How **NOT** to FIRE

[JoeWras]

I agree, I'm sure they are spending way too much. My point was that the examples they give of excessive spending are not excessive. Even $50 Fridays at Whole Paycheck only add up to $200/month, and they are taking home on the order of $10K/month. Another example is their $360K mortgage - that is around $2,500/mo PITI. A reasonable 25% of take home pay (not gross pay like the bankers like to use).

I think this is another example of an innumerate "journalist" not adding things up. I would have liked to see follow-up questions digging into that - and they could use the illumination of their spending habits.

nb: their gross is $170K, I previously typoed $180K

Sure, I know what you are saying. They did share a lot. Maybe they balked at some questions, or maybe we are just to get an overall feel from the couple that they really don't do any planning or accounting. At all.


"easy come, easy go"

 

[Rianne]

Regarding "Debt Destroyed My Family" illustrates there is no such thing as "good" debt and "bad" debt. Debt is debt regardless of the reason. I could say I took on debt to make my life better or I visualize a future of happiness and contentment. I don't think so. Debt has always made me miserable because I witnessed my parents so close to homelessness because of it. It's a form of slavery. Someone/something owns you, your assets, your life.

 

[Milton]

The pub was to be their pension and, at the time, it seemed like a good idea.

My BIL had a more-or-less similar experience. He bought into a small business and was sure that he was set for life. Long story short, there were problems within a year and he apparently lost his entire investment (he claims he was cheated by the existing owner/majority partner; I know no details, and don't ask).

Sadly, due to job losses and ageism in hiring practices this sort of risk is being taken on by many people in late middle age. Relatively few are suited to be entrepreneurs, especially after lifetimes as wage slaves. Just another reason to work towards FIRE while you're young.

 

[Dtail]

My BIL had a more-or-less similar experience. He bought into a small business and was sure that he was set for life. Long story short, there were problems within a year and he apparently lost his entire investment (he claims he was cheated by the existing owner/majority partner; I know no details, and don't ask).

Sadly, due to job losses and ageism in hiring practices this sort of risk is being taken on by many people in late middle age. Relatively few are suited to be entrepreneurs, especially after lifetimes as wage slaves. Just another reason to work towards FIRE while you're young.

+1
Some folks dream of running an Inn or B&B. The DIY for many chores plus overall 24/7 type of requirement doesn't end up with the reality matching the dream.

 

[MarieIG]

Sadly, due to job losses and ageism in hiring practices this sort of risk is being taken on by many people in late middle age. Relatively few are suited to be entrepreneurs, especially after lifetimes as wage slaves. Just another reason to work towards FIRE while you're young.

I think you nailed it with the word "risk." In Debt Destroyed My Family, they were way overextended. With that amount of debt, everything had to go perfectly for them to make the payments. Had they purchased the pub for 300,000 instead of 700,000; or had they been able to put 50% down, they might have been able to make the payments. The risk in that case was not a reasonable one. (Most likely the stepfather was so enamored of living his dream, he was willing to overlook the degree of risk.)

 

[Texas Proud]

Regarding "Debt Destroyed My Family" illustrates there is no such thing as "good" debt and "bad" debt. Debt is debt regardless of the reason. I could say I took on debt to make my life better or I visualize a future of happiness and contentment. I don't think so. Debt has always made me miserable because I witnessed my parents so close to homelessness because of it. It's a form of slavery. Someone/something owns you, your assets, your life.

I disagree with your stmt about debt....


There is good debt and bad debt... owing money on a house where you live can be considered good... also car debt for most people... it provides a place to live and a way to get to work where you make money...


Debt to take a vacation by most people would be considered 'bad'.... it is not used to provide any future earnings...



And if you run a business there are many times that taking on debt to fund inventory etc. that you can sell is also good...

 

[JoeWras]

I
There is good debt and bad debt... owing money on a house where you live can be considered good... also car debt for most people... it provides a place to live and a way to get to work where you make money...

And here's where it goes off the rails.

Need a car to go to work? Yes. Need to buy a new one with a big loan? No.

Time again you see people buy the new big honking SUV because they "need" the features like built in nav and bluetooth. Mom and Dad's hand me down "old" 2012 car won't do, you know. Similarly a few years in a small, cramped apartment (while saving up for a house) won't do because the Realtor said I could afford the baby McMasion.

So although I agree with you somewhat, Texas Proud, I also feel that this is the tipping point where bad debt can be justified. And once the rabbit hole opens, it is hard to close it.

 

[Milton]

I also feel that this is the tipping point where bad debt can be justified. And once the rabbit hole opens, it is hard to close it.

Yes, I agree. "Good" and "bad" debt are pretty subjective.

