Some may well say that it all depends on what side of the fence – or the counter of the bank or desk in the car dealership you are on. That is true however even if you are a borrower debt can be a good thing for your financial health and growth.
Over the past 25 years the amount of debt the average American or Canadian owes has risen amazingly. The mindset if have now, Why wait for spring? Have that car or large house now. This is a very different mindset than our parents were raised on. Their attitude often was "pay cash" and "if you cannot afford it, don't buy it". Our parents were more often than not raised themselves by parents who had lived during the "great depression" of the 1930's where almost everyone had nothing , no job, no money , no employment and certainly no money to pay off loans. Hence easy credit was not available nor part of their lifestyle. An economic historian R. Z. Strokon has noted that the best education that many young people could have today is to "learn to wash floors".
It's good to now where a point of view and indeed a way of live originated from.
Is this mindset relevant today and of value? In our day and age credit if used wisely can well result in increased net worth over a person's or family's employment and financial lifetime.
As you well know over the last couple of years the cost of real estate – whether it is a house, a condo, a chalet or summer lake cottage has risen through the roof. You have to life somewhere – whether it is to pay rent or pay rent. If you go on a summer vacation you will pay for accommodations or you may pay the cost to pay down a loan for that summer vacation spot. In addition the mortgage payments may be tax deductible – a useful overall reduction in cost to you – that is assuming that you have employment and income to put you in a tax bracket where the tax deduction is of financial benefit to you and your family.
The basic problem is that in these times of great real estate inflation is that by staying out of the game – and buying the property. That by the next year the cost of the property may have escalated greatly and you may well be locked out of the purchase of your dreams. Compound that with the fact of the math that the increases, while even within your percentage means, are on much bigger baseline amounts and wow. As an example if the house of your dreams increased by a reasonable year to year rate of 10 % - then 10 % of $ 100,000 is $ 10,000 more of loan or mortgage to carry. However if that house has now escalated in price to $ 300,000 then your increased debt load that you will carry to have that same property will be $ 30,000. This is why in effect many future home owners are in effect panicking and buying now instead of forestalling their plans of home ownership for the future. Otherwise they may well be locked out of home ownership.
What if the loan payments are not tax deductible? It can be pointed out that in the case of a depreciating asset that by buying the item on time that not only are you paying interest on the loan, for the big screen TV from a big box store, but also the TV is depreciating as you watch it. It can be argued that you are obtaining enjoyment and status from the large plasma TV and that is a benefit in itself, but overall you are paying a very high cost to watch those TV shows.
However what if the depreciating asset actually increased your income stream? It a good idea to borrow then? For example perhaps you lack transportation – or reliable transportation. A car loan is not tax deductible, for you as an individual. By having the car you may be able to obtain a better paying job, or in some cases if you are continually coming late to work due to car breakdowns may allow to keep a good paying job. In addition you may have costs and costs of your time if you are able to take public transportation to work. In this case by purchasing a new or replacement car and even if you have car payments , by purchasing that vehicle and financing it may well be to your overall financial benefit.
In the end as in life – nothing is either entirely good or entirely bad. It all depends. Taking loans or mortgages and incurring debts can be good or it can be bad.
Don't be forced into anything. Take time to think and ask opinions from qualified people with different ranges of expertise and expertise. In the end everything is life is a decision – cost versus benefits. There will always be some risks involved in any intelligent decision. Just do your homework, be above board. Lastly , if possible don't be pressured into any transactions that ultimately are not to your personal benefit.
Over the past 25 years the amount of debt the average American or Canadian owes has risen amazingly. The mindset if have now, Why wait for spring? Have that car or large house now. This is a very different mindset than our parents were raised on. Their attitude often was "pay cash" and "if you cannot afford it, don't buy it". Our parents were more often than not raised themselves by parents who had lived during the "great depression" of the 1930's where almost everyone had nothing , no job, no money , no employment and certainly no money to pay off loans. Hence easy credit was not available nor part of their lifestyle. An economic historian R. Z. Strokon has noted that the best education that many young people could have today is to "learn to wash floors".
It's good to now where a point of view and indeed a way of live originated from.
Is this mindset relevant today and of value? In our day and age credit if used wisely can well result in increased net worth over a person's or family's employment and financial lifetime.
As you well know over the last couple of years the cost of real estate – whether it is a house, a condo, a chalet or summer lake cottage has risen through the roof. You have to life somewhere – whether it is to pay rent or pay rent. If you go on a summer vacation you will pay for accommodations or you may pay the cost to pay down a loan for that summer vacation spot. In addition the mortgage payments may be tax deductible – a useful overall reduction in cost to you – that is assuming that you have employment and income to put you in a tax bracket where the tax deduction is of financial benefit to you and your family.
The basic problem is that in these times of great real estate inflation is that by staying out of the game – and buying the property. That by the next year the cost of the property may have escalated greatly and you may well be locked out of the purchase of your dreams. Compound that with the fact of the math that the increases, while even within your percentage means, are on much bigger baseline amounts and wow. As an example if the house of your dreams increased by a reasonable year to year rate of 10 % - then 10 % of $ 100,000 is $ 10,000 more of loan or mortgage to carry. However if that house has now escalated in price to $ 300,000 then your increased debt load that you will carry to have that same property will be $ 30,000. This is why in effect many future home owners are in effect panicking and buying now instead of forestalling their plans of home ownership for the future. Otherwise they may well be locked out of home ownership.
What if the loan payments are not tax deductible? It can be pointed out that in the case of a depreciating asset that by buying the item on time that not only are you paying interest on the loan, for the big screen TV from a big box store, but also the TV is depreciating as you watch it. It can be argued that you are obtaining enjoyment and status from the large plasma TV and that is a benefit in itself, but overall you are paying a very high cost to watch those TV shows.
However what if the depreciating asset actually increased your income stream? It a good idea to borrow then? For example perhaps you lack transportation – or reliable transportation. A car loan is not tax deductible, for you as an individual. By having the car you may be able to obtain a better paying job, or in some cases if you are continually coming late to work due to car breakdowns may allow to keep a good paying job. In addition you may have costs and costs of your time if you are able to take public transportation to work. In this case by purchasing a new or replacement car and even if you have car payments , by purchasing that vehicle and financing it may well be to your overall financial benefit.
In the end as in life – nothing is either entirely good or entirely bad. It all depends. Taking loans or mortgages and incurring debts can be good or it can be bad.
Don't be forced into anything. Take time to think and ask opinions from qualified people with different ranges of expertise and expertise. In the end everything is life is a decision – cost versus benefits. There will always be some risks involved in any intelligent decision. Just do your homework, be above board. Lastly , if possible don't be pressured into any transactions that ultimately are not to your personal benefit.
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