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stahleyp
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Pretty interesting article:

 

https://www.nerdwallet.com/blog/average-credit-card-debt-household/

 

"Total debt is expected to surpass the amounts owed at the beginning of the Great Recession by the end of 2016."

 

"Credit card debt levels, on the other hand, are far from reaching recession levels. In fact, NerdWallet projects that we won’t hit December 2007 credit card debt levels again until the end of 2019. "

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Will we ever get back to living within our means or am I being naive?

 

I deleveraged & spent the last year & a half debt free (bought a new Chevy Colorado & now I owe a massive $22,400...)

 

I know most people are unable to live without debt (or so we're told) but would a decade of being satisfied without constantly buying stuff while watching our savings pile up really be all that bad?

 

Disclaimer: not trying to start any arguments here (looking for some Dalio like individuals to ponder the ramifications of more judicious credit...)

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Will we ever get back to living within our means or am I being naive?

 

I deleveraged & spent the last year & a half debt free (bought a new Chevy Colorado & now I owe a massive $22,400...)

 

I know most people are unable to live without debt (or so we're told) but would a decade of being satisfied without constantly buying stuff while watching our savings pile up really be all that bad?

 

Disclaimer: not trying to start any arguments here (looking for some Dalio like individuals to ponder the ramifications of more judicious credit...)

 

I have pretty much lived without debt my entire life. no college debt (never went) paid cash for each of my cars (most expensive of which was 8K) Paid cash for my first home at age 26 (simple 3/1 ranch for 125K) have moved 4 times since then (bought all of them from HUD foreclosures) and each house I made a nice profit on because of making them much nicer then when I bought them.

 

Only times i have been in debt is a 12K balance on a 0% CC for an investment into my business, (paid off before interest started) and a 50K LOC on my house to buy a rental (paid off in 4 years from the rental

 

So yeah I think it's very doable, but it takes some shifts in thinking and practice.

 

And if your thinking that I had help from family, Nope, My dad died when I was 12 and had no insurance, I and my two brothers supported our family working through our teen years to support the family.

 

Age 7-10 I had a paper route

Age 8-12 I had a snow shoveling route

Age 9 I started helping my older brother with his lawn mowing business on the side I would get my own jobs of leaf raking, wood stacking, cleanup and whatever else was needed.

in my teens i started working full time and by 17 was doing 60-80 hours a week.

 

I spent very very little of it beside helping the family out but even then I was able to save. by age 12 when my dad died I had saved up 4-5K and it was earning nice interest, at age 14 I became interested in investing and learned about mutual funds and started investing everything I could in them. At age 20 I skipped mutual funds and started investing in stocks.

 

I have never bought a new house, car, bike, appliance and never really felt like I was missing out on anything.

 

So yeah it's doable but it takes some shifts in thinking

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That which cannot continue into perpetuity won't.

 

But we also tend to only change when we're forced to. 2008 was the beginning of that "force"; but instead of dealing with it, we socialized it at a lower carrying cost to delay the day of reckoning. In response, gov't budgets went to hell and national debt figures have exploded - and are still growing.

 

At some point, there will be a reckoning.I don't know when or what will spark that, but it seems totally unreasonable to have this exploding debt (mostly corporate and national, but some at the individual level again too) while growth has remained muted and wages have remained stagnant. At the very least, it means that all the money borrowed in the past few years was wasted on unprofitable and uneconomic endeavors given that national income growth has remained a fraction of debt stock growth.

 

 

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That which cannot continue into perpetuity won't.

 

But we also tend to only change when we're forced to. 2008 was the beginning of that "force"; but instead of dealing with it, we socialized it at a lower carrying cost to delay the day of reckoning. In response, gov't budgets went to hell and national debt figures have exploded - and are still growing.

 

At some point, there will be a reckoning.I don't know when or what will spark that, but it seems totally unreasonable to have this exploding debt (mostly corporate and national, but some at the individual level again too) while growth has remained muted and wages have remained stagnant. At the very least, it means that all the money borrowed in the past few years was wasted on unprofitable and uneconomic endeavors given that national income growth has remained a fraction of debt stock growth.

 

I just read what Howard Marks said about cycles of loose credit & that very waste of capital.

 

Are their any significant parrallels in history (US or foreign) which eventually came to an unavoidable end?