• Buying a car to get to work sounds plausible, but that decision implicitly eliminates other options, e.g. carpooling, taking public transit, moving closer to one's place of employment, negotiating a 'work from home' arrangement, etc.
• Some people are quite capable of justifying debt to pay for a vacation by rationalizing that the latter is critical to their mental health and therefore contributes to their ability to remain employed and earn income.
• Finally, money is fungible. If I spend $20,000 cash on an expensive vacation while borrowing $20,000 to pay for a kitchen renovation (or a business uses operating cash to redecorate executive offices while borrowing to purchase inventory), it isn't meaningfully different than doing things the other way around. Debt must always be repaid, regardless of why it was incurred.

At the end of the day, it's a rather grey area and we all have to make our own choices about what level of debt, if any, is appropriate for us. Personally, I am conservative by nature and so agree with Rianne that all debt is to be shunned to the extent possible. YMMV.

 

[Rianne]

Debt has many faces. Consider a favor (Godfather style ). Free at first, the benefit seems worth it. Does the benefit out weigh cost? There are so many examples where the benefit seems at first to outweigh the cost.
-Student loan. I can live my dream working in the field I love. That's a bit sarcastic, do students weigh the benefits of their debt?
-I can climb out of my debt, with a little more debt. DBI, transfers CC debt from one CC to another increasing debt as he gets some benefit from another CC that takes on his debt.
-I'm sure my beautiful house will appreciate in time, making this debt a win/win. That attitude cost us $60K in 2012. Still able to FIRE, but that stung! We bought our next house with cash, live there today.

-I don't have the cash to back this up, but I have $20K credit approval from my bank which means my bank has faith in me. HELOC loans, to me, are bank scams.
I'll take a angry responses anytime. My DSI loves to share her income as a real estate agent. 200K-300K a year. When I get the big picture of her expenses (tax write off or not) I look at her in amazement. She has a billboard, her face is on grocery store carts, she wines and dines, she stages empty houses (a benefit to her clients), healthcare, need I say more. All that offsets her income? She is not FIRE, have no idea if she can.

-IMHO, if I don't have the cash to back it up, I don't get it.

 

[Dtail]

As far as we are concerned, the only good (temporary) debt is the monthly CC charges which gets paid in full every month and generates cash rewards.

 

[The Cosmic Avenger]

As far as we are concerned, the only good (temporary) debt is the monthly CC charges which gets paid in full every month and generates cash rewards.

Don't forget 0% loans! We were ready to pay cash for our last car, but they offered us 0% financing...so we took the cash we had saved for the car and paid off our mortgage early! Now our monthly expenses are lower...including putting even more money aside for the next new car.

 

[Rianne]

Don't forget 0% loans! We were ready to pay cash for our last car, but they offered us 0% financing...so we took the cash we had saved for the car and paid off our mortgage early! Now our monthly expenses are lower...including putting even more money aside for the next new car.

OK, ok. I agree with that one. Just don't be late on your payment. I think they can charge you the full amount plus interest (not sure if it's still that way).

 

[Dtail]

Don't forget 0% loans! We were ready to pay cash for our last car, but they offered us 0% financing...so we took the cash we had saved for the car and paid off our mortgage early! Now our monthly expenses are lower...including putting even more money aside for the next new car.

That's a good one. Forgot about that one, but will keep it in mind when purchasing a car in the future.

 

[Milton]

It's not free money: the "0% interest" is baked into the purchase price.

If you don't need financing, you should be able to negotiate an appropriate discount for paying 'cash on the dash'.

 

[The Cosmic Avenger]

It's not free money: the "0% interest" is baked into the purchase price.

If you don't need financing, you should be able to negotiate an appropriate discount for paying 'cash on the dash'.

We negotiate the lowest price for a specific make and model and trim from the dealerships in the area, then we talk payment. We've had dealerships try to renegotiate once we tell them we have our own financing or are paying cash, but that's when you call in their manager and ask if they're not going to honor the price that we just negotiated, and if they actually back out we leave.

So I would counter that if you're getting the best price possible, you won't get a discount for paying cash.

 

[ncbill]

Debt has many faces. Consider a favor (Godfather style ). Free at first, the benefit seems worth it. Does the benefit out weigh cost? There are so many examples where the benefit seems at first to outweigh the cost.
-Student loan. I can live my dream working in the field I love. That's a bit sarcastic, do students weigh the benefits of their debt?
-I can climb out of my debt, with a little more debt. DBI, transfers CC debt from one CC to another increasing debt as he gets some benefit from another CC that takes on his debt.
-I'm sure my beautiful house will appreciate in time, making this debt a win/win. That attitude cost us $60K in 2012. Still able to FIRE, but that stung! We bought our next house with cash, live there today.

