The 7 Deadly Financial Sins
by
Heather Koerner
on Mar 14, 2008 at 11:33 AM
Over at Yahoo Finance, Laura Rowley has written an article whose title just made me smile: "The Wages of Financial Sin is Debt (among other things)." Clever.
In it, she creates her own list of the seven deadly financial sins.
- Failing to identify what thy money is for
- Not living within thy means
- Believing that material wealth will solve all of thy problems
- Shopping while feeling sorry for thyself
- Not saving for college because thou expects financial aid (or a higher power) to take care of it
- Receiving a whopping refund after filing thy tax return
- Not saving for thy golden years
I would wholeheartedly agree with most of these. And so would Proverbs. Frankly, if most of the U.S. (including our elected officials) could get down #2, we'd be a whole lot better off. And the study that Rowley quotes under point #4 is humorous and a little cautionary.
As to #6 ... well. I know that if I get a big refund that I'm actually lending the government money interest free for a year. I get it. It just doesn't ruffle my feathers so much. I do due diligence and give my best guess at my deductions at the beginning of the year and then chill out. Extra giving this year = bigger refund. Not going to sweat about it.
So if I was making my own list, I'd boot #6 and add, of course, "Not giving to my Lord and the needy."
Then, maybe adding in somewhere: "Thinking thy student loans will be easy to pay off and will not consumest thy life for years."
Or how about: "Taking out thy adjustable rate mortgage and then protestingeth when it adjusts."
Or how about: "Spending the majority of thy paycheck on things that wilt be in a junkyard in less than a decade."
Or how about ... never mind. My list is too long.
1. Adam T. had the following to say on Mar 14 at 11:58 AM:
#6 - I don't get it. Getting a tax refund is a bad thing...? Does someone want to explain this...?
2. Mike Theemling had the following to say on Mar 14 at 12:15 PM:
To add a few more:
- Buying things for full retail instead of waiting for a sale or buying it secondhand. NEVER buy a car for new unless you are a millionaire (maybe less, but not much)
- Not investing your money but letting it sit in a savings account earning abyssmal interest rates (assuming you have savings to begin with)
- Signing up for new credit cards because they give you 10% off your purchases today. You know what, if you don't make that purchase you'll save a lot more!
- Paying off your house early when you could use that money to invest and get a better return after 30 years. You also get tax benefits as well.
3. Mike Theemling had the following to say on Mar 14 at 12:19 PM:
Adam,
Here's why getting a tax refund is a BAD thing.
Say I made a deal with you. "You give me $1,000 today and I swear 1 year from you I will give you your $1,000 back".
Is that a good deal for you?
You are essentially giving me an interest-free loan. Here's what I'll do with the money. Put it into a 1-year CD and gain maybe 6% interest on it. That means at the end of 1 year I get $60 for free. I then hand you back the $1,000.
Now, wouldn't YOU rather have the extra $60?
Tax refunds work the same way. You are essentially giving Uncle Sam an interest-free loan (give me money now, I'll give you the extra money a year from now). I'd rather have the interest-free loan.
Having said that, for some it's a better idea to have a refund because they will not invest the money and will blow it instead. For those people, it's the only way they will be able to save at all (again, assuming they don't blow their tax refund). But what you are essentially doing is putting your money into a 0% interest CD. Does that sound like a good deal? Would ANYONE invest in a 0% CD??
Hope that clears things up.
4. farmer Tom had the following to say on Mar 14 at 12:30 PM:
This is specifically addressed to women. It is probably the most deadly sin that a woman can commit with money. I believe taking money for sex would be less deadly. Rahab was forgiven for that and is included in the linage of Jesus.
I expect all kinds of hate, vitriol and anger to result from this comment. If you have thin skin and are easily offended Do Not Read Any Further. You have been warned. All snide comments, questions about my parental heritage and name calling will be ignored.
Here it is. (You have been warned).
If you desire marriage at some point in your life. Do not borrow money to go to college.
I believe in free will. I can chose to marry whomever I wish, in the Lord.
Marrying a woman who owes/owns thousands of dollars in unpaid tuition loans is insanity.
Not only are you committing to an extended period of paying on those loans, if you began to consider having a family then those loans have to be paid out of the salary of the one income earner in the household.
Many of you are borrowing as much money as it would cost for two or three cars. Yet if you get married the payback will have to come from an income that must cover the cost of housing, transportation, health insurance, food, clothing etc. Now if the guy were dumb enough to borrow a bunch of money, and he marries a woman who borrowed a bunch of money you have massive amounts of debt to be paid from the income of one individual, if you desire to be a stay at home mom.
Ladies, I personally know guys, who eliminate from their prospective dating list women who owe large amounts of money, for the simple reason that they do not want to someday be responsible for paying off that debt.
I consider student loans for women to be akin to credit card debt. Money spent on personal pleasure which will never be able to repay itself.
Ok, remember you were warned. If you did not like my comment, tough toenails. I have a right to my opinion, you have a right to be wrong.
5. Ted Slater had the following to say on Mar 14 at 12:36 PM:
Adam -- a "whopping" tax return is an interest-free loan to the government. Not a wise use of your money.
6. Melissa S. had the following to say on Mar 14 at 12:44 PM:
Adam T, Comment #1-
In the blog post, Heather explained the problem with getting a big tax refund.
The problem is that you are lending the government your money without getting anything in return. Not even a tiny savings account interest rate. Hardly showing good financial stewardship.
7. Laura_MH had the following to say on Mar 14 at 12:47 PM:
Adam T (1), when you get a whopping tax refund, you've allowed the government to hold your money all year, interest free. What you could have done is had less taxes withheld from your pay and either save or invest that money to make it work for *you* during the year - before giving it up to Uncle Sam.
Of course there are many people who do not have the discipline to do this. As a younger adult I couldn't save money like that, I'd spend it so I purposely had a lot withheld. The problem with that, however, is that I always felt entitled to then blow my entire refund on clothes or travel.
8. DannieA had the following to say on Mar 14 at 12:53 PM:
Since I'm doing my best to eradicate student loans (something i didn't think about as our family should have)
AND I'LL BE DONE WITH MY 38,000 ONE IN MAY! Yay! I go with the motto of
larry Burkett's
you should only pay for mortgage and a car payment because those are your only necesities. To live and to go from point A to point B.
Everything else should be within your means.
9. Jane2 had the following to say on Mar 14 at 12:57 PM:
Mike, good point. I would like to add that getting a tax refund is much, much better than owing money. When I was a server, I was honest, and claimed the amount I actually made. So of course it came back to bite me in the butt. And I ended up owing both state and federal. I know, I can't believe it either. So now, I get a couple thousand back, I'm happy.
With your example, you are "lending" the govt $1000. And they give it back to you, interest free a year later. Pardon my poor wording but I hope you get my drift with this example.
If I had $1000 in hand, I'd invest it. But I don't. It's more like $83 a month. With roughly $83 a month, I wouldn't be investing that amount.
And that is in essence what the govt is doing. I give them $83 a month and they return the whole $1000 back to me after a year.
So basically I'll opt for the govt to "hold" my $1000 and give it back to me..even though I make no $$ off of it..
Hope I make sense!
10. Melissa S. had the following to say on Mar 14 at 1:00 PM:
Comment #2 "- Paying off your house early when you could use that money to invest and get a better return after 30 years. You also get tax benefits as well."
I'm confused about the better return part. How does being in debt win out over not being in debt?
I'm wondering if the money you use to invest instead of paying off the house debt actually makes a better interest return than simply not paying extra interest on the house in the first place. But I haven't crunched any numbers.
