Community Feedback

[Senator]

As of late it seems the topic of everyone I know is:
1. the economy
2. low interest rates - pro/con
3. personal debt

I think there are some really bright people on this board and would like to hear your "personal opinion" on this.

My wife and I made a pact with each other the past 2 years, and we lived frugally to pay off all debt. We just wanted to be debt free, and this past May we became that. It is a good feeling. We now want to pull the trigger on the bigger home, but I have this "gut" feeling the time is not quite right. Even though the rates are so low its' insane, I know deep down, that the houses right now are overvalued, and in the next 6-12 months, I bet I will see a large reduction in prices. A friend sent me this bon mot about the whole situation.

"Far too many people today live beyond thier means. I know a lot of people with large balances on credit cards, living month to month by making the minimum payment - all with the expectation that magically they will be making more money in the years to come and can pay it all off, but they only get deeper in debt. Many have retirement accounts (401k, etc.) but a surprising number have little or nothing in it. If they lose their job, they can only last a very short time before declaring bankruptcy.

I'm tired of people in these situations claiming they are somehow the "victim". There are enough victims out there already. It's time to take some personal responsibility and start educating our population on money management and stop playing the deadly "keep up with the Jones" mentality. "

Viewpoints?

[scooper]

I agree with the quotes.

However, if you have the means to do so, buy the house now.

[cthomer5000]

I have no comment on the debt remarks at this moment (but will), but I think this is the time to buy a house. Sales have gone through the roof in the last month, meaning that generally speaking houses are not overpriced, and the mortgage rates are just too good to pass up. My parents just refinanced the house, and it has freed up a lot of money for them to pay off all their debt (in it's various forms).

edit: today's news on home sales sales hit high

[Airhog]

I plan to never live beyond my means, especially when it comes to credit cards. Those things are the spawn of satan himself. I do use a check card, but thats as much plastic As I ever plan to carry.
Although, I may get a credit card for a few months just to establish some credit.

[sachmo71]

I used to live above my means, but I paid it all off and since then, I haven't had more than $1000 dollars in debt at any one time. If we can't afford to pay for it now, we don't get it (usually).
We have also committed about $500 a month to life insurance, kids education, and retirement, on top of our 401K's through work. Our financial planner has really helped us create some goals for our future, and most importantly, the future of our children.
I've never been much of a keep up with the Jones' type person, but until now I was never much of a saver, either. It's amazing when you sit down and figure it out how much money people can spend on things just because the money is there. Now, we should be able to keep the same standard of living and have a pretty nice retirement when the time comes. I'm really happy that we decided to hire our advisor.

I have no idea what to expect from the economy. Our FA says that we should have at least 3 months living money saved at all times, which we do have right now. However, my wife will soon be taking a couple of months off after she has our baby, and that will put a dent in the nest egg. If I were to lose my job...thankfully, things are going well and the company is making money. I hope things turn around soon.

[Leonidas]

OK, I'll give my thoughts if you want. Not sure what it has to do with FOF, but we've established a long time ago this page doesn't always have a whole lot to do with FOF, and it's the offseason anyways.

1. The economy. Very, very cyclical. The President has much less to do with this than is given credit for. Sure, the Pres can really screw things up, but it is darn near impossible for the President to have any real positive effect on it. The best thing Clinton did was to not tax the internet. The internet, in my humble opinion, was the real reason behind the 90's boom times. It introduced an entirely new facet to the economy. The recession was inevitable though as the internet poseurs finally came down to earth. The real players are still making money. Then 9/11 came along and just made things a whole lot worse. I just thank God Carter wasn't President. He's an example of how a President can really screw up an economy. Whomever wins election in 2004 (be it Bush or whomever) will look great cause I think that's about when the economy should pick up some real steam again.

2. Low interest rates. What's not to like? Well, I am a fan of balance in life. I think we have reached a point where the interest rates might be too low. You still need to have some nominal rate to keep the banking industry going well. There is the slight possibility you could start losing some banks because they can't make enough back. Not sure this has ever happened that way, not even sure it really can. Just a thought to throw out there. I think 3% is a really good number. We're down at the ludicrous level now and going lower. I'm not sure dropping from really low to yet lower still will have any effect on anything. As for buying a house, the best time is when you personally are ready for it. Just having low rates isn't enough. My own situation is I could afford it now, but I am simply not living somewhere I want to own a house. That, plus the fact I will be moving in another year and a half means I will get zero equity in it. Not the right time for me. Everyone has a different situation, different motives.