-I don't have the cash to back this up, but I have $20K credit approval from my bank which means my bank has faith in me. HELOC loans, to me, are bank scams.
I'll take a angry responses anytime. My DSI loves to share her income as a real estate agent. 200K-300K a year. When I get the big picture of her expenses (tax write off or not) I look at her in amazement. She has a billboard, her face is on grocery store carts, she wines and dines, she stages empty houses (a benefit to her clients), healthcare, need I say more. All that offsets her income? She is not FIRE, have no idea if she can.

-IMHO, if I don't have the cash to back it up, I don't get it.

Yeah, one of my relatives tried "going back to school" after they were laid off in their early 60s.

$40,000 later (1/2 loans, the rest out of savings) they had an accounting degree...but not surprisingly no one seemed interested in hiring them.

Probably didn't help that they graduated at the end of 2008.

 

[Dtail]

We negotiate the lowest price for a specific make and model and trim from the dealerships in the area, then we talk payment. We've had dealerships try to renegotiate once we tell them we have our own financing or are paying cash, but that's when you call in their manager and ask if they're not going to honor the price that we just negotiated, and if they actually back out we leave.

So I would counter that if you're getting the best price possible, you won't get a discount for paying cash.

+1 in principle. Beat me to the response.

 

[Milton]

I would counter that if you're getting the best price possible, you won't get a discount for paying cash.

The dealer's assumption is that you're financing the purchase, and the cost of same is already 'baked in' to the (so-called) "best price possible". You should always receive a further discount for paying cash; if not, walk away as you are being taken advantage of.

 

[marko]

Yeah, one of my relatives tried "going back to school" after they were laid off in their early 60s.

$40,000 later (1/2 loans, the rest out of savings) they had an accounting degree...but not surprisingly no one seemed interested in hiring them.

Probably didn't help that they graduated at the end of 2008.

No. What didn't help was that they were over 50.

 

[Dtail]

No. What didn't help was that they were over 50.

Age discrimination is alive and well. A non private accounting firm will typically not hire someone in their 60's, unless a partner already from another firm.

 

[CardsFan]

Age discrimination is alive and well. A non private accounting firm will typically not hire someone in their 60's, unless a partner already from another firm.

In defense of the hiring company: Would it really make economic sense to hire a NEW graduate, at age 60, into an entry level position they had never done before, versus a 24YO? Considering the cost of training and the probability of long term employment?

I am not saying age discrimination does not exist. It does. This just not the case. Getting new degree in your 60's, in order to change careers, would be very difficult to justify economically.

 

[jazz4cash]

It's not free money: the "0% interest" is baked into the purchase price.

If you don't need financing, you should be able to negotiate an appropriate discount for paying 'cash on the dash'.

I agree with this in theory, but I don’t think it works that way anymore. I usually try to negotiate a lower price for cash but it’s been a long while since I was successful. Most cars have 0% or rebate so sometimes you do save by taking the rebate and paying cash or getting a cheap loan elsewhere. Other merchants do have the cost baked in but everybody pays the cost whether they pay cash or finance. We just bought furniture and took the deferred finance option. The salesman claimed they pay the finance co for the feature but I don’t necessarily believe that.

 

[Milton]

In defense of the hiring company: Would it really make economic sense to hire a NEW graduate, at age 60, into an entry level position they had never done before, versus a 24YO? Considering the cost of training and the probability of long term employment?

Most discrimination probably makes "economic sense" from an employer's perspective. E.g., why hire a young woman who may become pregnant; a disabled person who will need various accommodations and may have lower productivity; or a person of faith who will require certain religious holidays? Yet such "defences" are illegal and unacceptable.

 

[ncbill]

In defense of the hiring company: Would it really make economic sense to hire a NEW graduate, at age 60, into an entry level position they had never done before, versus a 24YO? Considering the cost of training and the probability of long term employment?

I am not saying age discrimination does not exist. It does. This just not the case. Getting new degree in your 60's, in order to change careers, would be very difficult to justify economically.

Yeah, I still don't understand why they didn't just stick to something near their field (computer programmer)

Particularly sad is that they had refinanced to a 15 year mortgage 5 years prior to their layoff, but afterwards re-financed to a 30 year to save ~$300/month.

Even a $25,000/year "help desk" job could have enabled them to pay off their home by 2017.

 

[220volt]

The whole article seems made up with good intentions to scare people to stay out of debt. It just doesn't seem genuine. Having said that, there ARE people who are much worse off than this I used to empathize with. Not anymore. Take the damn responsibility for your own actions.
As a matter of fact, the whole economy is based on consumer spending, so if there weren't people like this the whole thing would collapse. There would be no retiring early or stock market returns for the rest of us. So if one wants to spend, then by all means. Go into debt. Take out the second mortgage. Eat out all the time. Buy expensive cars. My portfolio depends on it.