It doesn't make any obvious sense to advocate not getting out of debt as quickly as possible in favor of investing money that you really don't have (since all that and more is owed to the bank) and tax breaks.
I really am curious and not just trying to poke holes in the original statement for the fun of it.
As a side note: Isn't it interesting how house debt isn't really considered a serious debt and is called "smart debt"? (Is that an oxymoron?) It's socially acceptable to have house, car, and school debt. And as Christians, everything must be judged through Scripture. So what kind of debt does the Bible say is right or wrong? Wise or foolish?
11. Adam T. had the following to say on Mar 14 at 1:20 PM:
That's a great explanation, Mike (thanks); but I'm still not sure I get it. I'm sitting here trying to figure out what it is that I still don't understand, and I guess it's this: how is a tax refund something that you have any control over?
Suppose (hypothetically) that I receive a $1000 tax refund this April. I understand why you say that's a bad thing, but - how could I have avoided it?
12. Reid had the following to say on Mar 14 at 1:29 PM:
#2: What investment strategy would you recommend as an alternative? Short-term, medium-term, long-term?
#3: If there's a 1-yr CD out there that actually earns 6%, sign me up ;) .
13. P&P had the following to say on Mar 14 at 1:29 PM:
Thou shalt have an emergency savings fund in an easily accessed account at all times.
(Thou never knowest when thine filling whilst crack and thou needest an emergency trip to the dentist.)
Thou shalt never make an impulse purchase no matter how cuteth or coolith the item.
Thou shalt be frugal, but never cheap (e.g. bring your own lunch most days, but always toss in your fair share PLUS tip when dining out with friends).
14. Adam T. had the following to say on Mar 14 at 1:37 PM:
Okay, I've just gone and done my own research, and I get it now. Here's a great explanation of it:
Why A Large Tax Refund Is Bad
Many people are delighted to receive an income tax refund. What they have failed to consider is that the refund is their money from the start. The Government has had interest-free use of it during the past year.
Those who consistently receive large tax refunds should decrease the amount of taxes withheld by their employers. This action decreases or eliminates an annual tax refund, but it puts more money in the person's pocket each month!
That pretty much clears it up. I didn't know that it was somehow possible to get your employer to withdraw less tax from your pay. I'll have to look into that.
15. Brent had the following to say on Mar 14 at 1:44 PM:
Good comment farmer Tom. Looking at some one's check book is the best way to know where their heart is.
16. Jane2 had the following to say on Mar 14 at 2:08 PM:
Laura_MH, that sounds like a great idea, but I don't think most people don't practice it.
17. Kay had the following to say on Mar 14 at 2:13 PM:
In response to farmer Tom (#4):
I'm having a hard time finding biblical support for your position that student loans for women (why just women, by the way?) are a) sinful, and b) worse than prostitution. Got anything to back up what you've said, or is it just the way you see things? Because you certainly do have a right to your opinion, but you don't really have a right to sit in judgement over women for something you (but not God) consider to be sin.
Also, since when does education = "personal pleasure"? If you want a decent paying job that's not a skilled trade, isn't a BA (or other degree) just a teensy bit more than fun?
18. Jane2 had the following to say on Mar 14 at 2:19 PM:
Oops. I meant to say, "Laura_MH, that sounds like a great idea, but I don't think most people practice it."
19. P&P had the following to say on Mar 14 at 2:19 PM:
Sheesh, maybe it's the sleep deprivation of working too much, but I agree with Farmer Tom, up to a point.
Frankly, the same thing goes for my approach to men as well. I once briefly dated a guy who did not manage his money well at all. He was deeply in debt and didn't seem to mind. When I asked him how he expected to live without roommates or buy property, he just looked at me expectantly.
Um, I'm a a feminist and a firm believer that a marriage is an equal partnership both economically and socially, but I ain't no sugar mama. I don't expect a man to support me as long as I'm able to work and the same should go for him as well.
One of the biggest deal breakers for me is how a man handles his money; if he's painfully cheap, you'll never get so much as a card on your birthday, but if he's a spendthrift, you're equally responsible for his debts once you're married.
I don't have too much of a problem accruing some debt for higher education (if people didn't take out loans, there would be very few doctors), but you need to look at the overall cost of education. Too many times I've seen kids get stars in their eyes from being accepted to "Exclusive U" only to graduate with over $100k in debt, when ther's a comparable program at a public university. There might still be some debt, but it won't be as crushing as loans for private schools.
20. Adam T. had the following to say on Mar 14 at 2:20 PM:
Great, thanks for the tips, everyone. As I say, I was confused because I never heard of getting a refund because you paid too much tax throughout the year.
All my refunds have always been for other reasons, and I think I was a bit thrown when I read the post because I am expecting a 'whopping' refund, but not because the gov't took too much last year. In the States do you get tax breaks for going to school? For contributing to retirement savings?
21. skp had the following to say on Mar 14 at 2:22 PM:
Father Tom,
When we got married, I had a paid off car and my husband didn't. BUT I owed the equivalent of my husbands car loan in student loans. (My parents convinced me I'd be better off paying off the car first since it had a higher interest rate). I have contributed far more money than that car cost and continue to do so- while the car is in the scrap yard. (I owed about 1/3 of a years salary which is about $20,000 in todays dollars). Personally I'd take school loans over credit card debt anyday.
22. Carrie (the original) had the following to say on Mar 14 at 2:24 PM:
Adam, thank for doing the homework, but I think I'm still a little confused.
If I only claim one dependent on my W-2, how on earth can I decrease the amount of money that my employer takes out?
My refund isn't nearly as big as last year, but that's because I took a class and got a scholarship for it.
Oh, and farmer Tom, I usually enjoy your comments and appreciate them. However, I think people need some grace. I've learned much about finances and long term financial planning in the last year. I simply didn't have the wisdom 8 years ago. My mom had even less wisdom than I did because she had never put a penny into saving for my college education. It was about six month before I wanted to leave for college and I was informed that I would have to come up with $80,000 to pay for college. I had signed the acceptance form and everything! This was our first and only screaming match that my mom and I ever had.
So, I will be paying $100-$150 each month for the next 15 years. There is much that could be done though. Even if I were to start dating tomorrow, it would be 18 months (at least) before I got married. I could keep on working when I got married and put every paycheck toward student loans. I'm sure we'd be able to eliminate my student loan debt and save for our first child at the same time.
I sure hope any potential mate takes into account that I've matured greatly over the last 8 years.
23. Mike Theemling had the following to say on Mar 14 at 2:30 PM:
Melissa S.
I agree that it seems strange. "Isn't all debt bad?" ALMOST all debt is bad, but not every type.
For example, college debt if not excessive is a good investment. Because although you will go into debt you will be getting an education which in the long term will get you more money than if you started working right away with just a HS diploma. You pay off your debt, and you are ahead overall.
Here's why paying your house of early isn't the greatest idea:
You are putting equity (money) into your house. But how much interest is it earning you? 0% interest. Nothing.
Secondly, there are only 2 real ways to access that equity out of your home (Not counting home equity loans here, not the greatest idea either unless you are paying off high interest credit cards or something): 1) Sell the house, keeping the profit made and 2) Refinancing the house. Things that don't happen very often unless you invest in real estate a lot.
So why not use that extra money you would've used to pay off the house and invest it instead? Instead of earning 0% interest, you will earn more, probably around 10-12% in a mutual fund(if the investment is smart). After 30 years, that money will be worth so much more than you paid in interest you could just pay off the house outright (writing a huge check if you wanted to).
