Debt

[davidlosh@davidlosh.com]

The Millionaire Next Door is one book and Rich Dad, Poor Dad is another.

It's a discussion, it's one I have constantly. Retiring is pretty simple if you settle for less. If you keep to the path of the straight an narrow you can achieve everything you want.

Now what if you want more? This blog is a good example. How ambitious should we all be in getting out the message of banking and home prices? We can all stay here and talk to each other while people look in, but do they get the message?

How much should be spent on getting out the message that things need to change in the purchase and sale of Real Estate?

The example of the guy with his child on a field trip is an extravagance for one child as opposed to the family. It would also be a sacrifice for the family to send the one child. We chose to make that sacrifice with concessions to our daughter. As luck would have it she had the same opportunity two years later.

Does it change things if the field trip was to Boston to learn the forming of our Constitution?

It's a discussion of more than if buying second hand is a savings. There are choices.

[rose-colored-coolaid]

[BillE]

[davidlosh@davidlosh.com]

I own a lot of cars, and buy used.

My mechanic and the guy who has sold me more than a couple of cars also told me I should buy new. My mechanic is a fanatic about cars today being better. he installed the first cat coverter then did the replacement a year later under warranty. He can't find the problem. A bigger issue is in the security system, he thinks. The interior lights keep going on and off with the door locks while you drive. it's just another nutty thing.

I do have a 1978 Cadilac with 110K miles I intend to drive until the day I die. There again the 1977 F150 has transmission issues, the Caddy did too, but it's held up better.

[davidlosh@davidlosh.com]

Let me say that leverage is another trap and will be for many years to come. A part of the purpose here is that I advocate paying your property off, rather than getting another mortgage, ever.

[rose-colored-coolaid]

[davidlosh@davidlosh.com]

You're right I should have laid this out better.

You can retire by doing some simple things, like make a budget, work, save, invest, and build up equity. In the 1960s that was certainly a wise thing to do. Even in the 1970s it was possible to build wealth slowly as the book says.

The 1980s not only brought us massive stock price appreciation, it brought us the remainder of the inflation years, so much so interest rates hit 16%.

That was OK, but an end of an era. Wages never caught up to inflation. By the 1990s and the age of the personal computer there were tons of new opportunities. We have e-commerce and day trading that fed the dreams that kept the wheels turning.

Wages appeared to have kept up because of the new technology. New technology brought more stuff we had to have.

In my opinion, just like I think we have a shadow inventory of housing, we have a shadow economy with credit.

It used to be that if you worked one job in the 1960s you could live well. It now appears as though it takes two incomes to live in debt. It was the debate in the blog that got me thinking how difficult it really is to live debt free.

All the people I know who live debt free seem to be a step down in the quality of life category. The discussion is more and more bitter about consumerism.

It's an observation that seems to be panning out here.

[rose-colored-coolaid]

[Markor]

A big reason I prefer my $2 dinners at home is because it's hard to get food that healthy/good at a restaurant.

A few years ago I read about a guy who was making $25K. His wife didn't work, 2 young kids, they lived in Orting or that area. He had quit a higher-paying job that took too much away from family time. The parents used the laundry list of frugality tricks to make it work, and seemed happy with their choices. They may need to adjust with the times (like higher gas prices), but the point is that it's possible to live a good life on relative peanuts.

The electric company once investigated my grandma. They thought she was stealing electricity because her bill dropped from already the lowest bill in the area, to half of that. They found a lady with a wood stove for heat / cooking, a hand-crank washing machine & line dry, who had replaced all her light bulbs with 25-watters because Carter said we needed to save energy.

[davidlosh@davidlosh.com]

Family dinner time is a great example of quality of life.

In the 1970s you could have a comparative lifestyle to others by being frugal. With consumerism in the 1980s there was a wider gap between having and being frugal. There was still a toss of a coin.

In the 1990s you had people hiding wealth. It was chic to be casual. Microsofties drove beat up cars. There were a lot of places that were more reasonably priced for enjoyment.

The first premise and many since is that now we are back to a kind of have and have not mentality. If you made money in stocks, then did some Real Estate deals you are somebody. If you waited it out, some how you lost out.

You can shoot the messenger if you want, but the fact is there is a larger chasm between those that have stuff and those who are noticeably without. All of the people I know who are debt free are also incredibly living with noticably less than counter parts who are living with leverage. I mean rich, poor, or average, are all standing next to larger, glitzier, more over the top consumers.

I've noticed on this blog, you have mentioned on this blog, that the renters are loser mentality seems to be everywhere. It's a cultural thing. How do you fix the broader aspect of that mind set? Better yet what's going to happen to all of those who are foreclosed upon? How will that change the dynamic, culturally? Will the consumers become the bad guys or will they need to see it's OK, it was larger than them?

[TJ_98370]

[rose-colored-coolaid]

[davidlosh@davidlosh.com]

Debt is the only thing that matters.

A mortgage is a debt instrument. Beyond making the interest payments it at some point gets paid off. It used to get paid off, now it gets refinanced, or the property gets sold.

The mortgage gets sold, some entitiy collects interest income, then gets a lump sum. The interest income is what floats the discount as the Note gets traded.

The plasma TV that could sell for $400 sells for $900. It is a financed product every step of the way. The employees are paid with borrowed money, the materials are bought with borrowed money, the plant is bought with a mortgage, shipping is a loan of services, and all the little invoices with 1% charged per month are accounts recievable.

Credit cards drive the 70% consumer economy and that interest income is counted towards a financial institutions over all profit.

When you buy a stock you buy it on profit potential.

Debt is driving our economy, but what about the rest of the world? Usary is illegal in some cultures.

Sorry, debt is the most important fact in the American way of life.

Now that debt is everywhere and the response is, it's not my problem that makes for a very bad future. At some point, and I think it's now, the debt instrument economy we have will have to come to a close. It's more than mac and cheese or dinner out. It's something we all pay for in the price of goods.

A house mortgage is $250K to $500K. That's money that is outstanding and will either be paid by an individual or absorbed futher by the general population. We all pay. We are all paying for some one elses use of debt. We invest based on how much paper a company carries as interest income which is pure profit.

So saying don't start with debt is fine, but you will still pay.

[rose-colored-coolaid]

[Markor]

Also once debt comes crashing down the price on the plasma TV is slashed, and those with cash win bigger still.