Attitiude to Debt and Budgeting...

I don't disagree. My point was always about educating people starting out that a new car is not an investment but a liability. If you buy one with a large debt then it will slow your wealth creation down.

I made that mistake and it has cost me dearly ....

With the $20K we spent I could have leveraged into nearly $100K of blue chip shares that would now be valued at a helluva lot more and be generating a healthy income stream.

Instead I sold the car for about a 1/4 of it's purchase price several years later. Had I bought second hand and invested $15K then I would be a lot better off today.

So if I can get that message to some teens and they still choose a car then at least they have made an informed choice. Too many people tell them that a car is an investment, it builds a credit history, they deserve to have something nice from their first job etc

 

I too learned that lesson, only later in life. I bought a 2001 Moto Guzzi V11 Le Mans in 2002 for $21,800. Its my only motorvehicle, my wife has an 1990 Toyota Corolla. The bike would now be worth $14,000 I believe, and I still owe 9k.

Its only last year that I decided to never again get a loan for a depreciating asset.

I've sat down with excell and worked on my budget and should be able to pay that loan off by the end of the year. And then I plan on putting 1k or more a month into a managed, (possibly the CFS geared fund)

Looking forward to being debt free (appart from ppor (and margin loans on other funds at some stage))

 

Hi Simon,

Do you still hold the same views on 'good debt' and 'bad debt', as you held five years ago?

A lot has happened in the world, since 2006. Do you hold the same financial strategies now, as you did then?




Johny.

 

There are good or bad debts always!

What Simon viewed are still right in principle to me. There are always good or bad debts.

The world has changed greatly and bad debt has deluged in investment world so that we lose the sense what good debt is since we just worry about the interest load from all of debts. Not all of debts to investment are good ones. Good debt needs good enough capital gain and yield, accumulated yield must be bigger than the sum of the interests, and the debtors have to be able to service the interests without default in worst time.

I still believe if you could afford the interests, you need to get the debt for your own houses and try all to pay the debt back with the benefit Simon highlighted. Yes the house price have increased a lot. It is reasonable for anyone to worry about what if house price crashes.

You just need to wait for another two years to see whether Australia house price would crash down. We will have a deleverage time and we could save more and then once the market becomes stable and we are confident for our jobs we could borrow for our own houses! It you do so you get the good debt for your good future. We need to put worst cases into our budget, have the means to make enough cash inflow for our worst case, and would like to do all to get cash flow positive for our finance and good debts.

Time is not important but is everything. The time would redefine what good debt is. Buying at the peak with the debt for investment is bad. Any bad investment with debt will result in bad debts! Never ignore the bad investment and its corresponding damage from your bad debts! It is a time all of bad investment would pay the cost and make damage to the people who have bad debts.

Of course, without matter time changes, one thing is sure that debts for entertainment are always bad debts and any debt we could not service for are bad debts too!

 

I've never been a big fan of debt, if I don't have the money, I save up for it rather than getting a loan.

 

Great strategy

This is a very comprehensive look at debt and reduction strategies. I agree with TryHard that this needs to be taught in schools. What a great motivating Forum we have here. I'm glad I found it.