
It Is Not About the Money, Silly, It Is All About the Time - slig
http://jacquesmattheij.com/it-is-not-about-the-money-silly-it-is-all-about-the-time
======
NickPollard
Some sensible advice here, but also ignoring all debt is not a good idea. I
used to have a similarly black-and-white view, but now I realise that debt is
simply another trade-off to be considered.

Remember, your life is precious. Don't live your 20s and 30s as an ascetic
just so you can retire to a golf course in your 50s. I spend a lot now (but
not beyond my means) because these are some of the best years of my life, and
I know that there's a very significant probability (not guaranteed, but large)
that my earning potential will continue to increase for the next 10 years at
least (I'm 28).

I have made an informed, calculated decision to evolve my spending like this.
My utility function is simply that $100 is worth more to me now that it will
be when I'm 35. Ergo, borrowing (limited) money can be a net utility positive.

~~~
tomp
> I spend a lot now (but not beyond my means) because these are some of the
> best years of my life,

I agree with the second part of the statement, but not with the first one. In
my life, there is almost nothing that could be further improved by spending
more (or a lot of) money on. Currently, my biggest expenses are rent (allows
me to live in London and have a very good job) and food (I buy the best,
mainly because I believe that bad food will tax my body in ways that will only
become apparent in several decades - but I eat home-cooked food as often as
possible, so it's quite cheap). Other than that, I spend very little. I enjoy
reading (books are cheap, so is internet), good conversation (again quite
cheap, no need to spend 100s in bars), nature (parks are free), dance and
sports (climbing, running, bodyweight training, skiing and surfing - the last
two are a bit more expensive, but you don't need to buy your equipment if
you're not doing it that often). If I lived in a smaller town, I would
probably have a used car to travel in the countryside. I'm probably really
lucky, but I really don't see the appeal of most of the more expensive
stuff/experiences.

~~~
NickPollard
I agree with most of what you say; different people have different tastes
though.

Like you I spend most of my money on rent (I also live in London) and food -
in the case of rent, probably 50% of that is paying for location. I moved
recently to be closer to work, and now I walk to work in 25 minutes rather
than spending 45 minutes+ on the tube. This costs me several hundred a month,
and it's worth every penny. It gets me back 30-60 minutes a day of time, I get
extra exercise, and I get to enjoy being outside in the sun. It has literally
made a significant difference to my happiness.

Outside food and rent, the other main expenditure for me is travel - I have
friends around the world, and enjoy exploring new places, so I spend a few
thousand a year at least on travel. I could certainly cut back some of that by
staying at cheaper locations, but that's a trade-off I'm willing to make.

I think the difference between myself and a lot of consumers these days is
that I spend primarily on _experiences_ , not _posessions_.

------
noonespecial
I've noticed that people on the poorer side of the spectrum have made peace
with the fact that there are (many) circumstances outside of their control
that they are simply unable to address. They don't try by buying the rafts of
expensive insurances that middle class people often insist on mostly because
they simply can't. Its almost a zen thing.

It costs time and money not just to acquire things, but to hold onto them once
you have them as well.

~~~
artmageddon
> rafts of expensive insurances that middle class people often insist on

Could you explain more on what you're referring to when you say insurances?

~~~
noonespecial
Health insurance for starters. Poor people will likely have a (mostly less
than sufficient) government option that they pay little for, hoping that they
don't get sick.

Then comes the mandatory insurances of "ownerships". Mortgage insurance to
cover loan default, required property insurance for that home, auto insurance
(full coverage also required by your lender on a new car) etc.

Fearful insurances like disability insurance to cover the bills if they should
become unable to work (wouldn't want to lose all my stuff). Life insurance so
the kids have a comfortable life at the level they've become accustom to in
the even of death etc.

There may also be liability insurances connected with their line of work.

