Let's talk about Debt!


#1

I see a lot of people on the forums that are really happy about crushing their debt, which is awesome! My question to you guys is this - how necessary is debt to your wealth building strategy? In other words, if you could go back and give yourself advice, would you take the same path with relation to being in debt? Or would you avoid it altogether? I think young people today are extremely fortunate to have access to blogs and resources like this forum so that perhaps - they could avoid the same mistakes that some of us have made. Is debt necessary (in whichever form, real estate, etc.) to building wealth? Or is it possible to retire early without it? Thoughts?


#2

It is entirely possible to retire without having used debt to build wealth. I’ll take myself for example - I spent a ton of money (relative to my income) on real estate and lost it all in the market crash. Had I invested the same money and saved the way I do now I would most likely be FI by now. Now that I made it through that dark financial phase of my life I am in a different mindset than before. A smarter less risky one. I still love real estate but I don’t use it as a future retirement plan. In fact, I don’t even count my condo as an asset in my net worth. Because of my experience, money isn’t money unless it is liquid. A house takes time to sell and is worth what it is worth relative to the market. I suppose you can say that for all investments but this is the one I was bitten on. Lesson learned.

If anyone wants to know what not to do in real estate…


#3

Reflecting back, I don’t think I’d change my choices in terms of carrying on debt, but I would have slightly altered them. I should have been debt free after college. I would have still bought a house but it would have been a smaller house. I would have carried on debt for my graduate school because it helped my career.


#4

Just read your three part series and I love your story! I wish you the best of luck!!


#5

I suppose it depends on the kind of debt you have as to whether it’s helpful or not, and if you have a plan for it. In my case, I had no plan for most of it. My debt racked up mostly from having massive nights out too often. The only debt I was “happy” with was $4000 to go camping in Mongolia for two weeks. I’d do that again in a heartbeat.

My student debt was inevitable, and looking back I would have liked to have paid that off faster with money I was saving from not partying as much :stuck_out_tongue:


#6

Debt goes against my current strategy, which is focused quite a bit on both financial security and increasing cash flow. That’s one of the reasons why I want to pay of my mortgage as soon as possible. I think debt is necessary for many in order to buy a home, if that’s one of your goals, but other than that I would tell myself to never take on any personal debt that wasn’t a mortgage. And now that I have a 15 year mortgage (over 3 years in and loving it!) I would tell myself to do that as soon as possible.

Business debt is different to me, I wouldn’t have an issue with it if it was completely separate from my personal finances.


#7

Awww - thanks for reading! Like you, I probably wouldn’t change the path I took because it taught me some very valuable lessons, however, I would have slowed my roll a bit. Why did I feel the need to do so much so fast?! Silly. The wisdom that comes with experience is invaluable.


#8

Before I give my opinion:

  1. I still have a negative net worth (Thank you, student loans…)
  2. I’m young and inexperienced in building wealth.

Now, my opinion. I absolutely think you can build wealth without debt by keeping your savings rate high (by spending less, earning more, or both) and through compounding interest.

No, it won’t be as quick as leveraging credit to get there, but it also won’t be manufactured wealth (i.e., if you have an asset worth $1 million, but you have debt of $1 million, that doesn’t seem like legitimate wealth to me).

Just my opinion, but I think the way to go is debt-free.


#9

Rough story! All the while I was reading part one and too, I was finding myself obnoxiously judgemental, thinking that it was ridiculous to frame this as some injustice against yourself. I felt truly embarrassed reading the last part. All I can say is great job digging yourself out of one of those holes we inevitably find that we put ourselves in. I hope I am able to show the same character, strength and determination as you did, the next time it’s my turn to deal with my own misjudgements!


#10

I really like the idea of NOT counting your residence as part of your net worth because you will still need a roof to put over your head. Well, at least the less adventurous of us do.


#11

Hey, Lars–Christian…I totally get your initial reaction! I am guilty of judgment when I read other peoples spending stories as well. I appreciate your kind words and I know, having read my story, they may have initially been hard to write. Believe me, those words are also hard to accept. I struggle with the character of someone who can go willingly into 500k of debt then walk away from it all in the form of a short sale (or 3) - but now that I have lived it I know better. I have found that many people go into debt trying to fill a hole that is often unfillable with money or the things money can buy. Most of the time, that hole is a deep psychological wound. For me, I was trying to buy security. I was trying to buy the “home” I didn’t have growing up. I bought many properties before realizing that none of what I paid for could buy me the feeling I was desiring…or the childhood I didn’t have. Learning this lesson gave me a different lens to look through…

I now see how others buy clothes or pay outrageous prices for grooming to feel pretty when the main issue is their confidence. I see how people buy a bigger home or expensive car but what they are really wanting to prove is their success…but success doesn’t come in the form of a mortgage/car payment. I see it all now - but I no longer judge it. Instead of judging, I now root for every person I see that hasn’t yet realized that hole they are trying to fill. Debt is a crutch for many - but it will never be a lifeline to happiness and fulfillment. Those are the things that money can’t buy. When people realize that, their life tends to change drastically. Thank God mine did.


