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THINK of all the people who get into trouble with debt, and wind up paying large chunks of their income in interest and penalties.


The contrast is those who save and invest over a lifetime. Just as interest charges snowball on debt, dividends, interest and asset value increases tend to snowball when you own assets.

Those who would like to SPEND as much as possible during their lifetimes would be well advised to start by saving and investing and multiplying their earning and spending power by accumulating interest, dividends and asset value increases.

Those who want to minimize their ability to spend over their lifetime should run up debt when they are young, so they can maximize the amout of interest they pay to others and reduce their lifetime ability to spend.


Seattle Pioneer
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Well, yes, of course. But what prompted you to start a thread to say so? Just felt like, "Hmmm I haven't started an enlightening tip thread in a while?"

xtn
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<<Well, yes, of course. But what prompted you to start a thread to say so? Just felt like, "Hmmm I haven't started an enlightening tip thread in a while?"

xtn >>v




Somehow I don't think many people think much about choosing debt as a lifestyle choice.


If people realized how profoundly choosing debt was likely to affect their lives, you'd think more people would choose to avoid it.

And even for those who avoid debt, relatively few choose a life of saving and investing --- which also is likely to have a huge impact on people's lives.


Every now and then I like to point this out --- in case someone might appreciate reading a summary of the impact of such choices.

Where better to post such observations than here?



Seattle Pioneer



Seattle Pioneer
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If people realized how profoundly choosing debt was likely to affect their lives, you'd think more people would choose to avoid it.


That is a very astute observation, SP, and it seems like it should be common sense but isn't.

Minxie
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SP:
If people realized how profoundly choosing debt was likely to affect their lives, you'd think more people would choose to avoid it.

Minxie
That is a very astute observation, SP, and it seems like it should be common sense but isn't.

Indeed, and I have always found the idea that if you want to maximize your lifetime spending the way to do it is to save and live well below your means for the first part(*) of your life. You accumulate a lot and then have the means to do a lot more spending than if you had been spending most/all of your income all along. As a saver, I found this very interesting in that I will very likely outspend my spender-siblings in the long run as I loosen up on spending in the later years. In fact, at 40 and with a significant net worth already, I have already loosened up a bit on spending (while still saving a lot and rocketing toward FIRE).

I very likely learned that concept on these boards, and quite possibly from SP, some few years ago.

(*) What "part" of your life must be devoted to saving in order to maximize spending? I suppose in the extreme case it would be your entire life until the moment of your death, when you suddenly spend your huge fortune all at once. Since that is far from ideal for most of us, a middle ground is much more attractive and I think even among savers there will be a lot of variation in when people choose to start spending more.

cheers,
-progmtl.
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Somehow I don't think many people think much about choosing debt as a lifestyle choice.


If people realized how profoundly choosing debt was likely to affect their lives, you'd think more people would choose to avoid it.


I think a lot of this has to do people's desire for instant gratification, and not looking at, or caring about, the consequences of that instant gratification.

And even for those who avoid debt, relatively few choose a life of saving and investing --- which also is likely to have a huge impact on people's lives.

I know lots of people who save, but they don't necessarily invest, and I think it is fear of losing money in the stock market and lack of knowledge/education about investing in general. I know that my parents, who were Depression-era babies, were clearly frugal and always saved money, but where my dad wanted to do things like buy rental real estate, my mother was dead set against it. And the stock market was a non-starter for her. I wonder how many people, even today, are like them in that they are afraid of the market and the risks because they remember the crashes and don't see the possibilities around the recovery and the growth that the market offers.

I watch now as my children are just starting out in life. DD works at a small start-up that's been around for about 15 years, and her boss thinks she's silly because she does not have a smartphone. DD says it is not in the budget, and the boss poo-poos the idea of even having a budget. And when DD says that she can't do some particular thing because it is not in her budget, he again thinks it is silly to have a budget. But he has money coming out of his ears, and so having limited funds is not an issue he faces.

We also happen to live up the street from her boss, and so DD sees what a budget can do, and has learned about saving and investing, and so is doing that from a young age. I have confidence that she will have plenty of money to spend later, and will have good spending/saving/investing habits through her live.

I think this is a great topic for discussion.
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I watch now as my children are just starting out in life. DD works at a small start-up that's been around for about 15 years, and her boss thinks she's silly because she does not have a smartphone. DD says it is not in the budget, and the boss poo-poos the idea of even having a budget. And when DD says that she can't do some particular thing because it is not in her budget, he again thinks it is silly to have a budget.

You done good, Mom.

Andrea
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<<Indeed, and I have always found the idea that if you want to maximize your lifetime spending the way to do it is to save and live well below your means for the first part(*) of your life. You accumulate a lot and then have the means to do a lot more spending than if you had been spending most/all of your income all along. As a saver, I found this very interesting in that I will very likely outspend my spender-siblings in the long run as I loosen up on spending in the later years. In fact, at 40 and with a significant net worth already, I have already loosened up a bit on spending (while still saving a lot and rocketing toward FIRE).
>>



As an added benefit, savings and investment is likely to give you the priceless benefit of FINANCIAL SECURITY.