Middle class people have a lot of insurances that often take a significant
portion of their monthly budget.

~~~
grecy
To give a concrete example to artmageddon -

I drive a $450 car so I have the absolute minimum insurance on it required by
law. Even after only one year of not paying for full comprehensive, I will
save money if it gets stolen or burns to the ground and I walk away. (I do
have high third party - so if I hit a Porsche, damage to it and people is
covered). I pay $300/year for the car insurance I have.

I currently don't have any kids, so I've opted out of Life Insurance at work,
instead getting more money into my bank account. In all honestly my savings
account would cover my funeral expenses, so why would I want my family to get
$250k in the event of my death? It's not going to make them happier.

I also opted out of the health insurance at work, so I get a bigger paycheck.
I'm 32, fit and strong, and I can count on one hand the number of times I've
been to a doctor in my life. Obviously this circumstance will change as I get
older and have kids, and I'll re-work my approach.

EDIT: I live in Canada - basic health care is more than good enough.

~~~
Jtsummers
Just a counter-point to your no health insurance view. I opted for health
insurance while I was a healthy early 20s guy in grad school. $110/month, and
2 months later I needed my gallbladder removed. The surgery would've cost me
$15k out of pocket. So with my premiums and copays I ended up paying a total
of $2k for the surgery (effectively) and saved about $13k. At that age and
employment status (stipend and free school with a research assistant position,
but that wasn't much) I would've been fucked. As it was I lost nearly a month
of academic progress that I had to make up because of the excruciating pain
and isnomnia it induced. As a healthy 20-something male, the savings covered
my insurance premiums through the rest of my 20s. And in that time I had other
injuries [1] whose treatments (surgery or PT), again, dwarfed the cost of the
insurance I continue to carry.

[1] I've had 2 infections since I was 14: food poisoning and an ear infection,
every medical thing I've needed is the result of injury or organs gone mad.
You just can't predict these things, a good immune system does not prevent you
from needing medical care.

~~~
jacquesm
I paid cash to have my gall bladder removed. It as 1500 Euros. I really don't
know why the same procedure would cost 10x as much where you live (assuming a
simplistic conversion rate, which is not correct, so maybe 8x) compared to
where I live. And nowadays that's not even an option any more because we all
have mandatory health insurance with deductibles that are mostly designed to
keep you paying for everything unless something major happens.

~~~
Jtsummers
This was in the US. It's not cheap here for medical care, and there's really
nothing that we get that's an improvement to justify the costs compared to the
EU or Canada or, really, most other developed countries.

Also, this was 8 years ago. The numbers stuck with me because I was trying to
explain why, a couple years later, I was paying out of pocket from my (at the
time) meager salary for health insurance to my coworkers. They had grecy's
attitude. And then one of the idiots broke his ankle jumping down some stairs.
His parents bailed him out financially for that cost, which was small in
comparison, and he failed to learn the lesson: Debt for unexpected medical
costs is not worth the short term savings of skippig health insurance (in the
US).

~~~
jacquesm
The reason I paid cash was very simple: because of a nasty little slip-up
during my immigration into Canada I ended up un-insured (you have three months
to apply for OHIP but being in the heat of a launching start-up I totally
missed out of it). Many years later, on a short trip to NL I got hit with the
gall bladder issue and I was rather pleasantly surprised that it was as cheap
as it was.

~~~
Jtsummers
An infographic [1] comparing the cost across states. Those high cost ones seem
absurd to me. But I've read my EOBs on every surgery I've had. One hospital
charged something like $200-300 for the stitches (maybe 20 stitches used) .
Not stitching, the stitches. The personnel costs were listed separately. US
medical costs are broken.

[1]
[http://www.bernardhealth.com/woofstreetjournal/bid/197140/Ga...](http://www.bernardhealth.com/woofstreetjournal/bid/197140/Gallbladder-
removal-How-much-does-it-cost)

~~~
jacquesm
That's a terrible situation.

Thanks for that graph, I had no idea it was this bad.

------
dionidium
_Saving is so much easier than earning, and it’s a habit that once built will
pay you back for the rest of your life._

There's a weird cultural meme that's convinced the middle class that the road
to wealth is saving. The road to wealth is earning. This is just kind of an
obvious thing, but I guess there are benefits to convincing people who will
never earn enough to be wealthy that there are attainable ways to go about it.
I'll tell you this much, if buying an iPad makes you broke, then _not_ buying
that iPad sure ain't gonna' make you rich.

This meme is just kind of annoying as it relates to the middle class, but it's
downright dangerous when applied to the poor. It's useless to apply ideals of
thrift to people making minimum wage, a level of earning at which no amount of
saving can cover even predictable periodic expenses.