#12

Haha - I definitely want a roof!! A dishwasher I can do without - but a roof is kind of necessary in Chicago. :slight_smile:


#13

I’d tell my younger self to stay away from credit cards!! I thought I knew what I was doing at 18, but I was really completely lost when it came to money. I would tell myself to stay away from credit cards until I learned how to save and learn that “keeping up with the Kardashians”, oops I mean “Joneses”, is a stupid idea - DON’T DO IT.

Of course debt is sometimes completely unavoidable like people who have student loans or a mortgage, and I think that is totally OK. You can still have a decent FIRE plan with debt but it will of course take you longer. If that university degree is earning you more money, or your home value is skyrocketing, then those debts are helping you build wealth and it’s worth it.


#14

I now see how others buy clothes or pay outrageous prices for grooming to feel pretty when the main issue is their confidence. I see how people buy a bigger home or expensive car but what they are really wanting to prove is their success…but success doesn’t come in the form of a mortgage/car payment. I see it all now - but I no longer judge it. Instead of judging, I now root for every person I see that hasn’t yet realized that hole they are trying to fill. Debt is a crutch for many - but it will never be a lifeline to happiness and fulfillment. Those are the things that money can’t buy. When people realize that, their life tends to change drastically. Thank God mine did.

Read your 3 blog posts. Holy shit…Amazing. I want to hug you. It takes so much courage to be so vulnerable to the world and to share all that, thank you. Puts things into perspective. Ever watch a really emotional but triumphant film and then at the end of it feel like you aged with wisdom? That’s happening in my mind right now.

And just what you said about people wanting to fill the holes in their life trying to prove something to the world - such a good way of looking at it. We search for answers but end up finding bandaids to patch up broken glass. I can relate from personal experience and what I’ve seen in others around me.

Never thought about it from that perspective but the world makes so much more sense now. Holy moly, amazing. Mind blown. I’m not discovering something I didn’t know before, but there’s another level of eye opener when you’re able to take what you feel about the world and put into actual words and quantify it.


#15

I find the stories of people who are/were in massive debt and are on their way out or paid it off to be very inspirational. When my wife and I were still finishing off college, we accumulated (modest) student loans and consumer debt. Even though we lived very cheaply, we couldn’t work enough hours at entry level jobs and take classes. Once we both started our careers, it was all paid off very quickly. Even though we knew it was temporary, I was still sickened by our debt climbing… Looking back (about 20 years ago), this was really good debt.


#16

Great words, and I couldn’t have said it better myself. I just thought it was in sync with what you wrote to share my mindset while reading through it, even if it was a horrible one, and one that I think it is important to work on every day to rid myself from.

This is the money quote, for me!

So well done! Everything I read that makes me introspective and consider my own habits and thought patterns are words I’m thankful for :slight_smile:


#17

Yes - and what you thought was spot on! Because it is an honest part of our thinking process…judgement seems to always come first. Hopefully it is followed by introspection and empathy (should the situation warrant it). Thank you, again, for reading and putting your thoughts out there. It really helped me process a few lingering thoughts since publishing this post and gave me a chance to put them in words. :slight_smile:


#18

That is a tough spot to be in - to know that you are living cheaply and it still isn’t getting the job done. I am glad you and I had the chance to turn things around. It’s nice to be able to look back and see the progression in a positive way! :slight_smile:


#19

My feeling is that when it comes to leverage and real estate particularly, there’s a lot of luck involved with the price direction of the market. The ability to walk away really limits the losses in a lot of states.

I have a post coming out on Monday which is basically the counterpoint to everything @MissMazuma expereinced.

In fact, a lot of my taxable wealth is entirely due to the use of leveraged real estate. Did I get lucky or did I make smart decisions to buy at a good enough time and sel at a good enough time. I don’t really know.

But I know the people before me had to short sell TWO mortages on that property to sell it to me for 36% of the price they paid for it 3 years earlier.

Is debt necessary? I don’t know, but my usage of debt is absolutely the reason that I am where I am.

I’ll share the post here after I publish it.


#20

Aghh! I don’t even know how to respond to such kind words. Seriously. First off, sorry I hijacked your post! Also, I will take any and all hugs at any time. :slight_smile: But really, I am happy my story could blow your mind - it certainly blew mine when I was in it. Like, seriously, I am half a million in debt?? I had never thought of it that way…and if I had I certainly would not have kept buying!

This exactly. It’s funny - I didn’t graduate college or even get a degree in anything. I just took all the psychology and sociology classes I could take. Then I left. I have often found that those class fundamentals I learned way back when are instrumental in the way I process my thoughts now - especially the sociological ones and how people respond to situations. I find it fascinating that we can all see a rainbow and interpret the colors differently. I am glad my story was able to show you a new shade of yellow. :slight_smile: