Recession

[glenbo]

There’s a lot of different debt one can take on. Dave Ramsay focuses on consumer debt, and I agree with him that it’s generally bad.

But debt can also be used to purchase income-generating assets…typically by businesses but entrepreneurs and especially real estate guys also do it. Done right, this is good debt.

As an example, real estate guys who own rentals can pull equity and this also can be good debt, because the renters are paying it down. Pulling debt equity isn’t taxable, but selling for a profit is taxable.


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Excellent points, and there may be many more people looking for a place to rent after they find their mortgages are no longer sustainable due to job loss or everything so high priced they have to make some bad choices.

 

[wakosama]

doesn't matter to alot of us already on a fixed income. IRA got eaten up and all that... blah, blah... etc. a couple other old folks around here shared the same futility. you'd think we'd be angry.... can't understand why not. we're just ashamed instead.... believed the lies.

 

[Sasquatch]

doesn't matter to alot of us already on a fixed income. IRA got eaten up and all that... blah, blah... etc. a couple other old folks around here shared the same futility. you'd think we'd be angry.... can't understand why not. we're just ashamed instead.... believed the lies.

Going to be roughest on those already retired. I can't imagine the position a lot will be in - in your 60's, 70's, or even 80's and facing astronomical prices on everything, without commisurate increase in your retirement pay. Having to try competing with people in their 30's, 40's, and 50's in the shrinking job market just to get by.

Do you sell the home you (hopefully) own outright because the taxes and upkeep are stupid, but who is going to buy it when interest rates are shooting up into 1970's / 80's levels and qualified buyers are far fewer. Do you sell it to some shady conglomorate like Blackrock? Do you try to get one of those reverse mortages that give you a fraction of the actual value up front and let you stay there, but then the house belongs to them when you die and your heirs get nothing.

 

[TexasRedneck]

Yeah, I've heard all about "good" business debt....right now, my little gig is bringing in around $2-300k annually. If things get as bad as I expect, those numbers are gonna drop BIG time - and if I had gone into "good" debt, there wouldn't be the income to cover it. When I buy a piece of business equipment on paper, it's because the APR is stupid good...but I've got the cash reserves on hand to pay it off at any time I want/need to. Yeah - it'd be cool to rock around in a $130k 3500 CC with custom paint and utility bed....but y'know what? My $58k truck does the job just fine...and I have more gun fun money.

 

[Sasquatch]

Yeah, I've heard all about "good" business debt....right now, my little gig is bringing in around $2-300k annually. If things get as bad as I expect, those numbers are gonna drop BIG time - and if I had gone into "good" debt, there wouldn't be the income to cover it. When I buy a piece of business equipment on paper, it's because the APR is stupid good...but I've got the cash reserves on hand to pay it off at any time I want/need to. Yeah - it'd be cool to rock around in a $130k 3500 CC with custom paint and utility bed....but y'know what? My $58k truck does the job just fine...and I have more gun fun money.

Corporate structure matters when it comes to debt, for sure. It all comes down to what makes the most sense, how much assets you have, etc.

When we bought a brand new $30k van (yeah, not a $130k truck) we could've bought a used vehicle outright for cash, but the depreciation we took on the brand new one was more advantageous at the time than buying a used one.

Then COVID hit, which no one could've predicted, and we *almost* had to sell the damn thing. We went from looking at expanding and getting another vehicle and hiring a couple more employees, to laying off all of our employees, running with just the owners, and limping along. *almost* took the PPP loan, but didn't like the strings attached.

We limped along, things stabilized and we slowly brought things back and limped along on a treading-water basis, not a making money basis. I got out at a good time - I didn't walk away with a pile of cash when I left that partnership, but I also didn't walk away with $50k in debt either if things hadn't come back and we shuttered the business.

When I was towing and working for someone else, my boss bought nothing but used vehicles, for cash until it got to a point we had *no* tax write offs besides payroll. So two years before he wound up retiring, he financed a brand new 80k truck. Made tax sense. When he retired - his wife wrote a check paying off the truck, then they sold it along with the other business assets and they're doing just fine.

On the flip side, we knew other companies that were larger than us that went under because they financed way too many vehicles, took on the wrong contracts, and didn't realize till it was far too late that they were screwed. I knew guys who lost everything they had - poor business structure, stupid mistakes like mixing business and personal assets, and their bad business decisions cost them their homes.

 

[pronstar]

Excellent points, and there may be many more people looking for a place to rent after they find their mortgages are no longer sustainable due to job loss or everything so high priced they have to make some bad choices.

Best rentals are entry-level C-class neighborhoods.

When the economy is good, people move up from renting apartments to renting a house.

And when the economy is bad, people looking to downsize their monthly nut for whatever reason will move down from B-class neighborhoods.


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[Havok1]

I'm on some sales professionals groups on FB and a lot of the people on there love to shit all over Dave Ramsey and his preachings. They all use the "why use your own money, use cheap money and invest your cash because you earn more interest than the loan cost is" nonsense - those same idiots don't acknowledge the writing on the wall that we're headed for another big disaster. Return on investment? How about when those stocks tank, businesses go under, and that money is *gone* and you're stuck with that loan still?

MuH DePrIcIaTiNg AsSeTtS they spout when you talk about paying cash for things like cars and boats and whatnot.

MoRtGaGeS aRe ChEaP - not anymore skippy!

I wonder how many of those same fools will be shitting on Dave in 18 to 24 months, and how many will wind up on his Baby Steps program trying to rebuild something of their life.

Bankruptcy is no fun. BTDT.

Those guys who have gone out and financed themselves to their eyeballs, who bought more house/property than they could realistically afford, who had to have the $100k Covid priced Tahoe or F250 instead of keeping that 4 to 6 year one... I'm going to laugh my ass off at them when it comes crashing down.

Guys like Ryan Stewman may or may not ride out that crash too - there are a few loudmouths in the business space I kind of hope have a rough go when this house of cards falls because they love to shit on people for making sound financial choices instead of financing everything.

Those people may not be completely wrong. Dave Ramsey’s advice may be good for people who have trouble managing debt, but he’s not rich because he’s a great investor, he’s rich because he’s a good author. Taking cheap loans and investing money is a good strategy and when it really comes down to it, is how most people build enough wealth to retire since they invest in 401K’s while paying down the mortgage on their home, as opposed to waiting until the home is paid off to being contributing to 401k. The math is no different when investing outside the 401k or borrowing money at low rates for other purchases, as long as doing so doesnt result in getting over leveraged, which is where people end up in trouble.

people should also consider that a paid off home can still be lost if you can’t make property tax payments, so owning everything free and clear doesn’t help if it’s where all of your money is.

 

[Sasquatch]

Those people may not be completely wrong. Dave Ramsey’s advice may be good for people who have trouble managing debt, but he’s not rich because he’s a great investor, he’s rich because he’s a good author. Taking cheap loans and investing money is a good strategy and when it really comes down to it, is how most people build enough wealth to retire since they invest in 401K’s while paying down the mortgage on their home, as opposed to waiting until the home is paid off to being contributing to 401k. The math is no different when investing outside the 401k or borrowing money at low rates for other purchases, as long as doing so doesnt result in getting over leveraged, which is where people end up in trouble.

people should also consider that a paid off home can still be lost if you can’t make property tax payments, so owning everything free and clear doesn’t help if it’s where all of your money is.

Yes, but taxes are a lot cheaper than a mortage, and if the taxes get to a point of being overburdensome, you can sell and downsize to a still paid-off home or opt for a rental.

 

[TheDan]

believed the lies

Well at least you can admit that. Many people can't, and want to keep perpetuating the lies onto others.

 

[Prisondoc210]

Yeah except debt to GDP was ~30% then, and now it's ~125%.

If they raised rates high enough to actually stop inflation, they would also have to completely monetize the debt (instead of the aprox 30% monetization they currently do) to keep the government solvent. If they do that, inflation will keep going up regardless of rates because government spending will be completely decoupled from price signals.

Any serious plan to stop inflation will need to start with big reductions in gov spending, because gov debt is the main source of money creation. What politician is going to do that?

Ron Paul, but he's kicking 90 in the ass. Too old to help us now .

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[oldag]

Sticking so much of your money in the stock market that if it tanks you're screwed, then you rolled poorly.

Diversity is good.

401K's are just a poor way of investing in the stock market anyway. Fully fund your IRAs, sock money in your savings account and don't touch it, buy some bonds, buy stocks that you research, buy real estate if you can afford it. Hell, you can even get certain life insurance products that pay you *before* you die.