~~~
dimva
Investing $4000/month (which is what I do on a salary barely over $100k while
living by myself in a 1 bedroom in the East Village, NYC and going out for
every meal) at 3% will get you $1 million in 17 years. That means you'll be a
millionaire by the time you're 40 if you start doing this right after
graduating college.

3% happens to be the rate that stocks have historically appreciated above
inflation, so by doing this you'll be a millionaire in _today 's_ money.

Don't believe me? Try it: [http://www.bankrate.com/calculators/savings/simple-
savings-c...](http://www.bankrate.com/calculators/savings/simple-savings-
calculator.aspx)

EDIT: For the poor, there are many structural problems that lead to a cycle of
poverty, but it is possible to escape even that with very good money
management. I dated a girl whose parents came to America on a raft, with a
fifth-grade education. They slept outside the 7/11 where they worked at first
(didn't have to spend any money on rent), and ended up owning a large portion
of their town by the time they were in their 50s.

In short, don't knock thrift. Yes, earning more is always great, but savings
combined with compound interest is magical.

~~~
pyronite
$48,000 a year in investment is $18,000 more than the median _total_ income
for an individual in the United States.

What you are able to do is exactly what the vast majority of Americans are
unable to do.

~~~
dimva
Sure, but the article specifically mentions couples making $211k/year combined
($160k euros) spending it all. People making $30k/year obviously can't save as
much as me, but they could save _something_. I saved money even when I was in
college, working only in the summers and paying for food/housing myself. I
think I made like $10k/summer. Of course, my lifestyle was much less
extravagant than it is now - I never ate out and lived with many roommates.

------
grecy
During my 2 year drive from Alaska to Argentina, it took almost the entire
trip for me to learn this lesson. At first in Mexico (and Central America in
general) I genuinely thought people were just lazy and I would think "Why
don't you get a job". The years rolled on, my Spanish improved, and I had many
great conversations about this topic.

Finally, a great friend in Argentina explained the situation to me. It's all
about debt. In the developed world, when we want something shiny (say, an
iPhone), we walk into the shop, sign a piece of paper and are showing it off
to our friends 20 minutes later at the bar. It's not a completely conscious
thought that we'll be paying it off for the next 24-48 months while we
mindlessly go to work everyday.

In the developing or undeveloped world, nobody can get credit, so when you
want an iPhone, you have to save up for it and buy it outright. So you get a
solid job, and start saving the ~$700 for an iPhone. Who in their right mind
is going to continue going to work day in, day out for 6-12 months just to buy
an iPhone that will be obsolete in a year anyway?

More realistically, after a week or three, you quit your job, and hang out
with your friends & family, having celebrations and generally enjoying your
time.

And so it is that "poor" people have so much more time to enjoy their lives,
rather than going to work to pay off things they never needed in the first
place.

~~~
lingoberry
You actually know someone who bought a phone on credit?

~~~
grecy
Almost everyone you know is buying their phone on credit.

You put $0, or $99 or $199 down, then you're in a 2 or 3 year contract.

Stop paying that contract and see what happens to your phone (Hint: They take
it off you, your credit score goes to rubbish)

You don't own the phone, you're paying it off over many years.

To buy such a phone not on credit, you'll pay something like ~$700 up front,
and it's yours for life.

------
DontBeADick
I'm getting tired of all this "live debt free!" nonsense. There's good debt
and bad debt, and people like this should learn the difference before giving
financial advice.

~~~
charlieflowers
OK, well look around. Do you know a lot of people (is it possibly even most of
the people you know) who have 2 or more car loans, and at least one home loan?

That's the "norm". That's what "everyone" does (everyone who is in a first
world country and has a decent job).

Is that somehow "smart debt"? Really? What's so smart about it?

It is smart for whomever loaned that money out ... they get back free money
paid consistently over the years. How is it smart, in 90% of the cases, for
the borrowers?

Our culture tends not to see this in the same way fish don't see water.

~~~
kenrose
> Is that somehow "smart debt"? Really? What's so smart about it?

Regarding a mortgage and 2 car loans, I'd like to offer a defense of why it's
smart / good debt.

The primary reason that your mortgage is considered "good debt" is because the
asset you purchase with that debt (your house) will typically appreciate
faster than the interest you pay. I'm not including black swan events like the
2008 crisis. When you eventually sell, you'll be in the black.