 

I'd love to read more about this...

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Will we ever get back to living within our means or am I being naive?

 

I deleveraged & spent the last year & a half debt free (bought a new Chevy Colorado & now I owe a massive $22,400...)

 

I know most people are unable to live without debt (or so we're told) but would a decade of being satisfied without constantly buying stuff while watching our savings pile up really be all that bad?

 

Disclaimer: not trying to start any arguments here (looking for some Dalio like individuals to ponder the ramifications of more judicious credit...)

 

I have pretty much lived without debt my entire life. no college debt (never went) paid cash for each of my cars (most expensive of which was 8K) Paid cash for my first home at age 26 (simple 3/1 ranch for 125K) have moved 4 times since then (bought all of them from HUD foreclosures) and each house I made a nice profit on because of making them much nicer then when I bought them.

 

Only times i have been in debt is a 12K balance on a 0% CC for an investment into my business, (paid off before interest started) and a 50K LOC on my house to buy a rental (paid off in 4 years from the rental

 

So yeah I think it's very doable, but it takes some shifts in thinking and practice.

 

And if your thinking that I had help from family, Nope, My dad died when I was 12 and had no insurance, I and my two brothers supported our family working through our teen years to support the family.

 

Age 7-10 I had a paper route

Age 8-12 I had a snow shoveling route

Age 9 I started helping my older brother with his lawn mowing business on the side I would get my own jobs of leaf raking, wood stacking, cleanup and whatever else was needed.

in my teens i started working full time and by 17 was doing 60-80 hours a week.

 

I spent very very little of it beside helping the family out but even then I was able to save. by age 12 when my dad died I had saved up 4-5K and it was earning nice interest, at age 14 I became interested in investing and learned about mutual funds and started investing everything I could in them. At age 20 I skipped mutual funds and started investing in stocks.

 

I have never bought a new house, car, bike, appliance and never really felt like I was missing out on anything.

 

So yeah it's doable but it takes some shifts in thinking

 

Congratulations on a life well lived!

 

Success is having what you want & happiness is wanting what you have...

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That which cannot continue into perpetuity won't.

 

But we also tend to only change when we're forced to. 2008 was the beginning of that "force"; but instead of dealing with it, we socialized it at a lower carrying cost to delay the day of reckoning. In response, gov't budgets went to hell and national debt figures have exploded - and are still growing.

 

At some point, there will be a reckoning.I don't know when or what will spark that, but it seems totally unreasonable to have this exploding debt (mostly corporate and national, but some at the individual level again too) while growth has remained muted and wages have remained stagnant. At the very least, it means that all the money borrowed in the past few years was wasted on unprofitable and uneconomic endeavors given that national income growth has remained a fraction of debt stock growth.

 

I just read what Howard Marks said about cycles of loose credit & that very waste of capital.

 

Are their any significant parrallels in history (US or foreign) which eventually came to an unavoidable end?

 

I'd love to read more about this...

 

Canada: 1990-1996: Government debt had exploded exactly like the US is now, perhaps with less assets.  Interest rates were high.  So, the consumer was squeezed at the same time as the government.  To get it in order the government had to downsize at all levels aggravating the recession in the private sector.  And oil was very low. 

 

It took a few years and alot of export assisted growth to get things back on track.  It was during this period when I entered the workforce after school.  I worked from 89 to late 1992, got laid off, went back to school in 1994 for a year and a half, graduated and didn't work full time until 1998.  I read Lowensteins book and decided I never wanted to depend on having a job again.  In 1992/93 I knew almost no young person who had a job. 

 

The difference for Canada versus the US is that we could export our way out.  The US has no such option.  This period also set the stage for 2008, when Canada, and Canadian banks were still in the careful stage, and as a result didn't suffer much. I am afraid it has degenerated since then.  How quickly we forget. 

 

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Man. I cannot for the life of me understand people who are loathe to take on any debt, especially over the past couple of years. As long as you have a sufficient equity cushion to protect against a downturn, responsible use of debt significantly extends your purchasing power and frees up cash to invest.