And think of tax write off benefits you get from owning a house and paying interest on it (I'm not saying you should invest in things solely as a tax shelter, that's not a good idea, but when you can save some money on taxes, why not do it?).
And my opinion isn't in the minority. Almost all financial advisors say that it's better to have a longer term loan than to pay it off.
Of course, this all depends upon the assumption that you WILL invest the extra pocketed money. If you don't and just blow it, then yeah, maybe you should put it into extra mortgage payments.
24. DannieA had the following to say on Mar 14 at 2:34 PM:
no debt is a "wise" debt...but the truth of the matter is, we do need a place to live and a mode of transportation....now if you live on the east coast (NYC) maybe your mode of transportation is public and you don't need to get into debt with a car...however, for everyone else...you need transportation.
so yes in two things one does need to have debt...(although a car is easier to pay off and should be done when able...shouldn't be hard if the downpayment was a good one)
in regards to Farmer Tom:
I think you have a point. I also think it should be played both ways. A guy can be equally sinful in spending money and yes I HAVE met them. And while they may have a higher paying job than I do....their credit cards are maxed out...they have student loans, and barely live within their means. That's tragic.
I'm almost done with my student loans (before I'm 30 yay!) and although I do pay them, I don't have credit cards and I have two savings accounts and am content....so I can envision someone taking out loans, but carefully and being able to actually be a good budgeter and spender....not a horrific steward of ones paycheck.
25. Mike Theemling had the following to say on Mar 14 at 2:37 PM:
Adam T.,
You can control how much tax is taken out by adjusting the number of exemptions. This number is anywhere from 0-10. The higher the number, the more money you get to keep NOW, but you'll have to take the taxes LATER.
As a general rule, as long as the amount you pay in taxes when you file isn't too much, Uncle Sam doesn't care whether you took a lot of exemptions or not. However, if they see you are paying TOO MUCH in taxes because of exemptions, they will insist you pay more (because now they are privy to your interest-free loan scheme).
Talk to your employer if you'd like to adjust the number of exemptions you have.
26. fran had the following to say on Mar 14 at 3:12 PM:
I am in college right now. I have taken out college loans, but I am paying them as I get though college. I will still have loans to pay off once I graduate. I view college as an investment toward my future--in the long-run I have more potential to increase my income. If a man only see debt when he looks at me because I decided to continue my education, I don't want him. It is his loss, not mine.
27. Heather Koerner had the following to say on Mar 14 at 3:14 PM:
Melissa S. (#10): Mike (#2 & #23) is right: His advice is conventional financial wisdom.
However, it's not my conventional wisdom. You might give "Mortgage Free? How Can That Be? a read for my differing opinion.
The basic point of the article: Instead of advocating an either/or approach (either pay off my mortgage or invest), I advocate a both/and approach (I make paying off my mortgage and investing equal financial goals).
Hope this helps!
28. Kellie had the following to say on Mar 14 at 3:17 PM:
Farmer Tom, one big assumption you are making is that a women will quit working when she gets married/has a family. That isn't necessarily true (whether you agree with it or not). And I admittedly don't know what the average college loan debt is these days, but together my husband and I's student loans could maybe buy a small car.
29. Amir Larijani had the following to say on Mar 14 at 3:56 PM:
Farmer Tom:
With respect to her debt, I'd say that it depends. What she did to get through college could easily have been at the urging of her parents and other folks in her life who had leverage.
To me, the larger issue is where she stands on the general issue of taking on more debt, and how she intends to handle her existing debt. (To me, a large credit card debt--or worse, a flippant attitude toward debt in general--is a bigger red flag.)
At the end of the day, we all have some baggage. For some people, it's financial. For others, it's ramifications from other sins (you all can fill in the blanks).
Ultimately, as long as both are believers who go into the marriage with Biblically-based expectations with respect to financial matters--and, whatever their past issues, stick to Biblical precepts--the marriage has an excellent chance of success.
That said, less debt--even no debt--is obviously the ideal.
But let's face it: how many people--even the guys--can say they have been pristine in their financial matters? While I am in pretty good shape today, I know I can't say that has always been the case.
30. Amir Larijani had the following to say on Mar 14 at 4:01 PM:
On the tax refund issue, again it depends.
In general, it would be correct to assume that waiting to get the tax refund back is less prudent than getting the money during the year and investing it.
On the other hand, if you are a spendthrift who blows the money quickly, it might be better to let the refund pile up so you can collect it later.
The first law of personal finance is that personal finance is personal first and finance second.
31. BDB had the following to say on Mar 14 at 4:13 PM:
The OP wrote:
>>I do due diligence and give my best guess at my deductions at the beginning of the year and then chill out. Extra giving this year = bigger refund. Not going to sweat about it.<<
Yeah, I ran into the same thing. I have a spreadsheet I used to build my W-4 deductions, which are significantly more than standard. But I still ended up with a large refund this year. I can't find my mistake. Since I do my own taxes, I don't know if I calculated my witholding wrong, or if I did my taxes wrong...I'm just afraid that somewhere in the tax software I double-entered a deduction.
As for student loans...I agree that both men and women should avoid them. While I do believe that people should get their financial house in order before pursuing marriage, which may cause a delay, the easiest solution is to avoid debt. The discipline is painful no matter when you start to live debt free; start now.
In my experience, the first $1000 was the most painful to invest - at $10 a paycheck. The first $1000 in giving is also the most painful - it gets easier. And the LAST $1000 in credit-card debt is the hardest to pay off. After all, if you've come a long ways, you deserve a little reward, right?
NO. You don't need a new mountain bike. Pay it off!
(But I like the mountain bike, still...)
32. Claire had the following to say on Mar 14 at 4:25 PM:
For Farmer Tom, who said,
"I consider student loans for women to be akin to credit card debt. Money spent on personal pleasure which will never be able to repay itself."
So for a WOMAN it is "personal pleasure" to go to college, but for a man, it is an "education" that will help him get a better job?
Sorry, but that is the most chauvanistic comment I have read in a while.... I don't see how education is lost, or a waste, or considered "pleasure time" like it's a vacation or something. Yeah, people may party all through school, but I didn't, I worked hard for my grades and had a job too. *Too bad it was just a pleasure trip and now I have nothing to show for it...*
I agree with you on the other points in that I don't think we should go into more debt than we need to, and I am fortunate that I don't have any AND I realize that this will help my future spouse. BUT, with all of that said, to say that a WOMAN spending money like that is a waste??? I don't get it....are we back in the 1800's??
Please don't get me wrong, I probably can be considered a person who has very few feminist tendencies and want to stay home when I have children. But honestly.
Besides...once people are married, aren't they ONE flesh? So if a man has a lot of college debt, it's ALSO the wife's college debt when they are married.
Well, blame a "college education" for making me so opinionated. Anyway, enough from my soapbox, Friday night pizza calls.
33. BDB had the following to say on Mar 14 at 4:31 PM:
Mike (#23) wrote:
>>You are putting equity (money) into your house. But how much interest is it earning you? 0% interest. Nothing.<<
Well, it is more complicated than that. Technically the benefit you gain from home ownership is that you don't need to pay rent to someone else. The goal IS to build equity. That equity is a retirement nest egg - assume that at some point you will sell your residence and move into some kind of retirement community - precisely what my grandparents did. So home equity is a long-term savings vehicle.
A fixed-rate mortgage is also a hedge against inflation. When infation increases, home values increase, but your monthly payment stays the same. Over time, your pay should increase also, making your fixed-rate home mortgage easier to pay each month. You can thus improve your overall financial situation by owning a home.