The debtor is often constantly spending time looking for new sources of credit to meet emergency needs for spending.

The person who is saving and investing is likely to avoid a lot of that time and anxiety, since they have likely planned their spending prudently and have the financial resources at hand to meet spending needs when they arise.

And often, the immense benefit of FINANCIAL SECURITY doesn't even cost someone money! It's a byproduct of financial planning, saving and investing, and often needn't involve extra spending.


Seattle Pioneer
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Where better to post such observations than here?

Oh yeah, I get it. It's just that usually I see you post it in response to a thread. Don't think I've ever seen you start your own to say it unprompted.

If people realized how profoundly choosing debt was likely to affect their lives, you'd think more people would choose to avoid it.

Maybe so. I'll bet there is some percentage who would choose debt anyway just because they don't have the discipline to prioritize long term over short term.

xtn
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I'll bet there is some percentage who would choose debt anyway just because they don't have the discipline to prioritize long term over short term.

I don't think there are many people who, in the course of thinking about how they plan to live their life when considering future careers, earnings, family and so on, decide, "I am going to live a life based on debt. I will live my entire life owing huge amounts of money and never have a comfortable night's sleep because I will always be worrying about how much money I owe."

People fall into debt. There are student loans, even if it's at a state college or a training school. There's credit card debt from setting up a new apartment (or room in a shared apartment). Then there's this or that or the other thing. Soon, much to their surprise, they are deeply in debt.

How many times have people shown up on this board, explaining that they just realized they are in debt and need help, and when we ask them the total they don't know? And are horrified to discover how much they do owe? Think about how many times we've heard something to the effect of, "I thought I owed about ten thousand, and instead it's over forty thousand and that does't include the mortgage!"

So asking a high school or college graduate to decide about living with or without debt won't solve the problem. Even if you explain how much they'll be paying in interest charges, or how much of their future will be in hock, the vast majority will just shrug it off. Yes, a few might listen, but they'll be in the minority.

It's sad, but there it is.

Nancy
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<<So asking a high school or college graduate to decide about living with or without debt won't solve the problem. Even if you explain how much they'll be paying in interest charges, or how much of their future will be in hock, the vast majority will just shrug it off. Yes, a few might listen, but they'll be in the minority.

It's sad, but there it is.

Nancy >>


I suppose it's not surprising that when you have a culture of debt and a nation of debtors, people don't much look at the alternative.


College professors are mired in debt, so they don't much bring that issue up to their students, except to complain about it.


Journalists and editors are mired in debt, so they don't much write articles about making a decision to debt, since they take that for granted too.

They all tend to complain about the RESULTS of being in debt of course, since they are mostly in debt themselves.

Personally, I asked myself that question about debt, and decided I would avoid it without a good reason. About the only debt I've ever has was a 30 year mortgage, paid off after 12 years.


Of course, people who are so highly educated really are able to figure such things out themselves, if they are interested in doing so.


But most are not. Being loaded down with debt is among the fads and fashions of the educated these days. Few even bother considering an alternative.


Seattle Pioneer
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College professors are mired in debt, so they don't much bring that issue up to their students, except to complain about it.

I've mentioned this a couple times before in the last decade. Maybe you remember.

I took a personal finance elective in college. One day we were having class discussion on 3% average savings rate (at the time I guess), and our prof suggested that we all set goals to try saving 3% of our income.

I put forth my opinion that it was silly to set goals that are average. We had fair odds of achieving an average state without setting any goals at all. We should set goals to save ten percent, fifteen percent, twenty percent or more!

I was given the stink-eye, told that those were impossible, told that nobody could hope to save ten percent of their income, and asked not to speak again during the class discussion. By a personal finance prof.

I never did graduate, but I've been beating the average savings rate by quite a fair amount for the twenty-something years that have followed.

xtn
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But most are not. Being loaded down with debt is among the fads and fashions of the educated these days. Few even bother considering an alternative.



My parents were in debt my entire childhood. It never occurred to me that you could live debt-free. Having come across the Fool one day on the internets, I have learned that living debt-free is possible and desirable.

You have to know what options are available to be able to consider them.

Minxie
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My parents were in debt my entire childhood.

My parents had a mortgage. That was it. And (please keep in mind that they bought the last house in 1962) they paid $153.69 a month. (Or something close to that. I might have the decimals wrong, but I'm fairly certain about the rest).

During my last job, my mother would occasionally worry about how much money I didn't have, and I kept explaining that I was saving 30% pre-tax. Some of that was 401(k) and some was Roth IRA, and the rest was savings or some investments. So she'd stop worrying until she forgot what I had told her, so I'd repeat myself.

My sister and her husband didn't have credit reports (they were married right out of college) but my BIL has a passion for saving money. He once spent most of an LA summer under the house removing tree roots from the plumbing. He preferred that to paying someone to do the job.

So there are savers out there. I suspect they find each other through some mystic bond: maybe they hear the other one say, "I'd never pay that much for a sandwich. I brought my own."

And there are also spenders married to savers, which can lead to trauma for everyone.

Nancy
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