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When I was about 16 years old a read a book by the Debt Free King himself, Mr. Dave Ramsey. And upon reading that book I decided right then and there that I was NEVER going to take on any debt EVER!
And for the first 33 years of my life I stuck to that.
If I needed a car – I bought it outright. I certainly use credit cards – but I ALWAYS pay them off in. full -and you should too. When it came to buying a home – my plan was to buy it outright. I started saving when I graduated college.
But as I got closer to actually buying that home, I started to question my convictions.
What if committing to being debt free was the wrong choice?? What if my conviction was going to leave me financially worse??
What if being debt free wasn’t all it was cracked up to be?
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While you are here, why not check out some of my other videos:
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How much fo you need invested to live off dividends: https://youtu.be/g8iJP64gwP8
Is it time to quit your. job: https://youtu.be/r45C3GLGr7s
What is the three bucket strategy to retirement: https://youtu.be/hD5GhQg7HAk
What if you invested at the absolute worst time: https://www.youtube.com/watch?v=Oku_hG5h7H4
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Erin, An excellent video to make would be on the costs involved in selling a home and buying a new home. Sellers cost for selling a home 10-15%, buyers cost for buying a new home 3-7%. So from selling your present house and buying and new one a total of 20% fee on the largest purchase the average person will make is over looked many times.
So as you pay off your house will you continue to leverage a hello to generate more investment cash? Essentially that is the logic you are using to finance the original purchase and holding you cash for investment. It would be like taking a mortgage on a paid off house in order to invest.
Why’d you skip step 5? It is relevant and general for most of your viewers I’d imagine and it is what consumes the most capital and energy in a marriage in modern times.
Yea you were kinda wrong about not getting a home back in 2009. It was actually the best decision I’ve ever made ????? Back then especially now because I’ve been in it for 13 years and the money saved by not paying other peoples mortgage and basically paying myself rent has really payed off. Now when we go to sell it we will be getting 400 k more then what we owe.
We were debt free for years but we needed a big remodel to fix our house and make room for a new business with rates so low it made sense to leave $ invested and take a loan. over the life of the loan our investment should increase by twice the % as the loan costs we can pay off when ever we want and the payments are cash flowed from income. Important topic.
Very happy to see you have a sponsor. All that hard work pays off. Keep up the great content! ?
First, as you said all finances are personal I agree – what ever you can get comfortable with is best for you Erin. Your thrifty ways still probably have you ahead of 90% of your peers. I found the intro discussion on your decision to live debt free when young familiar. I grew up in the 1970s when interest rates were high and the thought of paying all that money in interest made me want to avoid it. In college I used to joke that instead of getting a mortgage I'd just build it slowly with cash then later take all that money saved in interest and take trips to Hawaii every year if I wanted. My friends like to say that I was Dave Ramsey before he was – never read his stuff but descriptions sound familiar.
I had help with college from my parents but I also worked several part time jobs to pay for my part and graduated debt free. The only loan I ever had was for my first car – I graduated college and got my dream job. But 3 days before I started it my car's engine dropped a valve. I was in a position where I had to drive 60 miles a day and needed something dependable. I borrowed my dad's car for the first week while I found the cheapest new economy car available and got a loan to buy it. I found a great deal at "only" $18% interest – car loans typically were over 20%. Once working I saved and had it paid off in less than a year. My goal was to never get another loan and I stuck to it. I had a gut feeling that money avoided being directed toward debt could instead be used to further accelerate one's savings over the long term. I later read this concept that "all debt compounds against you" in a book by the late John Bogle which verified that belief.
I began saving most of my salary. I joined the 401k when eligible then the vast majority of my paycheck was direct deposited into savings. My parents owned an apartment that they rented to me at a great price to help me to save more. By age 30 I had saved enough cash to buy 10 acres of land as well as to put up a basic shell of the house. For several years before I had helped friends work on their houses and gained enough skills to think I could build most of my own. I did contract out the foundation, but framed the house myself. I also paid contractors to do the septic, then found a couple guys doing side jobs and they essentially did the wiring and plumbing for about what I could buy the parts for so I let them do most of that. During the framing, I met my future wife – many of our dates were working on our house.
We got married and she brought enough cash to pay for the septic, well and a geothermal heat pump. House was all done except drywall so we paid someone to drywall it on the first week of our honeymoon, then the second week of our honeymoon we were back to the house painting the new interior walls. We moved in without a kitchen and only a master bathroom then finished floors and other walls as each paycheck came in over ~2 years. Again, we refused to get loan to finish it. By my age 34 the house was done and paid for completely with cash all along the way.
That allowed us to then shift most of our salary toward investments. Including the 401ks, net worth hit $1 million at 40. It has doubled about every decade since. We retired mid fifties and compound interest is fueling those accounts and still doubling at the same rate even with retirement expenses and travel.The plans worked out and we are enjoying a dream retirement with no restrictions.
We could have gotten a mortgage and instead invested that land and framing lump sum in our early 30s. But I don't think we would have been able to put away as much as we could have by age 40 if we had been paying a mortgage. That lump sum at 30 was maybe $75,000 back in 1990. With a mortgage we might have been able to as invest a few thousand extra a year. But by 34 with no mortgage we could then save that $75k amount in maybe 2 years – we quickly caught up with that account and then accelerated past it rapidly with every passing year as we got raises and invested even more. Not having a mortgage was the best decision we ever made.
Our children knew this story and wanted to repeat it. We paid for their college and they stayed with us for years after and likewise saved/invested most of their paychecks. One bought a starter house at 29 with cash and the other is still home but has enough set aside to buy one now at the same age. Now they are focused on retirement savings and each on track to retire in their 50s. If they ever have children, hopefully they will pass this down as the new family tradition of being debt free for life. This makes life so much easier and more likely to be successful with less stress. Glad we did it, highly recommend it.
I have something you probably considered, but I don't recall you touching on in the video. As one might expect, it's a driving force in my personal decisions, and that is Risk. I'm the kind that favors reducing downside over maximizing upside.
Here's an example of what I mean. Suppose the market fell (it's happened in the recent past), and your home was now worth less than you owe by a significant amount. Then let's say a job forced a move. These kinds of things do happen (more frequently than you might think), and have the potential for a substantial financial loss, and/or even more risk (such as if you decided to rent that house out).
Also, you mentioned how much the money to buy the house would be worth in the future, but you didn't mention how much you'd have if you bought the house outright, and re-invested the money (monthly) you otherwise would have spent on a mortgage payment. I'd have no doubt leaving the money invested results in a higher end balance, but I wonder how much the difference would be, because how close it is would likely drive the decision for many people. I'd be particularly interested to see the long-term effects of regular contributions vs. the downsides that occur (the sequence of returns) during the years of compounding interest.
Debt is not bad as per my experience if your net worth is positive.
If your net worth is positive within 10 years after you started a real full time job, then I can say you are in good position.
I take debt if I buy an item like appliances, cell phone etc… If I get zero interest rates. If buy a car, I look for lowest interest possible like zero to 5%.
The only reason I do that is because, my positive net worth is multiple times more than debt.
My ROI is far higher (10.5%,) than the interest I pay. I see my debt is good debt.
Paying mortgage debt early is bad decision, even if you have lot of money, because interest rates on mortgages are pretty low.
A house is an illiquid liability. I love Dave Ramsey as well, but his theory of utilizing all your assets/income to pay off house doesn't account for" Murphy's Law" .
You’re timing is impeccable…….?