Right now we are in a bit of an odd market situation. The stock market has declined sharply in recent months, wiping out the "gains" people might have had from "investing" what they weren't using to pay down their mortgage.
At the same time, in some locations, home prices have fallen precipitously, wiping out the home equity many people had two years ago. There are a lot of people who now owe more money on their home than they could get if they sold it today. (Hint: don't sell today.) This has resulted in many banks freezing home equity lines of credit until homeowners reach no more than 90% loan-to-value on the new, lower value for their house.
But another thing to consider is cash flow. If you want to be able to raise a family on one income, you need to reduce your mortgage debt to the point where you can pay it on one income. That can be done by buying a smaller house, or by taking one spouse's paycheck and paying down the mortgage - especially if you've structured your mortgage to include a line of credit. Pay down the line of credit and you have it available for an emergency, but you can get through life with less in monthly fixed expenses. Which means you can get laid off and not immediately lose your home.
34. Kellie had the following to say on Mar 14 at 4:51 PM:
BDB: if my husband and I waited to get married until our finances were in order we wouldn't be married yet!! But together, after two years of marriage, we've paid off all credit card debt and bought a house.
35. James had the following to say on Mar 14 at 5:45 PM:
Farmer Tom (#4), your warning makes sense if she's not good at managing her debt. Some folks HAVE to take out loans to go to college, even to a reasonably-priced one. The question is, how does she manage her debt. That gets closer to the root of the right question, which is, "How good of a stewardess is she?"
So, your warning has merit, but focus a bit closer to the character issues involved and not just the outward financial appearance.
36. BDB had the following to say on Mar 14 at 6:45 PM:
Kellie (#34) wrote:
>>But together, after two years of marriage, we've paid off all credit card debt and bought a house. <<
Good for you! Two years is pretty quick.
Mostly I think people should start now because financial management is a discipline, and it's better to not avoid the pain. Most potential marriage partners will feel a lot better if you can show that you've been making progress at improving discipline, even if you're not done yet. And that discipline turns you into a better person.
And, frankly, if someone is avoiding marriage due to debt fears, the practice of chipping away at it each month might even change the way they feel...
37. Paul had the following to say on Mar 14 at 11:27 PM:
Farmer Tom, I thought for a second that you were writing tongue in cheek with #4, but I guess not. How in the world is a girl taking out money for her education a sin? let alone a worse sin than prostitution?
I tell every girl that I know to get a college education so that she doesn't need a man's help to live her daily life. If she finds love and financial stability, great! But I'm sure there are many girls who have trouble enough finding the first let alone needed to have both. Why is it an investment for you and I, but an atrocity for women? (And I'm not offended, I'm just askin')
38. Louise had the following to say on Mar 15 at 7:43 AM:
I would like to point out that not all credit card debt is the result of irresponsibility.
Sometimes people have no choice but to charge payments for medical treatment, or basic living expenses in the case of prolonged unemployment.
It's important for people to have an established credit line in case of emergency.
Then, after circumstances change for the better, they can work on paying off the debt.
39. Mike Theemling had the following to say on Mar 15 at 2:31 PM:
BDB,
I understand what you are trying to say. Let me address some of the issues:
"Technically the benefit you gain from home ownership is that you don't need to pay rent to someone else."
Agreed. Home ownership is better than renting overall. I never claimed otherwise.
"The goal IS to build equity. That equity is a retirement nest egg - assume that at some point you will sell your residence and move into some kind of retirement community - precisely what my grandparents did. So home equity is a long-term savings vehicle."
No, the goal is to build wealth so that you can retire comfortably. Home equity is a savings vehicle yes, but also a poor one. As stated, while equity sits in a house, it is producing 0% interest. The only way it produces more money is if the value of the home increases. The value of the house is independent of how much equity is in it. A house is worth $100K regardless if you have zero equity in it or have it all paid off.
"A fixed-rate mortgage is also a hedge against inflation."
I agree. A low interest fixed or interest-only loan (using simple interest as opposed to compound) is a good way to ensure your payments are predictable. But it still doesn't make any sense to put money into an investment vehicle which earns you 0% interest and will appreciate regardless of how much equity you have in it.
"Right now we are in a bit of an odd market situation. The stock market has declined sharply in recent months, wiping out the "gains" people might have had from "investing" what they weren't using to pay down their mortgage."
Stock market ups and downs have been going on for a long time now. But you know what, in just about every event since the Great Depression the stock market has ALWAYS come back to its level within 1 year (excluding Pearl Harbor, it took a couple of years). The stock market after 9/11 took a huge hit. But within 8 months, it was back at its starting level. And you know what, stocks are beginning to recover now.
It is a known FACT that the stock market has averaged about 12% over its lifetime (since the Great Depression). Of course if you take a snapshot of a year or so you can come up with bad return years. Likewise, you can show companies which go bankrupt. But as a whole, the market is a very good long term investment.
"But another thing to consider is cash flow. If you want to be able to raise a family on one income, you need to reduce your mortgage debt to the point where you can pay it on one income."
But that's not how amoritized loans work. They work at paying THE SAME AMOUNT EACH MONTH throughout the entire term of the loan. The only difference is what goes towards interest and what goes towards principle.
What I believe you are saying is that if you pay off more principle, your monthly payment will go down because the term stays the same but the principle (hence interest you pay) goes down as well, which is correct. I would still argue though that the money is much better off invested in a vehicle which produces more wealth. Then if there comes a time you want to pay off more of the principle, you can do it with the money you've invested AND keep a lot leftover.
Finally, I will say that the whole assumption to the "don't pay off your mortgage early, you'll have more money at the end" argument is that one MUST invest the money saved from making extra payments. And a CD won't cut it. If someone will just blow the money, then yes, it will probably be better to pay off the mortgage early.
40. kaj had the following to say on Mar 15 at 2:50 PM:
It's crazy the way today's economy works in that no credit is just as bad (or worse)than poor credit.
I don't agree how the credit system works--punishing people who only buy what they can afford. That's a "deadly sin" to encourage debt, in my opinion.
A few years ago, I tried to buy a decent used car. At that time, I was using public transportation to get to work, and owned no car.
All along, I paid cash for whatever I needed or wanted, with a "only buy what I can afford" mentality--including college (I had a small student loan when I graduated, but paid that off in a few months).
When I tried to get a loan for a car, I learned I had "insufficient credit history," and the only loan I could qualify for was some double-digit percentage rate--worse than a credit card.
(I refused to have my parents co-sign for a loan. I didn't want to put any pressure on them financially if something happened to me, and I thought it would be best to handle this by myself).
I took steps to establish a solid credit record, and when I could finally buy a reliable used car (necessary because I was working at a place and hours where buses would not go), I could qualify for a reasonable loan, too--one I plan to pay off a little early, yet boost my credit score as well.
41. NeedACatchyName had the following to say on Mar 15 at 3:24 PM:
While generally I agree that it's best not to get a tax refund for the reasons stated above, it also needs to be mentioned that this does not mean that you should go too far off the other end and get as little as possible withheld, invest what you would normally pay in taxes, pay a large sum at tax time, and pocket the interest. The IRS will make you pay a penalty if you do not withhold enough from your paycheck. You must have withheld from your paycheck an amount of money equal to either 90% of your current year's tax obligation or 100% of your previous year's tax obligation (whichever is less) or you have to pay an underpayment penalty. This is designed to keep you honest about withholding the correct amount of money and allowing the government to have the necessary steady stream of tax revenue instead of getting it all in one lump sum every April.