If you are in the stock market with a long term horizon, you don't care if the market tanks. It will come back. Now that changes as you near retirement.

401k's are an excellent tool. Especially considering matching. Everyone should ensure they put enough in the 401k to get the maximum match.

Umm, life insurance is not free. You don't get money back per se. You get back some of what you paid in. Ain't no free money.

Put the max in your 401k, IRA and Roth IRA. Probably just as well to put in a basic index fund with low fees. Check it once a year. Hang in there through the ups and downs.

If nearing retirement, consider getting into dividend aristocrat stocks. These companies have never cut their dividend, even in the worst times. So you don't have to sweat the market ups and downs. The dividends don't change.

 

[TexasRedneck]

Those people may not be completely wrong. Dave Ramsey’s advice may be good for people who have trouble managing debt, but he’s not rich because he’s a great investor, he’s rich because he’s a good author. Taking cheap loans and investing money is a good strategy and when it really comes down to it, is how most people build enough wealth to retire since they invest in 401K’s while paying down the mortgage on their home, as opposed to waiting until the home is paid off to being contributing to 401k. The math is no different when investing outside the 401k or borrowing money at low rates for other purchases, as long as doing so doesnt result in getting over leveraged, which is where people end up in trouble.

people should also consider that a paid off home can still be lost if you can’t make property tax payments, so owning everything free and clear doesn’t help if it’s where all of your money is.

He walks the walk - he grew slowly because he learned a hard lesson about debt. Yes - I'll "use" debt to an extent, but I don't go into debt "because of the tax write-off". Bear in mind - I've been involved with small business since I was a kid, and saw lots of friends driving fancy rigs, fancy offices....and 5 years later, they were packing their shit in a cardboard box while the sheriff watched. COVID was a perfect example of what can go wrong and destroy a business operating on accounts receivable financing.

Drive the fancy rigs, and I'll sit over here and cheer you on - I'll even hope that things go right for ya. Me, I'm gonna be the ol' tortoise.....and I'll sleep a lot easier.

 

[Sasquatch]

If you are in the stock market with a long term horizon, you don't care if the market tanks. It will come back. Now that changes as you near retirement.

401k's are an excellent tool. Especially considering matching. Everyone should ensure they put enough in the 401k to get the maximum match.

Umm, life insurance is not free. You don't get money back per se. You get back some of what you paid in. Ain't no free money.

Put the max in your 401k, IRA and Roth IRA. Probably just as well to put in a basic index fund with low fees. Check it once a year. Hang in there through the ups and downs.

If nearing retirement, consider getting into dividend aristocrat stocks. These companies have never cut their dividend, even in the worst times. So you don't have to sweat the market ups and downs. The dividends don't change.

There are life insurance companies that are mutual companies - that is policy holders are *shareholders* and you get dividends as a policy holder. The face value of the policy still pays out upon your death. Naturally the more you pay the more shares you have and the larger the dividends you get.

One can also use a whole-life policy as a sort of savings account - Ramsey hates whole life insurance for some reason but you can withdraw, tax free / penalty free, money from the accrued cash-value with a whole life policy if you need it, and that amount gets deducted from the face value paid out on your death if you don't put the money back in.

 

[Havok1]

Yes, but taxes are a lot cheaper than a mortage, and if the taxes get to a point of being overburdensome, you can sell and downsize to a still paid-off home or opt for a rental.

It doesn’t really matter that it’s cheaper. It matters whether you have the money or not, and having all your net worth tied up in your house like so many people do is not a good position to be in. Keeping the mortgage and investing on top of it reduces that problem more than paying down the mortgage instead of investing. There are plenty of calculators that show the math on investing vs paying down loans and in the case of homes it tends to show that investing is a better choice. Of course the benefit declines when mortgage rates get higher, although people may be able to refinance to a lower rate later. My mortgage rate is barely 2% and with inflation as high as it is, mathematically it makes no sense not to keep that mortgage as long as I possibly can. If I were given a check today for the remaining balance on my mortgage and had the opportunity to invest it or pay off the mortgage, I’d absolutely invest it. Paying off the mortgage would make little difference in my monthly bills but the amount I could make on it invested in the stock market would be a large amount of money ofer the time period remaining on my mortgage.

