I've always believed that it's best to save up for what you want.
It never made sense to me to borrow money, and then have to suffer usury, when I could just be patient put it in a bank account and benefit from compounded interest.

Problem is I didn't factor in other people.
Some people believe it's better to buy stuff you can't afford, borrow and then figure it out later or pay an undetermined amount of usury.

Now what happens is that while I was saving they were spending, and this causes the lenders to create more money and with more money things cost more, so you have to save longer.

Take property. I like everybody else wanted a house of my own with a double garage so I could build my kit car on the weekends. When I started saving one could get a nice house for ~$150k.
But the biggest part of most economies is inventing money, and lending it out these properties started rising in value exponentially.

So is it better to just borrow?

Say I wanted to buy an average Oz property, they now cost $600k. If I saved up it would cost me $600k - (~%5 compounded interest). If I had to borrow say $500k it would cost me $726k (@7%) + fees left right and centre.

So I'd be paying ~$126k to a completely parasitic element of society.

I think if I needed a loan to get a business up and going, borrowing may be beneficial, ie borrowing to make money.

Am I being idealistic here and we should all just pay a middleman for the things we want?

Should I go a buy a SLS AMG?... I've got $56k credit on my Visa, plus I'm sure I could get the rest on a loan.

Why didn't they teach basic financial acumen at school?
Is the lack of education on purpose?

But things only appreciate in value bcos people borrow... borrowing is the basis for inflation. If people didn't borrow then there would be no new money in circulation and things would cost the same or even depreciate.

How many people here have borrowed money for buying, say, platinum?

With housing at least most people have to pay one way or another for a roof over their head. So unless we all kill out parents to inherit their house and then split it up with our siblings, or perhaps kill them too, then we are going to pay for our own place to live. The other option is to live with your parents as an adult. Not a bad idea in some ways but not possible for everyone.

So where are you going to live while you are saving up your money? If its like most people then you are going to have to rent. To me rent is the best way of valuing a property. If you are paying $100 a week on a place that was last sold at $700,000 then you are doing pretty good and you may as well keep renting. However the house is probably overvalued. If on the other hand you are paying $500 a week rent on a place worth $400,000 then it might be better to go out and buy a place with a mortgage.

Of course its better to pay cash for everything and to save. Thrift is a value which helped build up western civilization. Again of course the value of thrift is not what it used to be and we are encouraged to go out and borrow money to buy stuff like TVs and cars all of which will be worth bugger all in a decade or two.

I work in a bank. Borrow ya bast**ds - I need a job

MDSXR6T said...
My basic rule i was always taught is that its ok to borrow if what you buy is going to appreciate in value but best to save for something that depreciates.

+1

FlySurfer said...



Say I wanted to buy an average Oz property, they now cost $600k. If I saved up it would cost me $600k - (~%5 compounded interest). If I had to borrow say $500k it would cost me $726k (@7%) + fees left right and centre.

So I'd be paying ~$126k to a completely parasitic element of society.


Why didn't they teach basic financial acumen at school?
Is the lack of education on purpose?

maybe you should concentrate on basic maths rather than worrying about basic business acumen. if you borrow 500k over 25 years at 7% you end up paying over $1M in total, without the arbitrary fees & charges they whack on

FlySurfer said...

dusta said...
I took a mortgage out in my early 20's instead of travelling around the world like 99% of my mates.

But what did you miss out on?

Nothing, I travelled, I borrowed, I own

FlySurfer said...
But the biggest part of most economies is inventing money, and lending it out these properties started rising in value exponentially.

No comment.

---

Renting can cost a lot more than buying, especially over a long period of time. The thing too many people fail to realise is that when you buy a house and take on a mortgage you've locked in that price. Forever.

Rent on the other hand goes up indefinitely.

The person that took on the $150K mortgage when you were saving is still paying it off at ~6%. $170/week.
The same property would now cost a lot more to rent.

