Doesn''t anyone pay cash anymore???

[codex57]

Date: 12/1/2006 3:55:24 PM
Author: Londonchris

Date: 11/17/2006 2:56:07 PM

Author: codex57

I paid cash for the ring. Biggest check I ever wrote at the time.

Sorry for being from London and not knowing all your wordings,but the above quote made me chuckle.

Hahaha. Took me a second, but I finally got how you originally read it. Well, I''m a newlywed so give me a few years to see if I mean it the way you first read it.

 

[phoenixgirl]

Maybe I shouldn''t be allowed to have diamonds because I can''t afford them

Erica,

I know I got a little carried away in my analysis of our credit culture, but this was my point exactly. What are a bunch of diamond-obsessed people doing declaring that other people shouldn''t be paying for diamonds on their credit cards? To each their own when it comes to priorities.

Where I grew up, my friends had the same upbringing and financial situations, but where I live now, I''m the only one of my friends with a nest egg courtesy of parents/inheritance. I know that sometimes when I want to talk about things that my friends couldn''t afford -- eating out or traveling or a new car or new earrings -- I need to realize that I''ll just come across as spoiled.

Some of the posts in this thread have come across as self-congratulatory . . . rattling off all of the expensive items we''ve bought in cash. I think it''s important to remember that the love of diamonds doesn''t discriminate based on financial situation. And surely the people charging up their cards would be paying cash if they had it, right? Are we saying that we are smarter/better/savvier/more deserving if we do have cash on hand?

I am of course grateful that my parents sent me off into the world with a nest egg and an education and no need to get into debt, but I know this isn''t most people''s situations, so I am no one to judge.

 

[ladykemma]

i can only speak for myself, but when we got married, we were newly recovering from life disaster called alcoholism. lives were being rebuilt, as well as a healthy marriage, bank account and a home. My hubby is anti-debt.

we sat down and decided what we could spend, only after enough had been put aside for a down payment for a house. we could afford $500 in 1994 dollars. so I got a top of the line quarter carat.

fast forward many years. careers rocketing, house is paid for, cars paid for, nice bank account. I develop a diamond obsession

Now, in this season of my life, is when we can afford it. I can afford to buy a larger diamond and I did, several, as a matter of fact. I did not trade or sell the original for sentimental reasons.

so, what''s wrong with being proud (self congratulatory) of the fact that the house and all is paid for?

I personally believe that diamonds and other luxury purchases should be for when you can pay for them straight up.

If I can''t pay for them directly, i do layaway. That is within my belief system, because the owner has possession of the item until I have paid for it. It is against my value system to take something without having paid for it. That''s the way I look at it.

 

[Christa]

First of all, let me say that many PSers wouldn't believe a family could actually live on our household income.

I don't think Tawn needs a reality check, though. No, most people don't have the cash to buy new cars, but it's not because they are unlucky, it's because they (OK,"we", since I've been one of them for most of my life) don't plan ahead and make wise financial choices. The average new car payment is what, $500 a month? Now imagine instead, you buy a beater for a couple thousand cash and start saving the $500 a month. Before long you'd be one of those people who can write a check for a car. Of course, new car depreciation is ridiculous, too, but that's another topic.

It's pretty crazy how credit-dependant Americans are--and again, I've fallen into it myself, to some extent. We're in the process of working our way out of it (no new diamonds for me for a while!), and I'm really excited about the idea of actually owning our stuff rather than having all our income tied up making payments on it.

A really great book on this subject, if anyone's interested, is The Total Money Makeover by Dave Ramsey. Walks you through the process of climbing out of debt and becoming like Tawn.

 

[ladykemma]

Date: 12/1/2006 6:28:36 PM
Author: Christa
First of all, let me say that many PSers wouldn''t believe a family could actually live on our household income.

I don''t think Tawn needs a reality check, though. No, most people don''t have the cash to buy new cars, but it''s not because they are unlucky, it''s because they (OK,''we'', since I''ve been one of them for most of my life) don''t plan ahead and make wise financial choices. The average new car payment is what, $500 a month? Now imagine instead, you buy a beater for a couple thousand cash and start saving the $500 a month. Before long you''d be one of those people who can write a check for a car. Of course, new car depreciation is ridiculous, too, but that''s another topic.

It''s pretty crazy how credit-dependant Americans are--and again, I''ve fallen into it myself, to some extent. We''re in the process of working our way out of it (no new diamonds for me for a while!), and I''m really excited about the idea of actually owning our stuff rather than having all our income tied up making payments on it.

