Financial Tip of The Day

[STGS]

So what about this scenario. A married couple has 0 debt and a reasonably safe jobs. Savings account A has 6 months expenses. Savings account B has your next vehicle purchases covered. You have $350,000 in checking account 1 and about to build a $300,000 house. Do you invest $350,000 from checking account 1 in 6% dividend stocks and get a mortgage at 6% or pay cash for your new house with $50k left over?

In the scenario above, I would recommend paying cash for the house. Pay cash for the next car. Use your income to save for retirement and replenish the car fund over the next 5-6 years to pay cash for the next car when needed.

[Mike D]

Financial Tip of The Day

So for you that think it’s smarter To leverage debt and keep money in the market.

How secure do you think that money is? I mean in reality it’s just a digital number that could be taken, locked, etc literally at the stroke of a key. Until you have it in your hand it’s literally Monopoly money.

I’ll take cash all day long and be debt free.


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[Mike D]

I will add this: The Ramsey mantra of never having debt or a credit card may be good advice for some folks.

However many wealthy people leverage debt as described by some post on this thread. It just has to be done wisely. If you have the cash to pay off that debt at any time I do not see why being totally debt free is a big deal. (Not to mention I get a pretty nice tax deduction each year on my house mortgage). I sleep really well even though I have some debt.

I use credit cards - on one I get 2% cash back on every purchase and on another I get 4% back on every restaurant we eat at. I pay my balance off in full every two weeks. I also pay every bill with the cards. Pretty efficient way to get a nice discount on most everything I purchase or pay for.

Most people who leverage debt have assets on paper but are usually far from liquid.

You are using credit cards like debit cards, which when used wisely can be smart. Most folks aren’t that disciplined though.


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[miket]

So for you that think it’s smarter To leverage debt and keep money in the market.

How secure do you think that money is? I mean in reality it’s just a digital number that could be taken, locked, etc literally at the stroke of a key. Until you have it in your hand it’s literally Monopoly money.

I’ll take cash all day long and be debt free.


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I tend towards the cash and asset category. I have nothing in the stock market. Maybe some day with money I want to play with, like any other kind of gambling. IMO thats all the stock market is now. There seems to be no logic for most people in the stock market. Its just put money in a fund and hope it goes up. And it typically does if you hold on and dont cash out when it goes down.

I am well aware of the serious players, the real money guys, but the typical American has no idea why or how it is going up or down. They arent investing in a company based on fundamentals, they are just trying to get free cash. I believe this is why we have such large swings, irrational exuberance etc.

[HOOKNBULLET2]

You do you and I’ll do me. Me is debt free.

[STGS]

Everyone has different levels of risk tolerance coupled with different ideas about future valuations, market changes and socioeconomic events. Please don’t construe any of my advice as right or wrong, simply one perspective you are free to undertake or not. Best of luck to everyone.

[Capt.Brown]

So what about this scenario. A married couple has 0 debt and a reasonably safe jobs. Savings account A has 6 months expenses. Savings account B has your next vehicle purchases covered. You have $350,000 in checking account 1 and about to build a $300,000 house. Do you invest $350,000 from checking account 1 in 6% dividend stocks and get a mortgage at 6% or pay cash for your new house with $50k left over?

Pay cash for the house, pay cash for your next vehicle, start saving for your next purchase. And keep DCA into the market every month.

[Capt.Brown]

This is on point. Debt should be used as leverage. Attached is a tale of cash vs leverage.



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The missing piece or the pie is you should always have 6 months worth of expenses before and after you buy a house. If you don’t have that, you have no business taking out a mortgage. In this scenario brother A can still make payments and live comfortably until he finds a new job.

[captainsling]

The missing piece or the pie is you should always have 6 months worth of expenses before and after you buy a house. If you don’t have that, you have no business taking out a mortgage. In this scenario brother A can still make payments and live comfortably until he finds a new job.

You mean brother B? Brother A has nothing in savings.

[Capt.Brown]

Both brothers aren’t ready to buy a house IMO. They don’t have 6months worth of living expenses. Brother B put minimal down on the house and then invested the rest, so that’s not an emergency fund, that’s an investment very risky not having cash in the bank. Brother A should wait to purchase house until he has down payment + 6 months worth of living expenses. Then when he loses his job he’s fine.

[Huntingfool]

[QUOTE=Mike D;16396344]Most people who leverage debt have assets on paper but are usually far from liquid.

You are using credit cards like debit cards, which when used wisely can be smart. Most folks aren’t that disciplined though.


Exactly! All financial planning involves discipline -

Discipline to put 15-20% of your earnings into savings/investments and the discipline to not touch it until retirement.

Discipline to live within your means.

Discipline to educate themselves about investing.

You get the picture

[Gumbo Man]

Brother B put minimal down on the house and then invested the rest, so that’s not an emergency fund, that’s an investment very risky not having cash in the bank.

This is the hill that I’ll die on.

[M16]

This is on point. Debt should be used as leverage. Attached is a tale of cash vs leverage.



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I didn't know that investments always make a good return. But every time I look at one of these charts they always do. That's simply amazing! I must be the only person in the world who has actually lost money on some of my investments.

[jbw899]

I didn't know that investments always make a good return. But every time I look at one of these charts they always do. That's simply amazing! I must be the only person in the world who has actually lost money on some of my investments.

They’re using a 30 year timeframe in that chart. The s&p 500 has never been negative over any 30 year period and returns average over 10%/year.

[TeamAmerica]

Debt on appreciating assets vs debt on depreciating assets is two very different things. Trying to paint all debt with a broad brush is not a great strategy! That's why net worth is such a important measure of success.