<blah blah blah>
Perhaps school didn't teach you "financial acumen" but they did teach you how to add, multiply and divide. And you have a calculator and/or a spreadsheet. All you need to do is project total cost of ownership out over a few decades and compare to total cost of renting over a few decades. Don't forget rent (generally) keeps going up and up indefinitely while your mortgage is locked in, and you own the appreciating (generally) asset.
</blah blah blah>

I think most people will be surprised to see how much renting actually costs.
This very simple primary school spreadsheet assumes house prices increasing at 5%, interest fixed at 6%, rent at 5% of property value.

https://docs.google.com/spreadsheet/ccc?key=0AliUAkR4KDnTcGJFc0s3UzJiSjhXYjRNTk5vb19US0E&usp=sharing

Yep. Renting is expensive.

(correct me if i'm wrong, had a couple at lunch)

Beaglebuddy: Yeah, I heard about US lenders giving loans to people in jail. Is that correct ?

Flysurfer: The government doesn't think so. There is no tax on debt. If they thought that saving up was cool, they would tax debt, and remove the tax on interest.

YOLO

Borrowed $75K for a $145K house in 1990
Almost payed it off by 1995 by going without virtually everything, but needed to renovate, over $100K, redraw. Bought my own tools and done most of the work myself.
Made my own surfboards. Done my own car services.
Then couldn't restrict life any longer, needed to show the kids some life. Took them skiing for 1 week per year for 10 years. $35K redraw.
Redraw for a car. you get the picture.
Total borrowing was about $250K
Finished paying it of in 2012.
Total cost- $ $800K.

I'm now 60 years old, with some super, but I won't finish work until the grandkids come.
Off to Europe to see my daughter this year. :D

dusta said...

cisco said...

FlySurfer said...

If you look at the word "mortgage", it literally means "engagement until death".

no it doesn't . I took a mortgage out in my early 20's instead of travelling around the world like 99% of my mates . I have a mortgage less than a third of the value of my house and the mortgage will be paid off in around 10 years . 36 at the moment so hardly engagement until death

Yes it does "literally". If you can get rid of your mortgage early, congratulations, you have made the best step towards getting off the treadmill.

However, mortgage or no mortgage, they still have you by the short and curlies.

You might own the house, shed and whatever other improvements you have made to the property, but, you never own the land or "Real Estate". You still have to pay rent on that. They call it "rates" but it is actually "rent".

If you look at the term "Real Estate" and it's literal meaning, it interprets to "Royal Property". The word "Real" refers to the Spanish coin the "Re-all" or "Royal" which is coinage which is controlled by "Royalty". And of course "Estate" refers to a declared area or domain.

Try refusing to pay your rates and see how long you remain in so called ownership of your "Real Estate".

someones read their blacks law dictionary...

I got a store card when I moved out of home @ 18, bought a tele and a stereo, pots and pans and other stuff I can't even remember twenty years on...

what I do remember is, paying the minimum on apprentice wages thinking life was sweet...

then still paying for it years later even though the latest and greatest I was paying interest on was now the crap you found at the salvos and at moving sales...

seriously, the tele died more than ten years ago, the stereo died to the point where only the radio worked and I left it in the shed of my rental.

but, the fridge that fell off the back of a truck that I paid cash for.. hasn't missed a beat in twenty years....

I think there's something in there for all of us...

FlySurfer said...
Now what happens is that while I was saving they were spending, and this causes the lenders to create more money and with more money things cost more, so you have to save longer.

But the lenders don't just create more money. By doing so it will just weaken the economy. This was one of many famous misconceived ideas of Pauline Hanson "we will just print more money".

Lenders use other people money to grant you a loan as well as invest other peoples money to grant you the loan

Toph said...
Lenders use other people money to grant you a loan as well as invest other peoples money to grant you the loan

They are not really allowed to do that.

Loans are just an entry on a bank's ledger.