 

My wife and I bought a car last year, a cheap Subaru, and I financed the entire thing at 0.55% for 5 years. I'll be paying a couple hundred bucks of interest over the entire life of the loan. That cash pile that I now have is being invested, and it's highly likely to exceed a 0.55% annualized return over the next 5 years. I'll take that deal any day of the week. I think as long as one stays away from maintaining revolving credit balances, keeps a decent cushion of cash in the bank, and makes debt decisions that won't permanently impair ones credit rating, debt is a great tool to be used.

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Man. I cannot for the life of me understand people who are loathe to take on any debt, especially over the past couple of years. As long as you have a sufficient equity cushion to protect against a downturn, responsible use of debt significantly extends your purchasing power and frees up cash to invest.

 

My wife and I bought a car last year, a cheap Subaru, and I financed the entire thing at 0.55% for 5 years. I'll be paying a couple hundred bucks of interest over the entire life of the loan. That cash pile that I now have is being invested, and it's highly likely to exceed a 0.55% annualized return over the next 5 years. I'll take that deal any day of the week. I think as long as one stays away from maintaining revolving credit balances, keeps a decent cushion of cash in the bank, and makes debt decisions that won't permanently impair ones credit rating, debt is a great tool to be used.

 

Debt generally adds risk.  Maybe not so much at that interest rate.  But that rate probably won't be available forever.  Furthermore, debts such as credit cards and student loans can be a huge burden and in some cases never get paid off.  There are reasons that banks have very nice buildings and most people have a pretty negligible net worth. 

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Average canadian debt in 2015: $93K

Average US debt in 2016: 132.5K

 

http://news.buzzbuzzhome.com/2015/08/bmo-canadian-debt-2015-good-debt.html

http://news.buzzbuzzhome.com/2015/08/bmo-canadian-debt-2015-good-debt.html

 

I have a home loan, car loan (at low interest rates) and put all my expenses on my credit card that I pay off monthly. I get 2% back for using my credit card.

 

However, an average Canadian is wealthier than an average American and has less debt.

 

uccmal - you are right that U.S has more assets and also U.S can't export its way out.

 

 

That which cannot continue into perpetuity won't.

 

But we also tend to only change when we're forced to. 2008 was the beginning of that "force"; but instead of dealing with it, we socialized it at a lower carrying cost to delay the day of reckoning. In response, gov't budgets went to hell and national debt figures have exploded - and are still growing.

 

At some point, there will be a reckoning.I don't know when or what will spark that, but it seems totally unreasonable to have this exploding debt (mostly corporate and national, but some at the individual level again too) while growth has remained muted and wages have remained stagnant. At the very least, it means that all the money borrowed in the past few years was wasted on unprofitable and uneconomic endeavors given that national income growth has remained a fraction of debt stock growth.

 

I just read what Howard Marks said about cycles of loose credit & that very waste of capital.

 

Are their any significant parrallels in history (US or foreign) which eventually came to an unavoidable end?

 

I'd love to read more about this...

 

Canada: 1990-1996: Government debt had exploded exactly like the US is now, perhaps with less assets.  Interest rates were high.  So, the consumer was squeezed at the same time as the government.  To get it in order the government had to downsize at all levels aggravating the recession in the private sector.  And oil was very low. 

 

It took a few years and alot of export assisted growth to get things back on track.  It was during this period when I entered the workforce after school.  I worked from 89 to late 1992, got laid off, went back to school in 1994 for a year and a half, graduated and didn't work full time until 1998.  I read Lowensteins book and decided I never wanted to depend on having a job again.  In 1992/93 I knew almost no young person who had a job. 

 

The difference for Canada versus the US is that we could export our way out.  The US has no such option.  This period also set the stage for 2008, when Canada, and Canadian banks were still in the careful stage, and as a result didn't suffer much. I am afraid it has degenerated since then.  How quickly we forget.

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Man. I cannot for the life of me understand people who are loathe to take on any debt, especially over the past couple of years. As long as you have a sufficient equity cushion to protect against a downturn, responsible use of debt significantly extends your purchasing power and frees up cash to invest.

 

My wife and I bought a car last year, a cheap Subaru, and I financed the entire thing at 0.55% for 5 years. I'll be paying a couple hundred bucks of interest over the entire life of the loan. That cash pile that I now have is being invested, and it's highly likely to exceed a 0.55% annualized return over the next 5 years. I'll take that deal any day of the week. I think as long as one stays away from maintaining revolving credit balances, keeps a decent cushion of cash in the bank, and makes debt decisions that won't permanently impair ones credit rating, debt is a great tool to be used.