Regarding car loans, the only type of "smart" car loan is 0% financing. A 0%
loan lets you keep your money in your pocket for longer (and in that time, you
can invest it however you see fit). 0% loans can be found depending on when
you see the dealer. End of the month? Quota wasn't reached yet? Perfect time
to negotiate.

I'm certain jaquesm's point is that lots of people get in over their head with
their purchases, especially large purchases like homes and vehicles. However,
DontBeADick's point has some validity: Taking on debt can allow you to realize
further gains than you would have otherwise seen (basic leverage).

~~~
webwright
"The primary reason that your mortgage is considered "good debt" is because
the asset you purchase with that debt (your house) will typically appreciate
faster than the interest you pay."

Any money manager will tell you that what you just said is false. Excepting a
few cities, when you look at the data and adjust for inflation, owning a house
is not a particularly good investment (
[http://files.foreclosureradar.com/images/foreclosuretruth/Hi...](http://files.foreclosureradar.com/images/foreclosuretruth/History-
of-home-values.gif) ). Add in that the average home loan lasts about 6ish
years before folks sell/refi, the fact that interest/fees are front-loaded
into the first 5 years of the loan, and that avg. annual maintenance on a
house (NOT improvements) tend to average about 1% of the value of the home per
year, it gets worse.

What it CAN be (if you're disciplined and lucky) is leverage and liquidity.
Example: I have my house paid off. I get a mortgage on it, essentially getting
a loan at 4% for $700k. Now I have $700k that I can make work for me-- a
worthwhile idea if I can find a way to make more than 4% on that $700k via
other investments (which are not remotely risk-free, but can pay off). Of
course, what most people do when they re-fi their house is self-indulgent
stuff-- buying a vacation home, a boat, home improvements that don't pay for
themselves, etc.

~~~
seanflyon
It is fair to count maintenance as a cost but it is also fair to count rent
you don't have to pay as a savings.

Compare (+equity -mortgage -maintenance -taxes) to (-rent)

------
throwaway283719
There can be totally valid reasons for not getting rid of your mortgage even
if you have the opportunity - if you have something better to do with the
money. If you are paying 3.5% on your mortgage but you can invest somewhere
with a return greater than 3.5% after tax, why would you pay down your
mortgage?

~~~
brightsize
Dave Ramsey, who, for lack of a better term, one might describe as a "personal
finance turn-around guru and radio personality", poses the question you ask in
a different way. I paraphrase: "If you owned your house outright, would you go
out and get a mortgage on it so that you could invest in the stock market?".

Financial management is about much more than maximizing returns. It's also
about managing risk. For most people who have assets that they will depend on
in the future, managing risk grows in importance as they grow in age. Taking
on debt (a mortgage) in order to make speculative investments is a high-risk
endeavor.

~~~
throwaway283719
I didn't mention anything about the stock market. I said _if you can invest
somewhere with a return greater than 3.5% after tax_.

Implicit in that was that the investment is risk-free i.e. it's a government
bond or something. But it could be a risky investment, if the risk-return
trade-off is high enough.

If I had the opportunity to invest at a 10% rate of return with a stdev of 5%
then absolutely, I'd remortgage my house at 4% to do that!

~~~
timwaagh
3.5% is not risk free. with interest rates this low, that kind of investment
cannot be offered risk free. government bonds that have such roi are not going
to be safe either.

~~~
throwaway283719
Yes, that is why the sentence begins with the word "if".

------
moron4hire
For all the people who are saying "there is good debt and bad debt" and stuff
about not paying off your mortgage early: what you say makes mathematical
sense, but there is also something to be said for achieving a certain level of
simplicity in ones arrangements.

For example, I paid off my student loans before my car and my credit cards,
way back when I had my own brush with debt servitude. The student loans were
the lowest interest of the bunch, but they were also the smallest by that
point. I would have spent less overall by paying off the credit card first,
but I was able to pay off the student loan immediately. Eliminating it
completely helped me on an emotional level stay engaged in my debt reduction.
A mile marker, an "easy win".

Most people don't have the patience or willpower to work their finances in the
most optimal way. Borrowing at X percent to invest at X+Y percent makes no
sense for people who have difficulty remembering to pay bills on time; the
late fees will destroy them. And the solution is not "just pay the bills on
time", because that's already supposed to be done.