A really great book on this subject, if anyone''s interested, is The Total Money Makeover by Dave Ramsey. Walks you through the process of climbing out of debt and becoming like Tawn.

exactly! I think for me it makes me appreciate my possessions more. And layaway really makes me earn the (fill in the blank!)

 

[goldenstar]

I think that credit is not inherently bad, its just what you do with it. I don''t think its wise to charge jewelry, clothes, TV''s and other things that you don''t have the money for. But taking out a business loan to open that restaurant you''ve been dreaming about? YES! Credit is very appropriate for some circumstances. Sure, the bank owns what you have but we wouldn''t have stores to shop in or restaurants to go to if people waited until they had cash on hand to open one up. That would be near impossible. Sometimes posts here make it seem like credit is ALL BAD. I personally wouldn''t even pay off the house I live in because of the tax deductions. That''s why very wealthy people buy extra real estate ("tax shelters") to reduce their taxable incomes.

I think this thread is talking about financing engagement rings in specific, and I think thats important to note. A diamond does not an engagement make, but it kinda feels like a pesudo neccessity because of all the symbolism and emotion that its tied to. Point being, you don''t "need" a new ruby cocktail ring or a new BMW but its common to feel like you "need" an engagement ring. Maybe people finance the e-ring, but don''t tend to charge other things like clothes and shoes. The e-ring is a whole different ballgame.

 

[Cehrabehra]

Date: 12/1/2006 7:37:29 PM
Author: goldenstar
I think that credit is not inherently bad, its just what you do with it. I don''t think its wise to charge jewelry, clothes, TV''s and other things that you don''t have the money for.

Not always - we have all of our money invested and live paycheck to paycheck and a little beyond our means a lot of the time (after monthly investment stipends)

hehehe... and the way we look at it is: If I can charge something and get 0% interest or even 6% interest, it''s better for us to keep the debt AND the investment that is pulling 12%. We''re still making more in the end by keeping the money invested. Of course it makes our $ lives FAR more complicated... but hey, makes it fun, right? haha

We paid 2/3 of our last car in cash and had the remainder paid in about 6 mos because we''ve grown accustomed to not having a car payment and we hate them!!! Much rather have the cash in pocket every month! However, we don''t buy *new* cars. I wouldn''t buy a car less than 2 years old. And our minivan we bought when it was 2 years old and paid quite literally HALF of what a friend paid for her brand new one (same make/model) the same year. And you know? I just spent that money on a nice big diamond instead Save now - spend later! it works!!! it sucks, but it works!!! lmao!

 

[tawn]

Date: 12/1/2006 1:18:04 PM
Author: Kit
Tawn,

I hope you don't take this the wrong way because I am really impressed by and have a lot of respect for people who can work hard and do well financially. But the reality is, people like you and your DH ARE few and far between. The median household income in the US is something like $45k annually. And, income in real dollars has declined over the past few years due to falling wages. Not many people have tens of thousands of dollars just sitting in the bank. Clearly you have done well for yourselves but you are in a tiny minority of households in this country. I mean, really, Congratulations!!

Just a reality check.

My point was that I'm scared that we seem to be turning into a society where we're expected to finance everything so we can have it right now!! We try not to do that, because I don't sleep well at night when we owe everyone money!

We're so NOT rich and we've more than paid our dues! For example...I just got my first vehicle with electric windows this summer, so it's not like we've been living a life of leisure! I'm 37...and we're in the low $60K or so bracket. We've just done a few things that made us possible to finally treat ourselves lately! Some things we've done to get there are...

1. Waited 11+ years to get a nice ring (which was torture!) And, got a modest-sized diamond to go with our lifestyle!
2. Almost all of our furniture are refurbished/refinished antiques (by me) and I have the scars to prove it!
3. Bought 4 FIXER-UPPER homes, did the work ourselves while we lived in them...and then sold them! (More scars)
4. Drove one inexpensive car for 10yrs, and were a single vehicle family for years! (Pain in the butt...)
5. Took moderate vacations.
6. Bargain shop! I don't buy anything that's not on sale, and shop TJ Maxx and Marshalls for most of our clothes!
7. Saved all the raises and bonuses that we've received in the last few years...not possible in the early years!
8. Just plain did without stuff, and didn't try to keep up with the friends and neighbors!


So, I'm actually pretty proud of the fact that we have what we have, without a huge income to back us up! We've worked really hard and we've done without a lot of things for a long time!

Now, we can spoil ourselves a little bit and not have to go into debt!