 

You should add to your first sentence "people on this board" & then I'd somewhat agree that using cheap money makes sense & I did avail myself of a 2% truck loan recently & am contemplating a cheap mortgage for a renovation project for a property...)

 

I'm reluctant simply because I get a big sense of comfort from being sumpremely solvent (I'm like WD-40 baby!)

 

Please don't take my comments as being contentious (just adding to the convo...)

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Man. I cannot for the life of me understand people who are loathe to take on any debt, especially over the past couple of years. As long as you have a sufficient equity cushion to protect against a downturn, responsible use of debt significantly extends your purchasing power and frees up cash to invest.

 

My wife and I bought a car last year, a cheap Subaru, and I financed the entire thing at 0.55% for 5 years. I'll be paying a couple hundred bucks of interest over the entire life of the loan. That cash pile that I now have is being invested, and it's highly likely to exceed a 0.55% annualized return over the next 5 years. I'll take that deal any day of the week. I think as long as one stays away from maintaining revolving credit balances, keeps a decent cushion of cash in the bank, and makes debt decisions that won't permanently impair ones credit rating, debt is a great tool to be used.

 

+1. I could never understand it either. I have some loans that I could pay off at any time, but my re-investment returns in my portfolio are much, much higher. If at any time I think my portfolio return will lag my interest rate, I'll pay it down. Certain members of my family debt adverse I'm crazy. I think they're sub-rational.

 

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That which cannot continue into perpetuity won't.

 

But we also tend to only change when we're forced to. 2008 was the beginning of that "force"; but instead of dealing with it, we socialized it at a lower carrying cost to delay the day of reckoning. In response, gov't budgets went to hell and national debt figures have exploded - and are still growing.

 

At some point, there will be a reckoning.I don't know when or what will spark that, but it seems totally unreasonable to have this exploding debt (mostly corporate and national, but some at the individual level again too) while growth has remained muted and wages have remained stagnant. At the very least, it means that all the money borrowed in the past few years was wasted on unprofitable and uneconomic endeavors given that national income growth has remained a fraction of debt stock growth.

 

I just read what Howard Marks said about cycles of loose credit & that very waste of capital.

 

Are their any significant parrallels in history (US or foreign) which eventually came to an unavoidable end?

 

I'd love to read more about this...

 

Canada: 1990-1996: Government debt had exploded exactly like the US is now, perhaps with less assets.  Interest rates were high.  So, the consumer was squeezed at the same time as the government.  To get it in order the government had to downsize at all levels aggravating the recession in the private sector.  And oil was very low. 

 

It took a few years and alot of export assisted growth to get things back on track.  It was during this period when I entered the workforce after school.  I worked from 89 to late 1992, got laid off, went back to school in 1994 for a year and a half, graduated and didn't work full time until 1998.  I read Lowensteins book and decided I never wanted to depend on having a job again.  In 1992/93 I knew almost no young person who had a job. 

 

The difference for Canada versus the US is that we could export our way out.  The US has no such option.  This period also set the stage for 2008, when Canada, and Canadian banks were still in the careful stage, and as a result didn't suffer much. I am afraid it has degenerated since then.  How quickly we forget.

 

Roger? Was it When Genius Failed?

 

Who r u?!?

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Buffett: The Making of an American Capitalist,

 

And the Intelligent Investor, and Security Analysis,

 

and then David Dremans book.  etc. off piste here.

 

Aha; I was thinking When Genius Failed might have inspired you to do what they did, except do it sans failure.

 

The Making of is one of the ones about WEB that I haven't read yet...

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I was brought up to think debt=bad but I've had to retrain my mind. Even the most steadfast and solvent companies in the world have some debt and debt can be a no brainer is your return is much greater than the investment. I have the cash to pay off my house, car, cc's etc but I don't. Here's why,

 

My mortgage is 1200/month at 4.25% (no cost mortgage is why rate is higher) and I bought a place that has a walkout finished basement with a driveway, the basement has a kitchenette, laundry, bathroom, etc, my renter pays me 750/month. When you consider the deduction I'm taking on my primary residence plus the equity gain, my house is nearly free. Even if I didn't have the renter, I can't imagine anyone paying there house off who gets good returns, unless you have millions upon millions and it's annoying you that a payment is deducted each month or something silly.