Better to live life understanding what you're capable of. I freelance because
I know I'm not capable of getting into an office at 8am for more than three
days in a row (actually, it's any set time), and most employers would prefer
you to do it 365 days in a row. We already tried "get me up earlier" and that
didn't work. Time for new solutions to the problem.

~~~
Domenic_S
> _A mile marker, an "easy win"._

It's often called the snowball method, and it works very well for some people.

------
gregorycarter
Have you read Early Retirement Extreme?

[http://earlyretirementextreme.com/](http://earlyretirementextreme.com/)

Very similar philosophy.

~~~
christiangenco
Also Mr. Money Mustache: [http://www.mrmoneymustache.com/2013/02/22/getting-
rich-from-...](http://www.mrmoneymustache.com/2013/02/22/getting-rich-from-
zero-to-hero-in-one-blog-post/)

He's a software engineer from Canada that never made more than $140 between
him and his wife, and they happily retired when he was 30.

------
ap22213
I run into this _all_ the time as I bootstrap my company. I have a deep
temptation to try to do everything myself. And, a lot of times, I will do so.
But, I have to keep reminding myself that there's way more value in
outsourcing things. I have enough extra capital to do so, so there's no reason
not to. But, it's a mental challenge to allow myself to drain the bank
account, as I instead feel comfortable spending enormous time tinkering with
things on the side. Trying to do all the code myself only takes more time. And
time is _more than money_ in this business.

------
wirefloss
A guy was blogging about it a while back :)

[http://www.forumromanum.org/literature/seneca_younger/brev_e...](http://www.forumromanum.org/literature/seneca_younger/brev_e.html)

------
xrange
One things I don't see mentioned is the use of a mortgage as kind of a forced
savings plan. For a bunch of reasons, it is really hard for people to
plan/save for the future. That's why there is thousands of years of parables
and social convention exhorting people to save and not be in debt (i.e. if it
was easy to do, everyone would do it). Buying a larger-than-strictly-necessary
house with a mortgage is a way to start applying current money to a need in
the future. By making a mortgage payment, they aren't otherwise spending that
money on more frivolous items. In 30 years time they'll at least have
something tangible, instead of fleeting memories of vacations. Whether that
trade of as an individual is worth it is debatable, but on a societal level,
it probably is.

I think there is a similar, more short-term story with IRS refunds. People
could have their paycheck deductions arranged so that their "refund" was
nothing. But if it comes out "unvoluntarily", then they are excited to get it
back in a lump sum, even if this is the mathematically sub-optimal solution.

~~~
grecy
By the time you pay off the mortgage you will have paid 3-4 times the value of
the property because of the interest. So on a $400k house you will have put
$1.2mil - $1.6mil into the savings account, but you'll only have a ~$500k
property to show for it (IF the house appreciates, which it hopefully does,
fingers crossed). That's a seriously inefficient way to save.

~~~
Domenic_S
FUD. The number is less than 2x, not 3-4x.

Loan amount: $500,000

Interest rate: 4.5%

Total paid: $912,033.56

[http://www.bankrate.com/calculators/managing-debt/annual-
per...](http://www.bankrate.com/calculators/managing-debt/annual-percentage-
rate-calculator.aspx)

You're forgetting two other things:

1.) A portion of interest paid is tax-deductible (rent is not).

2.) $1 today is not worth $1 30 years from now - your payment stays constant
for 30 years, but your dollars gain more buying power.

~~~
jacquesm
You're missing the point that you are _also_ paying the principal.

He didn't say 'extra' just paying 3 to 4 times. And that 4.5% can be improved
upon but only if you go variable rate, if you lock it down for longer it can
get quite a bit higher (or if you are considered a higher risk client, such as
someone who is self employed).

~~~
xrange
>You're missing the point that you are also paying the principal.

Just so everyone is on the same page. The original 30 year, $500k loan that
Domenic_S is proposing, at 4.5% interest has a monthly payment of $2533.43.
After 360 of those payments (30 years * 12 months per year), all the principal
and interest will have been paid off.