3. Personal debt. Bad, bad thing to have. Anyone interested in this topic out to read Andy Tobias. He has the best common sense approach out there. You need to balance your debts and assets. For example, if you have $10K earning 6% in some type of fund, but $5K costing 12% on a credit card, pay off that damn card now. Otherwise you are losing money. He says your top priority should always be to pay off your highest interest debt first. When that is paid off go on to the next highest rated debt, and so on. Credit cards should be tools of convenience, nothing more. They should never, ever be a substitute for actual money (unless for an emergency). If you can't afford something, you don't but it, simple as that. I try and pay my CC bill off every month.

And those my friends are my random thoughts and these topics.

[Butter]

Lower real wages + consumeristic culture = massive debt

I'm in it myself. No excuses. Mostly though due to the fact that I am making much less now than I used to be because of a variety of factors. Plus we tried to make it so my wife could be home with my 2 small children until they were both 1 year old. That wasn't cheap.

[scooper]

Originally posted by Leonidas
Credit cards should be tools of convenience, nothing more. They should never, ever be a substitute for actual money (unless for an emergency). If you can't afford something, you don't but it, simple as that. I try and pay my CC bill off every month.

You have spoken true words of wisdom. We use our credit/debit card for convenience but knowing we are only spending money that already exists.

I do have one credit card that comes out only during Nov., Dec., Jan. That covers anniversary, Christmas and my wife's birthday. It allows me to shop for her discreetly as she balances the checking account. Once the holidays are over, I pay off those gifts. The ease of purchase and hiding her gifts is worth 1-2 months of interest as far as I'm concerned.

[QuikSand]

There is a matter that fits into this sort of analysis - especially when it comes to buying real estate. The concept is "capitalization." No, we're not talking about making bigger letters at the start of a word - but rather how ongoing effects become "capitalized" by the market valuation of large purchases.

Here's what I mean: right now, you're looking at the housing market (in many places, at least) and you're seeing that the purchase price of homes is up-- real estate is very hot right now, generally speaking. This is true for multipl reasons, but certainly among them is the fact that interest rates are so very low - many people are getting fixed rate mortgages approaching a flat 5% - which is practically unthinkable to most of us.

The fact that interest rates are low means that a sensible person looks at a given home value and says "actually, I can afford a little more house, since the borrowing costs are lower than I expected." That's a perfectly rational approach, isn't it?

Well, if you ignore this fact when you look at home values, you're missing the fact the sale price is only part of the picture. If you see a home that in your mind is a $150,000 home - and now it's selling ror $175,000 - you might be thinking "overpriced." Remember, though - borrowing costs are every bit as imporant as the face price - and when they are down, you pay less in total costs over the period of the mortgage. Indeed - the effects of a change in long-term borrowing costs ought to properly be reflected in the price of the product itself. Thus, the concept of "capitalization" - the benefit of lower interest rates ought to get compressed into the cost of the capital itself.

My point is this: if you're looking at that $150,000 house, and saying that you shouldn't buy it because they are asking for $175,000 and you think that after things settle down it will be back to $175,000... you may not be considering the whole story. Don't forget that $150,000 at higher interest to borrow might amoutn to the same real costs to you as $175,000 with low borrowing costs.


Nothing here is rocket science, but this concept is one that eludes many otherwise perfectly sensible people when they get into assessing investments and planning.

[scooper]

Once again, Kickstand nails it.

Only a year after purchasing our first home, we are currently refinancing. We are going from 6.75 to 5.25. That will save us well over $35,000 over the course of the loan if we stay that long. (which we probably won't) Our house is nice, but for $35K more, we could have gotten quite a bit more house. And while prices may be high, I'm positive we didn't overpay by $35K.

[Radii]

I am not an expert in the housing market, but based on much advice I've read, I would suggest, if you haven't already, not just stopping at paying off all your debts. Put just as much effort and money and importance on having an emergency fund that can get you by for 3-6 months so that you'll always have extra money for unexpected expenses, or to support yourselves if something happens at work and neither of you are working.

I have been out of signifigant debt for awhile(trying to pay off the car loan early too...) and have recently moved into a cheaper apartment, and have been setting aside a fair amount of money into an emergency fund(which currently is doubling as a house fund because I'm not quite sure how far away buying the house is...) .. anyway, I get a great amount of comfort from knowing that I have enough money set aside to handle virtually any setback that I may face at this point over a short term.

Another thought is to look very closely at whether you will be able to remain debt free after going with the bigger house.

[Craptacular]

That's one thing that sucks about building a house. We've made a committment for a price, but can't lock in on a mortgage until 45 days prior to the expected completion. It's looking more and more like the rates should stay low for a few months, so I'm hoping for the best. However, if interest rates jump up between now and then, we'll have to be a little more frugal.

[Craptacular]

Dola, I agree with the statement that the best thing you can do is only use your CC for things you could pay cash for now. Hopefully, we'll be able to continue abiding by this principle when we move into the house and see a significant increase in our living expenses.