He walks the walk - he grew slowly because he learned a hard lesson about debt. Yes - I'll "use" debt to an extent, but I don't go into debt "because of the tax write-off". Bear in mind - I've been involved with small business since I was a kid, and saw lots of friends driving fancy rigs, fancy offices....and 5 years later, they were packing their shit in a cardboard box while the sheriff watched. COVID was a perfect example of what can go wrong and destroy a business operating on accounts receivable financing.

Drive the fancy rigs, and I'll sit over here and cheer you on - I'll even hope that things go right for ya. Me, I'm gonna be the ol' tortoise.....and I'll sleep a lot easier.

I’m not saying everyone needs to “drive fancy rigs”. There is a huge difference between over spending and carrying debt because it’s chaep, and people often mix the two together when making blanket statements about debt being bad. Dave Ramsey went bankrupt because he had loans get called and couldn’t afford to pay them. Since people for the most part do not need to worry about mortgages on primary residences getting called, this is mostly a non issue for people who would read his books and follow his advice. You can say he “walked the walk” but he still didn’t make money because he’s a good investor. He lost his ass because he’s a bad investor and got wealthy by writing books about it. so if his followers think they too will end up in a $15 million mansion if they follow his advice, I have some bad news for them.

 

[oldag]

There are life insurance companies that are mutual companies - that is policy holders are *shareholders* and you get dividends as a policy holder. The face value of the policy still pays out upon your death. Naturally the more you pay the more shares you have and the larger the dividends you get.

One can also use a whole-life policy as a sort of savings account - Ramsey hates whole life insurance for some reason but you can withdraw, tax free / penalty free, money from the accrued cash-value with a whole life policy if you need it, and that amount gets deducted from the face value paid out on your death if you don't put the money back in.

Whole life policies have been largely regarded as a poor means of "investing". Buy term., it costs less. Beside, whole life is term life in reality.

 

[glenbo]

We paid off our house about 10 years ago, which was about 10 years early, by putting a little extra each month toward principal. Sending in that final payment was one of the best feelings in life. Within a few years we had also sold most of our other real estate and now have a good sized lump of cash in our credit union. In 2019 I bought a new Ford Ranger and financed it at 0%, why wouldn't I? I'm using someone else's money for free. I mentioned to the boss that I'd like to pay it off this year just to have it paid off, but there's no incentive to do so when it's not costing us anything more than a few mouse clicks to pay it each month.

We recently bought a 2022 Honda HR-V because I wanted us to have a second vehicle. It's financed at 2.08%. I just last week received an email from our credit union offering refinancing for vehicles that would either lower the percentage rate 1%, lower the monthly payment $100, or offer 1% cash back. I applied but haven't heard back from them. They may have realized that kind of offer isn't good for the credit union but would be great for me. I'm going to pressure them to stand by their word. They probably will since we've been with them since 1993.

 

[TX OMFS]

Like I said earlier, I'm cancelling a medium capital purchase, instituted a hiring freeze, and anticipate increasing prices by year end. On the other hand, I just added about $3500/month to my ad budget. I'm a double minded man, I suppose.

I sell a service people need (extractions and other surgery) to treat pain or pathology. I also sell an elective service (dental implants) that people don't need but many people want no matter what the economy is doing. I had a middle age guy in her recently who hates his dentures and wants implants. It doesn't matter what the economy is doing, he's getting implants. My prices are lower than any other oral surgeon in the state, to my knowledge, and I have lots of experience.

I've never run a business in this climate. But I have run a business, which is more than pudding head or most politicians and economic "experts" can say.

I'm enjoying hearing stories from you other business owners, like @TexasRedneck.

 

[glenbo]

One of the best things about owning a bar, which my wife did for 20 years, is that no matter what the economic climate is, people still will find money to go out and drink a few beers. Her business was steady the entire time she had it.

 

[toddnjoyce]

…One can also use a whole-life policy as a sort of savings account - Ramsey hates whole life insurance for some reason but you can withdraw, tax free / penalty free, money from the accrued cash-value with a whole life policy if you need it, and that amount gets deducted from the face value paid out on your death if you don't put the money back in.

Ever see the interest rate charged on those loans? Payoff is generally lump sum with interest collected annually on the policy anniversary date.

 

[Vaquero]

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