360 * $2533.43 = $912034

$912034 / $500000 = 1.82

------
gglitch
"Maybe it is because I don’t allow any advertising at all into my life..."
...How does he manage this? Advertising and marketing have become a major,
major, nearly pathological personal issue for me, to such an extent that I
sometimes fantasize, on the train on the way to work, for example, about the
ability to temporarily turn off my ability to read.

~~~
jacquesm
No TV, no radio, a pretty heavy assortment of ad blockers for my browsers and
I refuse to visit people that won't switch off their TV when they have guests
or I leave if they don't. Yes, that's rude. No, I don't care. If TV is more
interesting than real life people then the real life people have the option to
go elsewhere.

~~~
contravert
Out of curiosity, do you not watch TV series or movies (on a monitor), or is
it just cable TV that you don't watch? What about popular music, news, video
games and other cultural expressions that all subtly promote materialism?

~~~
jacquesm
Movies from the net, popular music: what my friends recommend + a collection I
built up over a lifetime of buying CDs and LPs, news: nu.nl (no ads there with
adblock+ghostery+some tweaks), don't play video games and I don't know what
other cultural expressions that promote materialism would be, specifics would
help here. Product placement in movies is hard to avoid but super easy to
spot, I make a point of _not_ buying anything advertised in that way if I come
across it.

------
jahewson
I'm tired of seeing "people who are in debt waste their money" or "people who
are in debt live beyond their means" as the default explanation for
indebtedness.

I'm in debt. I have debt for a car, furniture, and medical expenses. (despite
the fact that most of my furniture was acquired for little cost, and insurance
covers most of my medical expenses) I also have a new MacBook Pro (I'm a
developer), much to the chagrin of my baby boomer parents, who also think I
should drink less Starbucks coffee. There's not a lot of understanding amongst
the older generation that rent is high, food is expensive, and that's where
most of the money goes, which makes it hard to pay off the debts. Starbucks
represents about 1% of my income, the MacBook will be under 2% of my income
over the 3 years I'll probably have it, and I'll make back probably 40% of
that when I sell it.

~~~
JoeAltmaier
Huh. Starbuck habit of $5/day (conservative?) over a 200-day work year amounts
to $1000. Have to spend $100,000 to make that just 1%.

~~~
jahewson
1% of income not 1% of spending. Also I spend considerably less than $5/day at
Starbucks, way less.

------
pjungwir
One thing I heard once that has stuck with me: When you earn a dollar, you pay
30-40% tax on it, but when you save a dollar, you keep the whole thing. It
pays to push on both the revenue side and the expense side, but one pro of
putting effort into expenses is you keep 100% of the reward.

------
jasonkester
A lot of talk about mortgages here. I think as long as you do the math and let
that guide your decisions, you'll come out ahead.

Take this year, for example. I happen to have a mortgage that I could pay off
completely later this year without penalties. I've been saving to do just
that, and parking the balance in the market until the day comes to pull the
trigger. But what's this? I'm up 11.6% on the year thus far. It's hard to come
up with an argument for not letting it ride a few more months and watching to
see what happens.

Granted, there's always risk in the market, and using the fund today would net
me a cool 4% risk free. But still...

~~~
ryandrake
Paying down a mortgage is probably the safest, guaranteed bet. Not everyone
can get lucky on stocks or bear the risk of being unlucky. If there was an
available investment opportunity with a higher risk-adjusted rate of return
than my mortgage interest rate, I wouldn't want to pay down my mortgage
either.

If I got all the money back I lost gambling on index funds and other "low
risk" investments, I'd probably be able to pay mine off today.

EDIT: guaranteed -> risk-adjusted

------
ekr
"When I look around me I see people making endless purchases of stuff they
don’t actually need [...] I don’t understand any of it."

Oh really, you don't? Then you should do some reading on
signaling[[http://wiki.lesswrong.com/wiki/Signaling](http://wiki.lesswrong.com/wiki/Signaling)]
and evolutionary psychology.

Humanity is driven by sexual pressure, and a big factor in that is social
status. Most of the time people don't make purchases with their neocortex, but
rather with their "reptilian", so analysis about their lives are out of the
question.

------
onion2k
"Annual income twenty pounds, annual expenditure nineteen pounds nineteen
shillings and six pence, result happiness. Annual income twenty pounds, annual
expenditure twenty pounds and six pence, result misery." Charles Dickens, in
"David Copperfield", published in 1850.

