My New Views on Debt

Maybe it is just because I teach economics for a living that I have this perspective, but I do not think that debt is a bad thing. I think it is perfectly responsible to finance a modest house, a simple vehicle, and a college education. If you have enough cash on hand to buy those things outright, most of the time you are still better off financing them if you can get a low interest rate. That is because your cash on hand will do a lot more for you if you invest it. Interest rates, at the moment, are very low, so this is the time to finance if you are going to. This advice assumes that you have steady careers which you don't intend to leave. If you want out of the "rat race" as many around here do, then avoid financing at all costs. Personally, I like working and I intend to put at least 30 years in before I retire, so financing doesn't make me uneasy. My wife and I financed our house at 3.25% and a used truck at 2.75%. Our investments make bigger returns than that, so over a 30 year period our cash will (hopefully) be better spent in the market.

I am all for borrowing money.... but only if it is going to make me money. I never borrow money for consumer goods.

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"Nothing so needs reforming as other peoples habits." Mark Twain

Like all have said make sure it is needed debt and not wanted debt. Having said that I have always found money is easy to get, time is not. I will go into debt to accomplish things I need done in order to avoid wasting time. I think this is why so many grandparents spend so much time with there grandchildren. when they were young they avoided debt, did not have many things and could not share some things they wanted with their children. make reasonable debt, provide the things your children need that re time sensitive and have fewer regrets later.

Mortgage debt, yes.
Land debt, yes.
Debt on other, income producing capital, yes.
Debt on higher education, no.
Debt on anything else, no.

The first two in that list can be avoided by renting, but there are higher risks there, IMO.

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Honesty and integrity are homesteading virtues.

It's a big question..........with a great many sensible answers............
I will tell you this though..you have to ask yourself.......

Can you live happily owing this debt?
Can you sleep at night owing this debt?
If the world turns upside down overnight/in a week or months time....will this debt put you and your family in trouble....
You own your land, building your house paying as you go..........losing your land and home for a barn........well it could happen in todays world real easy....
I've seen a many a barn built out of pocket/ as money allows......make just as fine a barn as one built all at once
Search your heart close, just because you have a job and money today, don't mean it'll be there tommorow, and by all means take out insurance if it's available to cover your loan......
I say this because in this old life....folks that owe you money file bankruptcy, or can't pay you when it's due cause someone that owed them filed,....IRS and state depts of revenue aren't patient.....and the very reputable CPA/Lawyer you've used for almost 20 years can commit suicide is the space of a couple months......Banks don't really care if Joe Blow is going to pay you a month after the day they want their money....unless you got a mighty fine bank officer to deal with

Borrow all you can and live it up - then die and leave a lot of unpaid bills - remember - the guy who dies with the most toys - wins -

Overall, the primary solid value of property is the land itself and the old saw "location, location, location." I'm seeing more and more how the structures add taxable value but are now costing more to build than can be recouped upon sale. Other than buildings designed with apartments in mind, a lot of structures are idiosyncratic to the people using them, and can even be a liability in a property sale.

Another bit I have learned over the years is that whatever your first structure is, within a few months you will come up with "This would have been better if ..." I've done it, most everyone I've known has done it. Instead of a full-fledged dream barn, consider a "starter" that is built small and inexpensive, or one that can be easily added on to, say with a back wall that can be removed and roof extended.

The key with debt is using the purchased money to leverage. The leverage can be to create a better income (tools, car that works for job involving driving), security (a home protected by homestead laws), or emergency.

A word on security - Seniors sitting in expensive homes with no mortgage understand the security that, if properly homesteaded legally, they CANNOT be removed because of outstanding debts. Once you get to that age, the protections afforded by IRAs and such no longer hold valid. Not having much money because of inflated doctor bills is a lot easier than having to pay rent and not having much money and no way to create income. The key is, as many Florida seniors found, to live in areas with low taxation and COL costs. Medical costs are such that a single major event can wipe out a life of savings. Homestead laws limit that.

If you build it, they will come - animal$, feed co$ts, vet bill$, equipment to fill the $pace costs. Chances of your breaking even are lower than you might think, so you must plan for a cushion. Having a debt will make it more stressful.

IF you were in an area that you expected to rise in property values over the next ten years, and you wanted to build something that would add to the value, then I would say that debt would be a good gamble with little downside, since you could sell and recoup.

IF you are on a side road in West Podunk where values have been flat, COL is high, and the future seems the same, the pouring money into a structure would be a personal rather than financial decision. Not necessarily bad, but not with sound financial underpinnings.

Just go into anything with a clear head and much thought about "What happens if...???"

I'm not against using debt wisely.

What troubles me is that we are all now being encouraged to go into debt. It is being made too easy.

The central bankers (Federal Reserve) were given control over our money, and have decided to keep interest rates artificially low. Instead of letting the free market decide the interest rates (price of money), we let Soviet-style central planners do it.

This serves the interests of Wall Street, as more people will invest in stocks than low interest earning savings accounts. And low interest rates on savings accounts hurts those in retirement, who shouldn't be taking the risks of the stock market at their age.

Capital from savings is discouraged, and we don't really need it anyway, as the Federal Reserve can just print more money out of thin air, and loan it out and earn interest. They make interest off money they got for free (legal counterfeiting).

Anyway, the artificially low interest rates make it a lot cheaper to get loans, which supposedly stimulates the economy by us consuming more. Politicians want such temporary improvements in the economy so they can get re-elected.