ETA: I think I totally missed the original point that I was going to make about not getting a ring for 11 years because we wouldn't finance it...and then of course, life continued to happen and we kept moving it forward a few more years!

Credit definitely has it's place, but sometimes it's worrisome to see big luxury items (like diamonds and big screen TV's) being charged up...

 

[monarch64]

I''ll take the plunge and chime in here on the "financing" side of things. My DH works in sales and earns salary plus quarterly commision bonuses. When we got engaged, we never discussed how he would pay for a ring. I always assumed it would be a surprise. Of course, I came from a family where my mother never worked, and my father was a business owner and paid cash for EVERYTHING. (he''s also a bit of a tight-a$@, lol). I had no understanding of what diamonds cost, or really any diamond education whatsoever. Fortunately DH had done his homework, and was referred by many friends to our current jeweler, who was kind enough to give him a very good price on my 1.5 J SI1 RB set in plat. However, I had given him sort of an ultimatum, and he had limited time and resources to work with at the time he chose my stone and setting. He had been with his company for a couple of years then, and knew pretty much what to expect as far as commissions on his accounts, and he took out a loan for my ring that he paid off within 2 months. Yes, he probably lost a few bucks in the process, but he knew I wanted not only to be surprised, but to have a gorgeous rock from the beginning, and that upgrading, if it happened at all, would come much later in life. Everything worked out as planned, and maybe he didn''t go about things the "optimal" way, but such is life sometimes.

My point in sharing is that everyone''s situation is different. Yes, I think it''s somewhat crazy to live beyond one''s means and max everything out to achieve your dream of the moment. But just because someone uses credit instead of cash does not necessarily mean they aren''t making the best decision for themselves at the time.

 

[Cehrabehra]

Date: 12/2/2006 1:27:19 AM
Author: tawn

1. Waited 11+ years to get a nice ring (which was torture!) And, got a modest-sized diamond to go with our lifestyle!
2. Almost all of our furniture are refurbished/refinished antiques (by me) and I have the scars to prove it!
3. Bought 4 FIXER-UPPER homes, did the work ourselves while we lived in them...and then sold them! (More scars)
4. Drove one inexpensive car for 10yrs, and were a single vehicle family for years! (Pain in the butt...)
5. Took moderate vacations.
6. Bargain shop! I don''t buy anything that''s not on sale, and shop TJ Maxx and Marshalls for most of our clothes!
7. Saved all the raises and bonuses that we''ve received in the last few years...not possible in the early years!
8. Just plain did without stuff, and didn''t try to keep up with the friends and neighbors!

We had only one car until my second child was born in 1999! For the first 5 years of marriage we drove a brown corona 10-15 years old with one white door! I got a handmedown couch from my ex boyfriend''s boss back in 1988 and found another that wasn''t the same style but had the *exact* same zigzag brown THROUGH beige tweed fabric ::shudder:: that I bought for $20 in 92 that we had until 98!! We''ve been on almost zero vacations other than the grand poobah of vacations ala chevy chase during dh''s sabbatical and to visit family (by car - to save $ on tickets etc) that lives two states away. I admit I do not bargain shop. When my dh got out of the navy he instantly made 4x what he made IN the navy and the one luxury I bought myself was to stop clipping coupons... of course now that we have 3 kids and they''re getting expensive I really *should* get back in the habit... I''m horrible about wasting money shopping. I am all about convenience and gourmet food haha. Saved saved saved - saved for YEARS to be able to buy a house in CA which we still cannot afford... almost! But it enables us to own two houses here which we own half of each - we could sell one and give up a mortgage but that wouldn''t be prudent. What we pay in interest isn''t worth what we get in appreciation. I remember getting teased about our ugly car and ugly couches back when dh was military and we just shrugged... some of those people were driving around in new mustangs and in debt 20-30k!!!! When dh got out we had zero debt and were lucky to get a VA loan for no money down on the house... they even built our fees into the loan. That was 10 years ago. I wouldn''t say we''ve built an empire, but for being a single family income for 13 years while the dh got his bachelors and we reproduced... I think we''ve done very well! When we move we should be able to buy a house better than the two we own now put together - in california. You don''t manage that one by dropping money on things. You do have to sacrifice the new car smell and for us the honeymoon and engagement ring... but yanno... in the end we can''t take it with us so if it makes you smile to charge a diamond and wear it - who cares?? Just have to be selective and not make *every*thing the exception!!

