me half of market for his house, would I borrow? Sure! But when the return is not clear (as is the case with the Missed Fortune 101 strategy I mentioned in the post) it doesn’t make good sense to borrow.

]]> by: Tim http://2cworth.com/2006/03/07/debt-aversion/#comment-73 Tue, 07 Mar 2006 20:39:42 +0000 http://2cworth.com/2006/03/07/debt-aversion/#comment-73 I believe that the idea of frugal living (while not being fun) is pretty much requires a person to be debt averse. But there are good types of debt, as you point out, and owning property is the most obvious one. I don't think going in extreme directions either way is a good investment strategy (no debt tons of debt). A balance must be struck. It also depends on what a persons goal is. Donald Trump has billions in debt, but it's because he's leveraged that debt to provide for billions in passive income. I don't want to have to worry about pinching every penny possible during my lifetime. So, I don't practice frugal living in any serious way. If the "debt" is putting money in your pocket not taking money out...a certain amount of it can't be bad. I believe that the idea of frugal living (while not being fun) is pretty much requires a person to be debt averse. But there are good types of debt, as you point out, and owning property is the most obvious one. I don’t think going in extreme directions either way is a good investment strategy (no debt tons of debt). A balance must be struck. It also depends on what a persons goal is. Donald Trump has billions in debt, but it’s because he’s leveraged that debt to provide for billions in passive income.

I don’t want to have to worry about pinching every penny possible during my lifetime. So, I don’t practice frugal living in any serious way. If the “debt” is putting money in your pocket not taking money out…a certain amount of it can’t be bad.

]]> by: Paul Hodges http://2cworth.com/2006/03/07/debt-aversion/#comment-72 Tue, 07 Mar 2006 20:07:03 +0000 http://2cworth.com/2006/03/07/debt-aversion/#comment-72 I suspect that what Kiyosaki calls “good debt” is only "good" as long as it is generating more cash flow than it is eating. Personally, I am from the camp that you should limit leverage (beyond say, student loans and mortgages). Using margin as an example, I would only use it if I thought I saw a tremendous opportunity in the market. And even then, I would limit it to 5% or less of my portfolio. If you don't have the ability to clean leveraged bets off your books in the event of hard times, you are assuming a lot more risk (since you are basically gambling all the assets you own). My wife and I made a highly leveraged bet on a run-down condo in DC in 2002. As it turns out, things went great -- we sold it for more than twice what we bought it for, or a 2,392% return on our downpayment (only 3% of the purchase price). But even so -- it was a very cheap piece of property when we bought it, we needed somewhere to live, our payments were less than what we'd been paying in rent, and it was very unlikely that we would have had to sell it for less than we bought it for. So there was a lot of safety -- it was just being in the right place at the right time that made it profitable. Would I go out and speculate on property (or commodities, or derivitatives, or Forex)? Not a chance. I suspect that what Kiyosaki calls “good debt” is only “good” as long as it is generating more cash flow than it is eating. Personally, I am from the camp that you should limit leverage (beyond say, student loans and mortgages). Using margin as an example, I would only use it if I thought I saw a tremendous opportunity in the market. And even then, I would limit it to 5% or less of my portfolio. If you don’t have the ability to clean leveraged bets off your books in the event of hard times, you are assuming a lot more risk (since you are basically gambling all the assets you own).

My wife and I made a highly leveraged bet on a run-down condo in DC in 2002. As it turns out, things went great — we sold it for more than twice what we bought it for, or a 2,392% return on our downpayment (only 3% of the purchase price). But even so — it was a very cheap piece of property when we bought it, we needed somewhere to live, our payments were less than what we’d been paying in rent, and it was very unlikely that we would have had to sell it for less than we bought it for. So there was a lot of safety — it was just being in the right place at the right time that made it profitable. Would I go out and speculate on property (or commodities, or derivitatives, or Forex)? Not a chance.

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