Also, government can accumulate much more debt when interest rates are low. Even small increases in interest rates will be a disaster, but I suppose they can just print money faster to pay the snowballing interest.

So our economy is built on debt, not real value, a bit of a scam. At some point, there will have to be a correction, but who knows when. Hopefully when the economy falters as it did in 2008, you will have a secure job, like in government, and you won't default on your loans.

So, yes, you are encouraged to go into debt.

I'm being tempted myself to build a shop before interest rates go up. Just concerned about things going to pot, but perhaps they never will, and the big money interests will be good parasites and never kill the host.

On another note, I see too many people who worry about giving a certain life or stuff to their kids.

A guy at work was mentioning the other day he tried really hard to give his kids stuff he never had. Which contributed to stress, and now he is getting divorced. So they'll end up without a dad around.

I have occasionally regretted not giving my kids more. In recent years I got a tractor, and my grown son asked why I didn't get it while he was around. I said I was spending the money on feeding you, and I wanted you to learn how to use a shovel. (He has actually been praised lately on some jobs for his shoveling ability.)

Anyway, if you give them everything, what do they have to look forward to later?

You don't need a full barn for animals. Three sided sheds are relatively cheap and easy to build. Barns aren't that great for animals anyway. They lack ventilation, so can result in respiratory disease when closed up in the winter, and are too hot in summer. Good for hay storage and other things, I suppose. In the summer, animals would rather be out in the breeze, as long as they have shade trees. In winter, three sided shed to keep them out of the wind and snow.

There is debt and then there is investment. If you buy or build something, it's always nice if there is some sort of plan in place for it to pay for itself.

We just dropped $20K on a photovoltaic system for the house. But, what with the tax credits and rebates and the high cost of electricity in our area (forty four cents a kilowatt hour) the system will pay for itself in about 3.8 years. So, it's not debt, it's an investment although we paid cash for it, we would have gone into debt if necessary since it has a payback plan in place.

Generally it isn't any one specific thing which will bring positive economic results but sort of a synthesis of all of them. A general upwards trend as it were.

I lived in a small Condo that was paid off. After going through the last nationwide depression ('08 I think?) I watched a lot of my friends loose their homes, businesses and every other thing they owned with debt. Some lost their families.

While I prospered because everything I owned was paid for and I had a few bucks in the bank and nothing "invested" in the stock market.

That being said, what is most valuable is what we learn over time. The problem isn't necessarily the cost of the barn or the payments while expecting to earn more money. What is planned for that barn is where I see a lot of the risk. Suddenly you have space for a livestock. This is where many loose a lot. Starting out with a couple of chickens and/or a couple of goats or pigs is where we learn the realities of farming/ranching. Buying enough new animals you've never raised before to fill up the space often becomes an increased cost, not a savings or a profit. With feed and vet bills and the mistakes we make during our education. At least for a while. Small coops and small pole barns can get you through the learning curve and when you start making money, you build a bigger place that will pay for itself.

Living frugally has taught my wife and I, and our children more than having a lot of stuff they wanted but didn't need. However, we do have everything we need for a comfortable life. Living the life with homesteading values is what has kept our family close and happy. And my daughter will graduate college without debt.

PS: I still remember the horror when my parents spoke of each one in the house owed $1000 toward the national debt. Now it's over $100,000 for each of us. I'll die long before I have to pay it all back. But what are my children going to do?

You can borrow money for land and a home and live in a finished house for twenty years while paying off mortgage, and getting on with other projects around the farm. Or you can pay as you go and live an a partially finished home for twenty years spending all your spare time working on the home being constantly plagued by projects, not able to relax in you own living room because all you can see around you are things you should be doing... I feel a small reasonable mortgage is ok, you will have enough to do around the place. just keep your feet on the ground and do everything builder grade. and get a serviceable finished shelter.

We are doing things completely differently now. Just a few weeks ago, we bought a property, making larger monthly mortgage payments, and also principal payments in addition to that, to pay off the property in 5 years or less. Our new property has enough timber to not only build our log home with, but other smaller buildings, too. In fact, there is enough timber to sell, which can be used to help pay to build our home. Since DH can build our home, built one before, and I am soon going to be working two jobs, we do expect to pay for our home out of pocket. Neither of us are unrealistic about the cost, but are both being highly conservative in how we will finish it (the window dressing so to speak, as it will be built very well). We already have our kitchen cabinets, good windows we can use, most of our appliances, and neither of us minds getting used. Our goal is to have our home built/paid for within 3 years. This all may sound unrealistic to others, but not to any who personally know us. We want to get our property paid off and never get a loan again!

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Christie Acres
www.SequimForLife.com
http://www.irealtyvirtualbrokers.com...lori-christie/
http://luxurywaterviewhomes.com/
SequimLiving@gmail.com

Debt is like any other tool. Use it wisely and it will be an asset. Misuse it and it becomes a liability.

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If the grass looks greener it is probably over the septic tank. - troy n sarah tx

Our existance here is soley for the expoitation of CMG

There's a fine line between debt and investment. I think it depends on who you're trying to support. If you're young it might be okay to make an investment and take on a lot of debt. You only have yourself to support (most likely) and have more leeway. But the older you get the more responsibilities you have and the more people rely on you. Personally, these days I'm much more cautious.