 

[diamondfan]

My husband will charge things to get miles on our credit card but he pays the bill immediately. This way he is not incuring interest fees or finance charges, but the money is in the bank longer earning interest and we get miles or bonus points on whatever card we have used. He always pays our credit cards bills in full monthly. I consider it a revolving charge that way and not a credit card, since we are not accruing balances or having to pay finance charges. He is happy with that system and he does our bill paying so I do not argue...it really makes sense to me anyway!

 

[diamondfan]

PS I also like the protection of using a card in case of a dispute with a merchant you have the credit card company to back you up!

That thread about the woman who was going to declare bankruptcy and get a ring she knew she would not pay for is INSANE. Abusing the system beyond all comprehension to me. How is that different than stealing? She clearly has issues. Hope she decided against it. I know in the past before bankruptcy laws were amended some people viewed declaring personal bankruptcy as a mulligan. I totally get if someone is in crisis and has no other options but buying diamonds and defaulting on bills is nasty to the extreme and criminal to me if you do so intentionally.

I have no problem with people using credit. If you are a responsible person who pays their bills, fine. If one only pay the minimum and charge your cards to the max one will likely always be trying to catch up, but as long as one is comfortable it is one's own choice. There are options and choices. Credit card companies exist and make tons because people want nice things and would prefer to have them sooner rather than later. Charging something you can pay for and plan to pay for is totally great. Accept there are finance charges and interest and it is fine. My biggest issue is with people who charge away and simply have no intention of paying. If credit cards work and are comfortable, more power to the person. Maybe overall we are just more greedy and want it NOW and are not as thoughtful as to the long term of such decisions, til it is too late.

 

[ladykemma]

i am not a purist. i do use auto loans. we had a mortgage. i used BBB 90 day free financing over the summer for some mikimoto pearls which made me very uncomfortable -- As it should be. I will not do that again.

I live my life like tawn and Cehra. my hubby made our furniture, I buy "used" We have made a beautiful decorated home with our own two hands and many scars. i buy at garage sales. TJ maxx rocks. We drive cars til the wheels fall off.

I am frugal.

 

[Cehrabehra]

Date: 12/2/2006 7:05:37 AM
Author: ladykemma
i am not a purist. i do use auto loans. we had a mortgage. i used BBB 90 day free financing over the summer for some mikimoto pearls which made me very uncomfortable -- As it should be. I will not do that again.

I live my life like tawn and Cehra. my hubby made our furniture, I buy ''used'' We have made a beautiful decorated home with our own two hands and many scars. i buy at garage sales. TJ maxx rocks. We drive cars til the wheels fall off.

I am frugal.

hehehe I don''t know if I''m frugal - but my husband certainly is! That''s not true - I''m frugal about some things and not others... it''s weird. Things made of wood to me are just great sometimes better used.... but I don''t like used couches - btdt and really prefer new fabric. My couch is the most expensive piece of furniture in the house, easily and by probaby double or triple, but it is THE most used thing and it''s gorgeous so I don''t regret it.. I do have some funk-ay old chairs that are fabric and need to be not only recovered but totally reupholstered that I got for $25 for the pair and I love the shape but they''re in dire need of attention and I''ve thus far been too cheap to get ''er done. I did break down finally and upgrade my dining table which was a handme down (read not a nice family heirloom) from my grandmother from the 70''s to a pretty nice one I got from nordstrom rack (solid wood 72" plus 18" leaf) for I think it was $250 and EASILY looks like I spent one or two grand on it. I do have many wonderful antiques and heirlooms from my mom''s family and TONS of art (paintings and sculpture mostly) from my dad''s side. I tend to cheap out and buy the kids'' clothes at target, and mine too - I''m not a clothes horse by any stretch. Not into shoes and I do love purses and wallets but they''re from target or kohls.. so I do have my frugal side and my luxury side. I spend WAY too much on food. I think where we''ve sacrificed the most is with travel/vacation. We really haven''t done much at all over the years. I wanted to drop like 5k on a vacation for our 15th and dh balked at that and said it was too much so off I went to spend 4x that on something he values even less :snort::

 

[Christa]

Date: 12/2/2006 1:27:19 AM
Author: tawn

Date: 12/1/2006 1:18:04 PM
Author: Kit
Tawn,

I hope you don''t take this the wrong way because I am really impressed by and have a lot of respect for people who can work hard and do well financially. But the reality is, people like you and your DH ARE few and far between. The median household income in the US is something like $45k annually. And, income in real dollars has declined over the past few years due to falling wages. Not many people have tens of thousands of dollars just sitting in the bank. Clearly you have done well for yourselves but you are in a tiny minority of households in this country. I mean, really, Congratulations!!