Really, the best strategy from a financial standpoint is to aim to owe/get back (whichever applies to you) as little as possible at tax time. In other words, try to make it so that you get as close to 100% of your tax obligation paid through withholding as is possible, so that you have neither a large refund or payment.
42. Chris had the following to say on Mar 15 at 7:04 PM:
Farmer Tom writes:
Ladies, I personally know guys, who eliminate from their prospective dating list women who owe large amounts of money, for the simple reason that they do not want to someday be responsible for paying off that debt.
I wonder, do they also eliminate women with medical conditions because they don't want to pay those future medical bills? Do they eliminate women who are only children and have ailing parents because they don't want to spend the money to take care of the in-laws? Do they eliminate women who made mistakes, got pregnant, divorced their abusive husbands for their own safety, and then went to college (and had to use loans) so they could afford it to better themselves and get a job to support themselves and their children? I'm curious what other types of women are eliminated by these guys with such high standards.
This is specifically addressed to women. It is probably the most deadly sin that a woman can commit with money. I believe taking money for sex would be less deadly. Rahab was forgiven for that and is included in the linage of Jesus.
If I was in the mood to be sarcastic, I would point out how the logical conclusion of your original post is that it's better for a woman to fund college by taking "grants" from New York governors than borrowing money from a bank.
I consider student loans for women to be akin to credit card debt.
So, if those loans were for, say, law school, that'd be bad? If they were for medical school, that'd be bad? If they were for some child development program, that'd be bad?
I dunno, having access to free legal, medical, or child development advice/skills doesn't seem like an inappropriate use of student loans.
But what do I know? I'm just making blanket statements about everyone.......
43. farmer Tom had the following to say on Mar 15 at 9:01 PM:
Since many of you failed to notice, I addressed my comments only to young women who desired marriage. I quote myself,
If you desire marriage at some point in your life. Do not borrow money to go to college.
So many things in life are economic equations. Even in the spiritual world there are laws of economics. "the wages of sin is death", "what shall it profit a man if he gain the whole world and lose his own soul".
When a woman takes on debt to finance an education that she may or may not use for more than a few years, she has put herself in the position of being a servant to the debt master, and she is in fact a financial liability to a potential husband. All other things being equal, if one were to chose between marrying a woman who owed money for her education and one who didn't, logic would say that a woman who owed no money or in fact had saved a dowry was a much better choice.
The problem is that all things are not equal, and a woman who choses to finance her education with debt is now a servant to that debt until it is paid. And if she is a normal American woman, she will use more than half of her child bearing years to get that education and then pay off that debt.
And I can't see that the economics pay off. It's a straight up trade. You are trading your youthful energy and fertility for what? An education which requires you to ignore the natural order so that you can pay off that debt.
If God had intended for women to be mothers in their fifties and sixties he would not have allowed menopause to happen.
Titus 2:1 But speak thou the things which become sound doctrine:
4That they may teach the young women to be sober, to love their husbands, to love their children,
5To be discreet, chaste, keepers at home, good, obedient to their own husbands, that the word of God be not blasphemed.
Women have allowed the world to convince them that they can make an economic deal which allows them to trade their youthful fertility for personal freedom and financial gain. I'm suggesting that deal is a violation of God's natural order and should be treated as a sin just as sinful as selling ones sexuality on the open market to the highest bidder. (Now the hating is really going to start.)
James said in # 35 Some folks HAVE to take out loans to go to college, even to a reasonably-priced one.
That statement is true only if you accept the premise that college is necessary. Since in fact many of the people who borrow money for an education end up working in a field unrelated to that education, while still owing money for that education, I would argue that college is highly overrated as a way to establish a career path.
Paul said in #37,
I tell every girl that I know to get a college education so that she doesn't need a man's help to live her daily life.
And my question would be, what happened to the concept of family/marriage? Where a man and woman establish a life together, till they part by death, in which a man provides for his wife and children, and the wife raises children in the nurture and admonition of the Lord?
Oh, and for the record, I am not a fan of men borrowing money for college either. In fact I quit after two years because I would have had to borrow to attend another year.
And if any of you would like to claim that I'm ignorant because I only finished two years of college, have at it. I've been called a lot worse than ignorant, I have very thick skin.
44. Anna had the following to say on Mar 15 at 10:50 PM:
farmer Tom,
There have been several posts over the last year or so on Boundless that have moved me to tear up (most recently, Ted's lovely post on his friend Libby). However, reading your comment was the first time a post has made me cry.
I understand your underlying reasoning on this issue, and I don't wish to debate the education issue for women in general here. I more than most people try to caution anyone, male or female, before they take on student loans. But to make blanket statements and to insinuate that a woman taking on a large amount of student loan debt is an unforgivable sin demonstrates a lack of grace.
Putting aside the issue of whether it is true of all women, for me that decision was not of God. Four years ago I was a Christian, but not walking daily with the Lord nor including him in my everyday decision-making. I went to a top law school fully intending to have a career, and made that decision without consulting God. I simply lacked faith that God could and would bring about marriage in my life, and I made my plans based on that lack of faith. Two years ago, God (thankfully) drew me back into close fellowship with him, and even more happily, planted the dream for marriage along with a desire to one day be a full-time wife and mom. I'm not sure what He has in store, but I'm praying boldly (thanks Candice!) and being patient.
However, the damage was already done: $160,000 in the red for my law degree. I realize that based on what I feel God is calling me to (full-time wife and mom), this is a HUGE obstacle. And it is a decision I wish every day I could go back in time and consult God on, and change. Now, I've taken a job at a large firm that I am not suited for and live on the smallest sliver of my salary. Why? So that every spare dollar can go towards decreasing that potential burden on my future family. As much as I dislike the job, I believe God led me to this workplace to help me to more quickly put a dent in these loans. It's my way of stewarding what I do have and demonstrating fiscal responsibility, and for taking responsibility for my own past actions and decisions. And believe me, it's a hard thing to be confronted with day after day. Each day it feels most like drowning. And, like with many consequences of disobedience, there will be no easy fix.
My story is, sad to say, not unique. Several women friends at my church face this problem in varying degrees. So do a few from the church I went to when I was in school. We already groan under this burden now alone, and we already groan over how it will affect our future families. But now we're doing everything we can to lessen that load, to take responsibility if we feel that in the education department we made a choice that we now regret, and to be good stewards of what we do have. To liken us to prostitutes and suggest that our "sin" is beyond forgiveness is extremely hurtful and demonstrates a lack of grace. And for those of us who do desire marriage and full-time momhood, to suggest we're even less desirable marriage material that already makes Christian women feel undesired is hurtful as well. It is a similar attitude to those who denigrate those men or women who have sexual sin in their past who have repented and now wish to live pure. I have already taken my situation to the cross (and continue to do so!), and although the consequences remain, our Lord who forgives all sins has washed my disobedience away.
Fellas, we ladies sin...physically, emotionally, financially. And so do you. No matter what decisions any of us have made in the past, we all need each other's grace and understanding, not judgment. We are to hold each other up in our struggles, and treat each other as brothers and sisters in Christ.
45. denise had the following to say on Mar 16 at 10:43 AM:
just an idea of how to use a "whoppping" tax return for personal gain... how about not touching it, contributing more if you can...into a CD with a great rate?
46. Andrew (tlw) had the following to say on Mar 16 at 6:45 PM:
Mike,
Under current US tax law, I understand that interest accrued on the debt for your primary place of residence can be claimed as a tax deduction. So I tend to agree with you, but only up to a point.