 

My car loan is 5 year at 1.99, I"ve done 25% a year in equities since 2012, why wouldn't I take that?

 

My credit card debt. I maintain 100k in cc debt at all times. I use balance transfers that cost me 0-3% (usually 2-3%) up front for 12-24 months (1-2% annualized). I invest this money in preferred shares with a positive carry that are redeemable and I expect the company to redeem them in x time and so it's a YTM thing. I also margin these at IB by 30%.  I have a simple excel sheet showing the terms I have on the credit cards and when the balance transfer expires. I keep over 100k available on my cc's at all times. To maintain a 100k cc balance you must have over 200k, maybe 250k available that way you could transfer them back and forth. Everyone knows you can transfer balances between cards but not everyone knows you can have money deposited directly into your checking account or sent a check at a balance transfer rate. I just call them and say I wanna pay off my car send me money etc. Everything is on autopay so I don't even think about it.

 

Quick edit here: In case anyone tries to do this with cc's, you should know that when you do a btransfer you should do it on a card in which you have no other debt on it and which you won't use for anything else throughout the bt period. If you have a 20k balance as a balance transfer at  0% and you charge a few hundred for groceries, all future payments will go towards the 0% and therefore the grocery debt will accrue interest at your purchase rate of interest FYI.

 

 

 

I just wish I was bankable to the point I could get a loc for hundreds of thousands at below 5%, maybe one day.

 

I should mention that I have 25% of net worth in a sep ira at 3.1% in a cd and also have a 30% cash position in my equities as of now. All of this will go into equities when they get cheaper.

 

 

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I know it's not rational for me to own my home outright (not claiming to be a great capital allocator at this time) and I'm actually contemplating buying another renovation project in a neighborhood I'd want to live in & then switching homes & selling my present habitat (a difficult thing as I enjoy access to the bay & Gulf directly from my back yard & can't find a replacement other than a better view with less utility.)

 

I know, just get a mortgage on my existing home (can't because I'm being irrational right now...)

 

 

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I don't think that owning real estate or a house outright is a rational capital allocation decision right now, with interest rates as low as they are right now, interest being tax deductible and the mortgage being non-recourse. The way I look at it, owning a house with a mortgage is safer than owning a house outright, because you can put the house back to the lender, if the price goes down a lot and you are protected against rising interest rates, which would probably depress real estate prices, but would depress the intrinsic value of the fixed rate mortgage loan even more. So while you could go underwater with a large mortgage on your house, your loan payment would stay the same, and if the rising interest rates are accompanied by higher inflation, your cash flow situs on would actually improve.

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I know it's not rational for me to own my home outright (not claiming to be a great capital allocator at this time) and I'm actually contemplating buying another renovation project in a neighborhood I'd want to live in & then switching homes & selling my present habitat (a difficult thing as I enjoy access to the bay & Gulf directly from my back yard & can't find a replacement other than a better view with less utility.)

 

I know, just get a mortgage on my existing home (can't because I'm being irrational right now...)

I don't think that you're necessarily a bad capital allocator. Maybe somewhat inefficient. But so what? Strip malls and parking lots exist because they are efficient (read cheap) but they're ugly as balls and make your life worse so in the end not such a good thing despite efficiency.

 

Yes maybe you can leverage your house and use the extra funds to make some smart investments and in the end you'll end up a bit richer. But then you'll have to monitor and balance your leverage, etc, basically more headaches. Alternatively one can be less capital efficient, have peace of mind, enjoy life and have no worries regarding having to put one's home back to the bank or not. What if you get rich enough and don't need the extra funds? Wasn't that a waste of time?

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I know it's not rational for me to own my home outright (not claiming to be a great capital allocator at this time) and I'm actually contemplating buying another renovation project in a neighborhood I'd want to live in & then switching homes & selling my present habitat (a difficult thing as I enjoy access to the bay & Gulf directly from my back yard & can't find a replacement other than a better view with less utility.)

 

I know, just get a mortgage on my existing home (can't because I'm being irrational right now...)