Just a reality check.

My point was that I''m scared that we seem to be turning into a society where we''re expected to finance everything so we can have it right now!! We try not to do that, because I don''t sleep well at night when we owe everyone money!

We''re so NOT rich and we''ve more than paid our dues! For example...I just got my first vehicle with electric windows this summer, so it''s not like we''ve been living a life of leisure! I''m 37...and we''re in the low $60K or so bracket. We''ve just done a few things that made us possible to finally treat ourselves lately! Some things we''ve done to get there are...

1. Waited 11+ years to get a nice ring (which was torture!) And, got a modest-sized diamond to go with our lifestyle!
2. Almost all of our furniture are refurbished/refinished antiques (by me) and I have the scars to prove it!
3. Bought 4 FIXER-UPPER homes, did the work ourselves while we lived in them...and then sold them! (More scars)
4. Drove one inexpensive car for 10yrs, and were a single vehicle family for years! (Pain in the butt...)
5. Took moderate vacations.
6. Bargain shop! I don''t buy anything that''s not on sale, and shop TJ Maxx and Marshalls for most of our clothes!
7. Saved all the raises and bonuses that we''ve received in the last few years...not possible in the early years!
8. Just plain did without stuff, and didn''t try to keep up with the friends and neighbors!


So, I''m actually pretty proud of the fact that we have what we have, without a huge income to back us up! We''ve worked really hard and we''ve done without a lot of things for a long time!

Now, we can spoil ourselves a little bit and not have to go into debt!



ETA: I think I totally missed the original point that I was going to make about not getting a ring for 11 years because we wouldn''t finance it...and then of course, life continued to happen and we kept moving it forward a few more years!

Credit definitely has it''s place, but sometimes it''s worrisome to see big luxury items (like diamonds and big screen TV''s) being charged up...

That''s exactly my point! For the most part these are the kinds of things we do, to--we just haven''t been as disciplined about it as Tawn and others, but we''re getting back on track now. Anyone can live like this, it''s just a matter of priorities. It always bugs me, for example, when people tell me I''m "lucky" to be able to stay home with my kids, as if it just "happened". We made it happen by living with older cars, a small house, etc.

 

[nejarb]

Date: 12/1/2006 7:37:29 PM
Author: goldenstar
I personally wouldn''t even pay off the house I live in because of the tax deductions. That''s why very wealthy people buy extra real estate (''tax shelters'') to reduce their taxable incomes.




You get a deduction for the interest you pay on your loan. You are still paying the interest, but it just comes out of pre-tax income. You''re better off paying for your house if you can, unless you have it invested in a safe way that is earning a higher return than your home loan interest rate (after you factor in the benefit of the tax deduction).

Extra real estate (or as you say "tax shelters"), however, does not give its owners an interest deduction. You have to live in the property to get a deduction for the interest you pay on the $ you borrowed to buy it. What investment property does give its owners is a depreciation deduction. This is not available to you because you live in your home. It''s one or the other. And they serve very different purposes.

The interest deduction is just a policy thing to encourage home-ownership. The depreciation deduction is an economic reality (sort of) that takes into account the fact that when you pay for something that generates income, you shouldn''t have to pay income taxes on the money you used to buy it. But since something like a building lasts a long time and keeps producing income, you shouldn''t get the whole deduction in the year that you bought it. The "tax shelter" situation comes up through the depreciation deduction in certain circumstances that I won''t get into, but it''s usu when the property is paid for in cash so there is no mortgage involved in the first place.

 

[Christa]

Nejarb is right, of course. Yes, you get a tax deduction, but you also pay a lot more than your deductions in interest to your mortgage company every year. You don''t come out ahead--much smarter to pay off the house, if you can, and invest your payment instead.

 

[tawn]

Date: 12/2/2006 2:25:16 PM
Author: Cehrabehra

Date: 12/2/2006 7:05:37 AM
Author: ladykemma
i am not a purist. i do use auto loans. we had a mortgage. i used BBB 90 day free financing over the summer for some mikimoto pearls which made me very uncomfortable -- As it should be. I will not do that again.

I live my life like tawn and Cehra. my hubby made our furniture, I buy ''used'' We have made a beautiful decorated home with our own two hands and many scars. i buy at garage sales. TJ maxx rocks. We drive cars til the wheels fall off.