Trends suggest that people in middle age and beyond have higher debt service levels than ever before. A lot of this comes from people trading up, but also from refinancing their homes for discretionary spending on consumables, including autos, holidays and so forth.
Whilst the wisdom of “investing” in a depreciating asset is always questionable, some suggest investing leftover cash rather than paying down the mortgage. However, the nature of asset markets means that poorly timed entry wreaks havoc with savings.
Whilst some debt may be helpful to reduce your tax bill, I would still be uneasy with that as a long term strategy. The longer we have high debts, the more like it is that we will experience some kind of “unexpected” life event. Sickness, unemployment, or redundancy can at best case make debt servicing problematic, and at worst case, result in forfeiture of the asset with loss of all equity in that asset. Ouch.
Farmer Tom seems to (once again) have succeeded in offending people. IMHO, it’s not about keeping women barefoot and pregnant. Education is many things, but also a consumer good. But as with most goods, the increase in rate of return is slower than the increase in price. Imagine your education as an asset. An education that cost you $100k may be better than an education that cost you $50k, but is it twice as good? Probably not. But the $100k loans will take you much longer and cost you twice as much (and probably more, with interest) to pay off than the $50k loans. Will you be twice as well off than the graduate with the $50k loan?
It’s not about denying women the opportunity to be educated; it’s about making reasonable decisions based on what you expect to do with your life. Large debt = lost opportunities to do other stuff. Taking an expensive education and incurring large debt should be done with caution, if at all.
Yes, many (most?) women continue working after marriage. But I always understood that getting married meant the possibility of “surprise” pregnancies, too. If you have large debts, you basically lose the option of being a SAHM. And there are other issues. The secular world describes women’s careers as “interrupted” (a charmless term that insults the poor children causing these “interruptions.”). And, if you are able to defer payments, there is no guarantee that the expensive education will get you a much better paying job when the children are in school.
And to be frank (and at the risk of further offending), I don’t understand why women would WANT to spend fifty or sixty hours a week climbing the career ladder in their thirties and forties (unless they HAVE to for financial reasons, or to pay back those expensive student loans). I think the appeal of paid careers is overrated. I do understand that many women believe a career to be way more satisfying than settling fights, bemoaning the poor state of the bathroom, and performing hours of drudgery. To me, that sounds just like being at work but without the commute .....
47. Kathryn had the following to say on Mar 16 at 8:29 PM:
Farmer Tom,
I really don't understand why you have this viewpoint. I'm relying on government loans to help out with my university education. I'm completing a degree in Primary Education and that degree is going to helpful for my entire life, married or not. I'm always going to be able to find work and I will be able to work with a family if I ever have children, as when they start going to school, I'll start working again.
In Australia though, our government loans don't incur interest, so maybe it's different. When married, that debt only applies to the one person in debt, we pay it off as we work and if we don't work then it isn't paid off. But the government doesn't send debt hounds to our doors. The money is taken off our pay a bit like tax, a certain percentage is taken off our pay check each week/fortnight/month/quarter/whenever. A first year teacher receives quite a bit of money, so I expect to be able to pay off my debt rather quickly. Also, as an incentive, some people in the government want to wipe that debt for teachers in order to take care of the teacher shortage problem. :) Hopefully that will apply to me someday. If I go overseas then that debt wont be coming out of my pay check and I wont be paying it off. A few people like to work overseas for a few years first to build up their savings, then come back to Australia to work and pay off their debt in time.
I do desire marriage, but marriage is out of my hands. First it requires a guy to be interested in me and that may not ever happen. So how about I be realistic and go to uni to do a sensible degree in the meantime?
However, if I were doing a degree that goes nowhere, like an arts degree with no purpose, then I'm more amenable to seeing your point of view. I'm not a fan of tallying up debt with no purpose. But this also applies to men as well as women. Furthermore, I wouldn't call it a sin. It's probably a very different state of affairs in America, but I don't understand why you're coming down so hard on this.
48. Marie had the following to say on Mar 16 at 9:59 PM:
Alright, I know I was warned, but I was still offended by Farmer Tom's comment. Among the other things you mentioned, I am nearly appalled that men would "eliminate" women from their lists. Every woman has faults. What kind of husband would any of those men be if they are not willing to accept ALL of their wife? I understand that we will be compatible with some people and not with others, but for heaven's sake don't judge a woman by the amount of debt she carries. As many others have mentioned, her attitude toward that debt is a much more important consideration.
Okay, maybe I'm a little bit bitter because I am currently surviving college without any money from my parents. I chose to take out loans instead of being in school for who knows how many years. That was my choice. But, the idea that a Christian man would no longer consider me as a potential future wife simply because I chose loans is offensive.
Even if I will have thousands of dollars in loans to pay off, at least I will be paying them off doing something I love.
49. Kelly had the following to say on Mar 16 at 10:47 PM:
That’s an interesting viewpoint, farmer Tom. I seem to think that God’s telling me that the loans I’m racking up now in medical school are worth the career he’s preparing me for as a physician. And my husband seems to agree. In my opinion, medical school is hardly a pleasure, and both my husband and I have faith that with God’s help we will be able to pay off these loans despite the fact that we want a few kiddos and I’m entering one of the less lucrative areas in the field of medicine. I want to serve God as a physician, and I have to take out loans to do that. I hope you don’t think that’s really as sinful as you are saying in your post!
50. Carrie (the original) had the following to say on Mar 17 at 11:24 AM:
Farmer Tom,
I'd be compelled to agree with you (as a single, Christian woman who hasn't crossed marriage off the list of possibilities in life) if
(1) I hadn't come from an unbelieving household
(2) My (former) was better at teaching than they are at outreach
(3) Going to a conservative, liberal arts, Christ-centered college hadn't altered my life dramatically in a good way
If I had gone somewhere more affordable (i.e. a state university), I would have a very different life. I wouldn't have received as good of an education. Having to borrow $20,000 for college is the best investment I could have made.
So, while I agree with you on the pragmatics of not having to borrow money for college, I have a very hard time arguing that I made a bad decision. It's because I borrowed that $20,000 that I will be able to teach my children how to and why they should save their money and give them tools I never had. Besides buying a new (to me) car and a $900 mattress*, it is the best money I could have spent. Higher education should not pursued specfically for job skills. Good education, imho, is priceless.
*- has not actually happened, but Lord willing, will in the next 2-3 years.
51. Louise had the following to say on Mar 17 at 11:29 AM:
I personally don't understand why any woman whose goal is stay-at-home motherhood would invest years of work to obtain advanced graduate degee(s), let alone accumulate thousands of dollars in student loans in the process (going into debt for a bachelors degree I can understand, since IMO everyone should have a basic employment skill.)
But because I do not personally understand a particular course of action does not mean that people who do so are wrong.
But, each adult must take consequence for his/her actions.
If you owe money, you have to repay it.
It's that simple.
However, "unforgiveable sin"?
Nope.
52. farmer Tom had the following to say on Mar 17 at 12:06 PM:
Anna,
I'm genuinely sorry, that I made you cry.
But the things you said actually reinforce the point I was trying to make.
In my world $160,000 dollars is an enormous amount of money. Unless you work for years to repay that money, which means delaying and/or avoiding marriage, and if you do marry, delaying or avoiding having children for many years, you have in effect become a slave to the money leaders who gave you money for an education. I feel bad for you, I wish this weren't the case.
But I was trying to sound a warning to your sisters in Christ who are currently considering the same path you have taken.