I don't think that you're necessarily a bad capital allocator. May somewhat inefficient. But so what? Strip malls and parking lots exist because they are efficient (read cheap) but they're ugly as balls and make your life worse so in the end not such a good thing despite efficiency.

 

Yes maybe you can leverage your house and use the extra funds to make some smart investments and in the end you'll end up a bit richer. Bu then you'll have to monitor and balance your leverage, etc, basically more headaches. Alternatively one can be less capital efficient, have peace of mind, enjoy life and have no worries regarding having to put one's home back to the bank or not. What if you get rich enough and don't need the extra funds? Wasn't that a waste of time?

 

This +1

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I know it's not rational for me to own my home outright (not claiming to be a great capital allocator at this time) and I'm actually contemplating buying another renovation project in a neighborhood I'd want to live in & then switching homes & selling my present habitat (a difficult thing as I enjoy access to the bay & Gulf directly from my back yard & can't find a replacement other than a better view with less utility.)

 

I know, just get a mortgage on my existing home (can't because I'm being irrational right now...)

I don't think that you're necessarily a bad capital allocator. May somewhat inefficient. But so what? Strip malls and parking lots exist because they are efficient (read cheap) but they're ugly as balls and make your life worse so in the end not such a good thing despite efficiency.

 

Yes maybe you can leverage your house and use the extra funds to make some smart investments and in the end you'll end up a bit richer. Bu then you'll have to monitor and balance your leverage, etc, basically more headaches. Alternatively one can be less capital efficient, have peace of mind, enjoy life and have no worries regarding having to put one's home back to the bank or not. What if you get rich enough and don't need the extra funds? Wasn't that a waste of time?

 

A lot of this boils down to temperament and most likely age/stage in life, it appears. One is neither right nor wrong.

 

When I was really young I wish I had levered myself to the hilt. There was little to lose and I had time to make it back. Now it my 30's there's more to lose, with a little less time to make it back and with more responsibilities to family.

 

Fundamentally, I would prefer no debt, however, I view it as a tool to be used when circumstances benefit or when your other options are limited. If you are an entrepreneur and you are young your options are really limited. You get equity help form a partner or you use debt. Debt will be cheaper and you usually have more control in most instances. Debt or equity funding in this circumstance isn't really too different.

 

If you intend to invest in real estate, my opinion is it's really dumb to not use debt capital. Debt is typically perfectly tailored to real estate investment.

 

If you aren't an entrepreneur and you don't intend to start businesses or own real estate then you may want to roll along with low debt. I still can't see buying a house or even a car with cash with anything close to these interest rates.

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I know it's not rational for me to own my home outright (not claiming to be a great capital allocator at this time) and I'm actually contemplating buying another renovation project in a neighborhood I'd want to live in & then switching homes & selling my present habitat (a difficult thing as I enjoy access to the bay & Gulf directly from my back yard & can't find a replacement other than a better view with less utility.)

 

I know, just get a mortgage on my existing home (can't because I'm being irrational right now...)

I don't think that you're necessarily a bad capital allocator. Maybe somewhat inefficient. But so what? Strip malls and parking lots exist because they are efficient (read cheap) but they're ugly as balls and make your life worse so in the end not such a good thing despite efficiency.

 

Yes maybe you can leverage your house and use the extra funds to make some smart investments and in the end you'll end up a bit richer. But then you'll have to monitor and balance your leverage, etc, basically more headaches. Alternatively one can be less capital efficient, have peace of mind, enjoy life and have no worries regarding having to put one's home back to the bank or not. What if you get rich enough and don't need the extra funds? Wasn't that a waste of time?

 

I know it wan't your intention, but you may have actually convinced me to get a mortgage (balancing leverage & having an even bigger cash pile to invest would be fun!)

 

I wanted to be debt free after having dug myself a very deep hole from 2000 to 2006 (about 2/3 was idiotic non collateralized debt resulting from a failed business attempt.)

 

I paid it all off (no bancruptcy baby!) & now, after a year & a half of being debt free, I have a small vehicle loan.

 

I believe that 10 years from now, interest rates will be much higher (macro genius, I'm not but...)

 

Whether I lever my home kinda hinges on:

 

1) Can I achieve returns higher than cost of capital + inflation?

2) Will I maintain income sufficient to service the mortgage + cost of living?

3) Will Peter Griffin move in next door?

 

All unknowns...

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