I am frugal.

hehehe I don''t know if I''m frugal - but my husband certainly is! That''s not true - I''m frugal about some things and not others... it''s weird. Things made of wood to me are just great sometimes better used.... but I don''t like used couches - btdt and really prefer new fabric. My couch is the most expensive piece of furniture in the house, easily and by probaby double or triple, but it is THE most used thing and it''s gorgeous so I don''t regret it.. I do have some funk-ay old chairs that are fabric and need to be not only recovered but totally reupholstered that I got for $25 for the pair and I love the shape but they''re in dire need of attention and I''ve thus far been too cheap to get ''er done. I did break down finally and upgrade my dining table which was a handme down (read not a nice family heirloom) from my grandmother from the 70''s to a pretty nice one I got from nordstrom rack (solid wood 72'' plus 18'' leaf) for I think it was $250 and EASILY looks like I spent one or two grand on it. I do have many wonderful antiques and heirlooms from my mom''s family and TONS of art (paintings and sculpture mostly) from my dad''s side. I tend to cheap out and buy the kids'' clothes at target, and mine too - I''m not a clothes horse by any stretch. Not into shoes and I do love purses and wallets but they''re from target or kohls.. so I do have my frugal side and my luxury side. I spend WAY too much on food. I think where we''ve sacrificed the most is with travel/vacation. We really haven''t done much at all over the years. I wanted to drop like 5k on a vacation for our 15th and dh balked at that and said it was too much so off I went to spend 4x that on something he values even less :snort::

That is the furniture that we buy new as well...couches and beds! I also admit that I''ve never gotten into thrift store shopping for clothes either! Fabric stuff has to be new!!

My vice is Starbucks....oh, and nice candles too! I mostly wear jeans and T-shirts, a couple of nice coach bags, and about 3-4 Kenneth Cole bags that I switch around! I live in So Cal, so that saves on shoes...I just wear cheap Roxy flipflops all the time! We lead a pretty laid back casual life, so we don''t have tons of expensive dress-up clothes!

My husand and I recently commented on the fact that we don''t pay very much attention to what day Payday is anymore...and how nice that was, and what a huge relief it is not to have to worry if we''ll have enough money to last etc...

I remember the days when we''d be counting our change out that last few days before Payday!

 

[goldenstar]

Date: 12/2/2006 11:08:23 PM
Author: nejarb

Date: 12/1/2006 7:37:29 PM




You''re better off paying for your house if you can, unless you have it invested in a safe way that is earning a higher return than your home loan interest rate (after you factor in the benefit of the tax deduction).

Well, yes. This is what I meant but I did not include. As far as investment properties, my BF has two, which he rents out for income. He deducts everthing from the property manager''s fee to new carpets, paint, repairs.

 

[MINE!!]

We paid cash too,

For as long as I have been here on Pscope I have always heard discouragement to going into debt to finance jewelry.

 

[the other Jake]

Date: 12/1/2006 6:28:36 PM
Author: Christa
First of all, let me say that many PSers wouldn''t believe a family could actually live on our household income.

I don''t think Tawn needs a reality check, though. No, most people don''t have the cash to buy new cars, but it''s not because they are unlucky, it''s because they (OK,''we'', since I''ve been one of them for most of my life) don''t plan ahead and make wise financial choices. The average new car payment is what, $500 a month? Now imagine instead, you buy a beater for a couple thousand cash and start saving the $500 a month. Before long you''d be one of those people who can write a check for a car. Of course, new car depreciation is ridiculous, too, but that''s another topic.

It''s pretty crazy how credit-dependant Americans are--and again, I''ve fallen into it myself, to some extent. We''re in the process of working our way out of it (no new diamonds for me for a while!), and I''m really excited about the idea of actually owning our stuff rather than having all our income tied up making payments on it.

A really great book on this subject, if anyone''s interested, is The Total Money Makeover by Dave Ramsey. Walks you through the process of climbing out of debt and becoming like Tawn.

I absolutely despise this guy!! My parents have become cult followers of his. I''m an accountant and get in major financial arguments because of him. After listening to him they think that they should pay cash for everything. I gave them a hypothetical scenario... What if you could finance a purchase at 0-5%, then turn around and invest that excess cash in a low risk portfolio at an average rate of return of 10-12%. This basically gives you a net return of 5-12%. They still insisted that they would pay cash. They don''t understand the concept of leverage and equate debt as being evil. Used properly it can allow one to accumulate wealth at an even greater pace. It is for this reason my parents have almost no money saved for retirement and I am going to have to support them when I am older. That being said I do not consider jewelry a necessity and it would be unwise to put oneself into a considerable amount of debt to purchase a luxury item. Sorry for my rant but that hit a nerve...