I reject the notion the one needs a formal education to develop wisdom and knowledge. I reject the notion that for someone to be successful they must trade away their future for an outrageously expensive piece of paper which some institution sold to them.
Wouldn't women who are followers of Jesus Christ be far better off living lives in obedience to Scripture, focusing on marriage and raising Godly children than borrowing large amounts of money to buy a piece of paper which they may or may not be able to pay for?
Kelly, I believe God gives you a free will. You have the right to do whatever you want to within his revealed will,( not doing abortions etc). My point was for young ladies to consider the cost of the "career" path and borrowing large sums of money for the purpose of pursuing a high paying career.
It is a Biblical principle to count the cost before doing something. Luke 14:28 I'm simply suggesting it is a wise thing to count the cost before a young lady embarks on a path of mortgaging away her future for something so nebulous as an education.
53. Jeremy had the following to say on Mar 17 at 12:22 PM:
farmer Tom --
It is obvious that you have a very strong dislike of college education, and that is fine. But the truth is that college-educated people DO on average earn higher salaries than those without college educations. Therefore, from a purely monetary standpoint, college education is usually an investment rather than a meaningless loan.
Beyond that, of course, there are many areas of interpersonal growth that occur easily at college that would be much more difficult to find outside of that environment. I have no doubt that you will strongly disagree with that point, since I assume you did not go to college, but I think anyone that did so will attest to this truth.
Finally, in reference to your comment, "Ladies, I personally know guys, who eliminate from their prospective dating list women who owe large amounts of money" -- if by that you mean merely student loans then I feel pretty confident stating that those guys are a tiny minority.
54. Louise had the following to say on Mar 17 at 12:26 PM:
Re Anna (comment #34),
It sounds like you are the subject of Ms. Watters' "Remorseful to Resourceful" BA column.
55. Anna had the following to say on Mar 17 at 12:58 PM:
farmer Tom, I do appreciate the apology. I couldn't agree more that a warning is necessary for anyone of any gender to take out student loans(and part of the reason I posted in such detail). I think it's an important issue to get out in the table, because it was never addressed within my school, family, friends, or even church. I wish someone had warned me! I'm glad it's out there in the open on Boundless now, because it is definitely an issue of extreme importance that is often overlooked.
I just took issue with some of the content of such a warning, because although extreme caution is DEFINITELY necessary, there are those of us out there for whom a warning is too late. It's just important to realize that some arguments can land very harshly (the prostitute comparison, the fueling of fears that men will turn away from forgiveness on such a matter), because those arguments while, useful in warning, can also be damaging to those suffering from the consequences of sin. Even when you know God's character, hearing things that seem to confirm our silent fears that others will not see past our mistakes.
My point really was just to ask that here, and anywhere, that we all remember that in a world where Christian teachings are so counter-cultural, it is important not only to teach biblical truth, but to come alongside with God's hope, grace, and forgiveness for those who have fallen short. Believe me, I know it is a hard balance to strike, and advance that I myself need stapled to my forehead more times than I'd like!
So, in order to temper my own story above with hope (as I'm not sure I did well in my earlier post!) I'd just like to say that if there is anyone else out there working with the same issue, don't lose hope (if there are several others at my church alone, I know you must be out there). Even until you meet your future husband, God can bless this time. He has continued to cultivate a desire for godly marriage, brought me to a position that gives me the ability to pay off my loans almost two decades (yes, decades) earlier than scheduled, and helped to give me a heart for those people chasing dreams in the corporate world that will never be fulfilled. And, God is doing similiar things in the lives of the friends at church I mentioned earlier. Start and keep on praying boldly, and do whatever you can to start paying down that debt. You'd be amazed how small sacrifices add up!
56. Sue M had the following to say on Mar 17 at 1:51 PM:
I ran so fast from a guy who wanted me to drop out of college so we could get married and have kids. I had a flash forward of being barefoot and pregnant with three kids and with no means of supporting myself should he die or leave.
Of course that's not what we expect when we get married, but that's what happened to my mom, and I grew up in poverty.
I didn't acquire a lot of student loan debt - $5,000, and I would have rather not had it, but the college degree gives me and my family options.
57. Anna had the following to say on Mar 17 at 3:13 PM:
Louise: Seems like it, right? Not me though. When it was first posted I felt like someone had ghost-written for me!
58. BDB had the following to say on Mar 17 at 6:11 PM:
Mike Theemling (#39):
Looks like we have different perceptions on what risks are embedded in the financial markets. You wrote:
>>But it still doesn't make any sense to put money into an investment vehicle which earns you 0% interest<<
Actually, you calculate the return on paying off a mortgage at your interest rate net of the mortgage deduction. Depending on your tax bracket, of course. A 6% mortgage paid off early is like a 4% investment - equivalent to a good tax-free municipal bond fund. It's less than the 6% after taxes [more on this below] that you might get from a diversified stock portfolio. But more than 0%. The higher the mortgage rate, the bigger the "real" return paying off a mortgage early. In the 1970's, people had mortages at 14%+ which means that back then, it made as much sense to pay off your mortgage as it does to pay off a credit card today.
>>and will appreciate regardless of how much equity you have in it.<<
>>A house is worth $100K regardless if you have zero equity in it or have it all paid off.<<
Transaction fees...transaction fees...leaving aside how incredibly volatile Southern California's housing market is compared to most of the country, you need 10% equity to cover the transaction fees when you sell, and then another 20% equity available to put down on your next house, particularly now that they're changing legislation to make it much more difficult to exceed 80% loan-to-value. Those without significant equity now face a big problem from regulatory risk. Anyone who bought with less than 20% down is now stuck and won't be able to sell and buy another home until they accumulate about 30% equity in their house. For an average, 3-bedroom, 2-bath $500,000 house around here, that means $150,000 in equity. Or you're stuck.
>>It is a known FACT that the stock market has averaged about 12% over its lifetime (since the Great Depression). <<
It's not reasonable to say "since the great depression," those years need to be included. Particularly given what's happening in the credit markets this week. This mess is the worst since the great depression, and it's not over yet. A more reasonable long-term return is around 8% in stocks, less for bonds and other instruments. But in my lifetime there's been two stretches of 5-10 years where the stock market moved sideways. It should be a portion of an investment portfolio. But the huge credit mess is an example of what happens when people use debt to finance (leverage) securities investments. Very smart people - like those at Bear Stearns, can't get it right. Using debt, including mortgage debt, to finance securities investing is very, very risky, and not something for the average homeowner to be doing.
>>What I believe you are saying is that if you pay off more principle, your monthly payment will go down<<
Well, I did forget to mention the re-financing step. Say someone gets married, and they use one spouse's income to pay down the mortgage. When they're ready to start a family, they re-finance the partially paid mortgage into a new 30-year mortgage, which will have a lower monthly payment.
Or, if someone already has a piggyback loan with a line-of-credit, use one spouse's income to pay down the line of credit. This immediately lowers monthly expenses, and the LOC is available for emergency cash needs.
Unless, of course, your lender reduces your credit line due to falling home prices in your neighborhood:
http://articles.moneycentral.msn.com/Banking/HomeFinancing/LendersCutOffTheHomeEquityTap.aspx?page=all
But there's another way to get where you want to go without worrying about the paying off mortgage debate: buy a smaller house. Then you have enough money each month to still invest in stocks or whatever else, AND you have less mortgage debt.