 

[the other Jake]

Date: 12/3/2006 12:40:39 AM
Author: Christa
Nejarb is right, of course. Yes, you get a tax deduction, but you also pay a lot more than your deductions in interest to your mortgage company every year. You don't come out ahead--much smarter to pay off the house, if you can, and invest your payment instead.

This is exacly how my parents think! There is a thing called compounding and time value of money. If you invest your excess money now on a regular basis instead of putting your money into paying off your house you would be better off. If I invest that extra money that you put it towards your house... In 10 years you may not have a house payment, but I will have a higher net value despite still having a house payment. Even with the higher contributions you can make after your house is paid off, you will not be able to catch up. As long as the return on your money is greater then the interest on your debt, you are better off...

 

[ladykemma]

is this why my accountant friend is pushing me to buy another house? i really don''t want to move.

 

[the other Jake]

lol I can''t help you on that one.

 

[Cehrabehra]

Date: 12/3/2006 7:11:49 PM
Author: the other Jake

I absolutely despise this guy!! My parents have become cult followers of his. I'm an accountant and get in major financial arguments because of him. After listening to him they think that they should pay cash for everything. I gave them a hypothetical scenario... What if you could finance a purchase at 0-5%, then turn around and invest that excess cash in a low risk portfolio at an average rate of return of 10-12%. This basically gives you a net return of 5-12%. They still insisted that they would pay cash. They don't understand the concept of leverage and equate debt as being evil. Used properly it can allow one to accumulate wealth at an even greater pace. It is for this reason my parents have almost no money saved for retirement and I am going to have to support them when I am older. That being said I do not consider jewelry a necessity and it would be unwise to put oneself into a considerable amount of debt to purchase a luxury item. Sorry for my rant but that hit a nerve...

My husband shares your thinking. And if you can carry your debt on a 0% card and keep your money invested in something with good returns, you are essentially borrowing money - risk free - to invest in something where you get to keep YOUR interest.

ETA: Though for someone who has had problems with debt, I could see following a cash only policy.

 

[Cehrabehra]

Date: 12/3/2006 7:29:33 PM
Author: the other Jake

Date: 12/3/2006 12:40:39 AM
Author: Christa
Nejarb is right, of course. Yes, you get a tax deduction, but you also pay a lot more than your deductions in interest to your mortgage company every year. You don''t come out ahead--much smarter to pay off the house, if you can, and invest your payment instead.

See you are just like my parents! There is a thing called compounding and time value of money. If you invest your excess money now on a regular basis instead of putting your money into paying off your house you would be better off. If I invest that extra money that you put it towards your house... In 10 years you may not have a house payment, but I will have a higher net value despite still having a house payment. Even with the higher contributions you can make after your house is paid off, you will not be able to catch up. As long as the return on your money is greater then the interest on your debt, you are better off... Dave Ramsey people got into debt because they don''t know anything about finance and once they get on his plan they still don''t! You may be debt free, but I''ll be retired at 55

yes yes exactly!!! We could have sold our other house and had zero mortgage on this one, but holding on to the other... plus in order to hold on to both he took a low interest loan that is a) less than we make on the same money invested and b) less than we have been making in appreciaton on the old house. It''s a freaking juggly jigsaw of $ but in the end there is more black than red and the black goes up faster than the red LOL

There is a diference between having debt without having equal capital - vs having debt and having the same amount of money invested. Ya make it work for ya!!

 

[nejarb]

The other jake: why would anyone go into the mortgage business and get a mere 6% or whatever interest rates are right now when they could invest in those low risk 10-12% yielding portfolios you mentioned? what were you referring to, index funds? What I''m getting at is that mortgage lender knows w/ near certainty that it''s going to get that 6%. and it will get more interest than that on average, just like the average returns on your mutual funds or whatever (if we''re talking about historical averages for the last 30 or 40 years, which I assume you''re basing your 10-12% average return on). Don''t you think it''s also important to consider how much risk one can tolerate? If you loose your job and your investments fail, you''re going to be on the street. But if you own your home outright, the chances of that happening are much lower. Maybe that doesn''t really make sense b/c I don''t know what I''m talking about, but it makes sense in my head.

I''m not familiar w/ that author who advocates paying cash for everything, but based on the title of his book, it sounds like he''s writing for people w/ credit card debt who have made bad financial decisions in the past. Generally, these people shouldn''t try to leverage more credit to take advantage of investment opportunities, b/c they''re probably not going to be able to make realistic predictions about risk & return.


oh how funny, my fi just came out into the living room from his office and explained that the reason he had his door closed was that he was on the phone and didn''t want to distrupt my pricescoping...I''m supposed to be out here studying! he''s so on to me.

 

[the other Jake]

Date: 12/3/2006 10:15:18 PM
Author: nejarb
The other jake: why would anyone go into the mortgage business and get a mere 6% or whatever interest rates are right now when they could invest in those low risk 10-12% yielding portfolios you mentioned? what were you referring to, index funds? What I''m getting at is that mortgage lender knows w/ near certainty that it''s going to get that 6%. and it will get more interest than that on average, just like the average returns on your mutual funds or whatever (if we''re talking about historical averages for the last 30 or 40 years, which I assume you''re basing your 10-12% average return on). Don''t you think it''s also important to consider how much risk one can tolerate? If you loose your job and your investments fail, you''re going to be on the street. But if you own your home outright, the chances of that happening are much lower. Maybe that doesn''t really make sense b/c I don''t know what I''m talking about, but it makes sense in my head.

I''m not familiar w/ that author who advocates paying cash for everything, but based on the title of his book, it sounds like he''s writing for people w/ credit card debt who have made bad financial decisions in the past. Generally, these people shouldn''t try to leverage more credit to take advantage of investment opportunities, b/c they''re probably not going to be able to make realistic predictions about risk & return.


oh how funny, my fi just came out into the living room from his office and explained that the reason he had his door closed was that he was on the phone and didn''t want to distrupt my pricescoping...I''m supposed to be out here studying! he''s so on to me.

Of course that was an unrealistic scenario. I made it so it was blatantly obvious that you would have to choose the investment... But people that follow his methodology will still not agree. As I said, it was hypothetical. It would obviously be a bad idea to go into debt to invest in the stock market. Don''t invest what you can''t afford to lose. Basically what I am saying is there is a hybrid- too much debt is bad, but not ALL debt is bad. If you lose your job, but own your house... Without income you will eventually end up on the street anyway. But a well diversified portfolio of various index funds along with a several month reserve account would more than compensate for the various risks of life. (I''m supposed to be studying too)

 

[ladykemma]

jake - have you ever been fired? laid off? stood there on a friday afternoon with a pink slip in your hand? I have.

my hubby is a cancer and pancreatits survivor. have you ever spent two months sitting in intensive care by someone's side? and neither of you has gone to work? living on the our Mormon food/cash storage (such a wise program!) and the long term disability provided by his employer? well I have.

if i lived my life your way the house of cards would have fallen in.

i suspect nothing "bad" has happened to you yet. you might change your tune.

i live my life debt free becuase I got the pants scared off me during several extreme health/family /employment emergencies.

that was when i started to really listen to depression era elders, either thier written stories or people still alive. use it up, wear it out, make it do, or do without! i personally believe we are headed for another depression.

ok argue back!

 

[nejarb]

lady kemma, I think maybe you and jake basically agree but are leaving some terms undefined so you think you''re disagreeing. I think jake is saying that if you''re solvent, meaning you have more assets than debt, then you can take advantage of credit that''s available to you to earn more money so you can be even more solvent. This principle, leverage, is something businesses do all the time and it''s not considered risky or unwise or anything if done carefully. Families don''t usu think of themselves as "profit-maximizers" so they''re not trying to accumulate wealth (profit) every year like a business is. But I think jake is just saying that this is how families should carry on.

for example, say I had 150k saved up and I wanted to go to medical school and I got into Dartmouth. I could use my 150k for tuition, or I could invest it in something really safe like treasury notes or a mutual fund. If I did invest it, I would need to find another way to pay my tuition. Luckily, this will be easy as lenders will be happy to let me borrow the $ at a very low interest rate. It would take a very very conservative person, in my opinion bordering on the line of insanity, to just keep the 150k in the bank, even in interest bearign acct, and use it as needed to pay the tuition. The reason is that the other investment opportunities offer a higher rate of return than I would be incurring in interest charges for the student loan. Would I have debt? yes. But at any point in time, I could pay it off in a matter of minutes with my investment. And the longer I wait to do so, the more money I''ll have in the end.

w/ a home I think it''s different, especially if you live in a state w/ homestead exemption, b/c if your house is paid off, creditors (like health care providers) can''t take it away (except the gov could if you don''t pay your taxes).

What turn of events do you think will lead to another depression? What do you think could/would have to happen for the economy to tank like that? and why do you think we''re headed in that direction?