59. Andrew (tlw) had the following to say on Mar 17 at 6:28 PM:
Kathryn,
You are correct in believing that HEC-HELP debts do not accrue interest. However, they ARE indexed to the CPI each year. Your debt will be minimal, but debts create legal obligations, and contractual terms can be changed. Hence, a borrower can always be subject to the terms of the lender, making debt unwise to hold long term, as I suggested in a previous post.
Is doing a degree “sensible?” I wonder. Whilst minimising the debts you may accrue, you also forego the wages you might have earned over that period. If you earned $40k/year working in an office for four years, but $50k/year in your first year teaching, it will still take you a long while to catch up the lost wages of those four years. This is based on the expectation that college graduates earn more over our lifetimes, and I’m not convinced this should be our primary life goal. Nor do I believe that college is the best way to achieve it.
I think it is easy to be distracted by the focus on vocational preparation. When attended by a smaller % of the population, Universities were much less vocationally focussed. Now that governments have decreed that more jobs require university accreditation, tertiary studies have grown into a government-subsidised monopoly provider. So, we can be 30 years old before “graduating” into the real world and a job. Is this a good thing? If you want a family, and have large debts, then no.
I think F/Tom is being quite clear. Large debts still have to be paid off. It is harder than ever for a man to provide a decent living for his family. Wages for men have stagnated since the mid 70s. This is largely hidden by the mass entry of women into the workforce. In previous generations women married, left their jobs and had children. Now, women get college degrees, get married later (if at all), and have fewer children. Many wives have to work. Women get to experience the workplace grind for many, many years, just as men do, because inflation has made the cost of living prohibitively expensive for single-income families.
To be a SAHM requires planning, foresight, and intentionality. It doesn’t just happen anymore. Being in debt means lost opportunities to do other things, be it career changes, short term missions, homeschooling etc. Men are not exempt from this either. Large debts narrow our thinking and limit our options.
We were meant for more than to live as serfs to debt.
60. Kelly had the following to say on Mar 17 at 7:30 PM:
I agree with farmer Tom that women who want to be stay at home moms should carefully consider the cost of obtaining an advanced degree. Once you're in debt, you are kind of trapped. Commitments like taking out thousands of dollars for med school are big ones! Farmer Tom, maybe we disagree on whether it's ever God's will for women to do that? To have a career caring for others' children as a pediatrician while raising my own family sounds like the most wonderful calling God could make on my life! One of the reasons I like the field of medicine is that the income is high enough that I can choose to work part time while my kids are young, if I so choose. But, it sounds like you're saying that God prefers women at home caring for their children full time rather than working outside the home. And I'm suggesting that God is calling me to do otherwise! I think you're right to warn those women who do not wish to continue a career after marriage not to take out thousands of dollars in student loans. However, if you’re suggesting that God’s word tells women to dedicate all of their fertile years solely to raising children, I think you’re a little confused. As a woman, you can get married and raise children while serving God in a career that you borrowed thousands to obtain. I’m a living example of one woman who was called by her Creator to do so! And I’m quite sure that my husband isn’t the only one willing to marry a woman with such a calling, even if that means taking on my debt with me. Your admonishing is wise, but please don’t tell my Christian sisters that such a debt dissolves their desirability as future wives! Taking on such a commitment, IF called by God to do so, may be a very wise and admirable thing to do!!
61. farmer Tom had the following to say on Mar 17 at 8:19 PM:
Andrew (tlw),
Well said, AMEN.
62. Bridget had the following to say on Mar 17 at 9:12 PM:
Farmer Tom,
I appreciate what you are saying about intentionality, but what about those of us women who live in/ expect to live in one of the states where a college degree is a requirement to homeschool your children? In that case the investment is in your children's education as much as your own.
63. Andrew (tlw) had the following to say on Mar 18 at 1:14 AM:
Bdb / Mike,
“The higher the mortgage rate, the bigger the "real" return paying off a mortgage early. In the 1970's, people had mortgages at 14%+”
You are technically correct, provided the economy is experiencing low inflation. But during the 1970s, Nixon closed the gold window, we had the oil crisis and a decade of double digit inflation. As people lost faith in the currency, they speculated in land, commodities and precious metals to try and get ahead. The stock market tanked, bottoming in 1982. This situation persisted until Paul Volcker administered a dose of high interest rates in the early 80s.
This course is not open to Ben Bernanke. With increased personal indebtedness, double digit rates would send millions into bankruptcy. Millions would be upside down on their house loans, duped into believing that housing never goes down.
During periods of double digit inflation, the real value (cost) of servicing debt decreases. During the 70s, wages initialy rose but eventually stagnated. People who borrowed and were able to service their debts saw the value of those debts as a % of their income decrease. It was probably better to pay the minimum on debts and let inflation do its work on the principle. Provided you could stay employed and pay the bills.
Fast forward to today and we could argue the case this might happen again. We already see commodities and previous metals on a solid rise. But housing is already at a high, and looks unlikely to increase from here. I would not be buying a house at this point. Whilst high inflation might be good for debtors, you still have to service the loan. Neg-am loans might be a bit harder to get in the current climate.
I’m fairly realistic on the stock market, seeing it essentially as a device used to separate investors from their money. Most traders using margin (which I don’t use) will lose money. The generation currently retiring look at their 401(k) statements and conclude, stay in it for the long term. But as you say Bdb, price at market entry is a key determinant. PE ratios are still quite high. I really can’t see good value in this current market – which is why Buffet is buying muni bonds and has diversified out of the USD.
Transaction fees have benefited Governments of all stripes during the housing boom. Everybody looks the other way and ignores the cost of moving during the upswing, because we all feel richer. The savins dropped to negative for hte first time since the depression. But with the boom winding down, and government revenues declining, people will feel poorer, and may even start saving again. The next few years look to be interesting times, indeed.
64. Patricia had the following to say on Mar 18 at 6:33 AM:
Ok, I realize I'm jumping in late here, but wanted to make a few comments. First of all, I don't understand why people see attending college as necessarily acquiring debt. I attended a private, expensive school but received scholarships, grants to pay for over 50% of the cost and ended with less than $5,000 in debt. Moreover, because I consolidated them back when the prime rate was low, the interest rate is lower than the rate of inflation. How is this impeding marriage? I received an outstanding education that allows me to think critically. This can only be a lifelong advantage. Now, in grad school, I have received tuition remission, a stipend and travel and research grants to pay for my degree. This has allowed me to have over $10,000 in the three years I've been in grad school while living on my own. So, I don't think continuing in school means acquiring more debt.
Moreover, I don't see acquiring education as wasteful or for pleasure. Education enriches our lives and teaches us how to interact with the world. As Christians we should engage the world and need thinkers in academic, business, the media, etc to promote a Christian world view. Education helps us achieve that goal.
65. Laura had the following to say on Mar 18 at 8:03 AM:
I don't agree that college and cars are necessary debts. And I agree with Farmer Tom's comment that a man ought not to marry a woman whose enormous debt he'd have a difficult time paying off. Cars are not absolute necessities. My parents taught my sisters and I to NEVER take out a loan on ANYTHING that depreciates in value (especially cars, stereos, TVs, speakers, etc.) and that includes clothes, vacations, eating out...
It's harder for some than others, but it is always possible to save up for something (like a car; I bought my first one used and for cash) or pay as you go (like for college; work, save up, go). Our instant-gratification culture and our selfishness is mostly to blame.
One of the things I was the most proud of going into my marriage was that I brought zero debt and a fully paid off (relatively new) car into it. Trust me, my husband is truly appreciative. Thankfully, he's very frugal and wise with money, as well.
66. Dolores had the following to say