The notion of living within your means is not a new one. It's something that
ought to be taught all the way through school. It's that important.

------
mmmbeer
If you pay off mortgage you need some plan for the extra money every month. If
you save and invest it that is one thing, but if you just spend more freely
(waste it), you are not better off. Economically, the best way is to not buy
too much house, and invest all extra money into equities (index funds) over
20-30 years. If there is no extra money to invest, then you have bought too
much house.

~~~
markc
This is the best advice I've seen in this thread. A great thing about having a
mortgage for many people is the forced savings of paying down the principal,
but you want to maximize _that_ virtue of home ownership by not over-buying -
which brings with it proportionally higher taxes, utility costs, maintenance
costs. Buy the smallest cheapest house that doesn't suck, and make sure you
have auto-invest transfers to a brokerage account set up to get that excess
out of your grubby paws. Mostly you'll just spend it on crap. If you _do_ want
something important (e.g. a car), you can buy it cash, but it's painful to
pull a big chunk money out. That's what you want.

------
davidw
> someone explained to me in a very serious tone of voice that getting rid of
> your mortgage is stupid because it is a deductible, better to wait with
> paying it off when you sell the house in 25 years

All else being equal, if you can deduct that from your taxes and spend the
money on something else - like, say, index funds - you're going to be better
off financially, no?

~~~
jacquesm
Index funds do not have a guaranteed rate of return but mortgages do have a
guaranteed rate of expense.

~~~
zzleeper
Was just thinking the same thing. Keeping the mortgage and investing on index
funds is the same thing as "leveraging up" your investments. AKA, it's the
same as saying "let's borrow 1k from the bank at 3.5% and put it into the
SP500".

~~~
conjecTech
Taking the mortgage was the thing that leveraged you to begin with. Investing
in the market rather than paying it off at an advanced rate merely serves to
not further reduce your leverage.

~~~
jacquesm
You have to consider the rent-vs-buy situation of that particular market in
order to really evaluate the decision of whether or not taking a mortgage is
the right thing to do.

~~~
markc
Bingo. For my recent move I made a spreadsheet to calculate the financial
impact of rent vs. buy. I had to guess at a lot of factors __, but in the end
it was a no brainer. Do the calculation!

 __Cost to Buy: estimated lost investment returns on down payment (after
taxes), estimated lost returns on monthly payment (cumulative), financing
costs after tax deduction, real-estate taxes after deduction, insurance, HOA
fees, utilities, maintenance, estimated increase in value, cost to sell.
Compare this against rent and utilities over the same time span, factoring in
likely increases in both rent and utilities.

~~~
jacquesm
The utilities will be on both sides of that example so you don't need to
factor them in until you start improving a property that you've bought with
insulation and such.

~~~
xrange
>The utilities will be on both sides of that example

In a "perfectly efficient" economic world it would seem almost all of those
categories like taxes, insurance, mortgage interest, and maintenance are
really on both side of the equation. The landlord will still have to pay
taxes, etc., and pass them along to his renters. In essence, buying a house
seems like it would be a getting rid of the middle man situation in the cases
where you don't need the special advantages of short term usage that renting
presents. Buying a house would just be a special situation of becoming a
landlord and renting to yourself.

So I'm wondering what specific instances there are where renting makes more
long term sense than buying. I can think of a couple:

\- The unsophisticated landlord. A little old widow or someone who has
inherited a rental property, and isn't charging the market rate. Is there a
good way to identify these people, and get a cut of the increase in rent that
they could be getting? Maybe they don't know how to advertise or evaluate
market comparables? Or is there a way to identify them and get a commission
for sending savy renters their way (saving the renters money)?

\- Rent Control. I'm not sure how this works in practice (or in theory for
that matter). I'd think that this would reduce the availability of rental
units, driving up the cost eventually. If you were renting at the onset of
rent control, you got lucky, but for someone newly looking for a place, you
maybe don't get the benefit?

\- Property tax ploys. In some jurisdictions, I'm under the impression that
property taxes aren't adjusted to the current market prices (or there is a
large time lag). Therefore those property owners have a tax advantage not
available to new entrants to the market, so they can afford to compete on
rents. The business opportunity here would seem to be identifying people in
this situation, and convincing them to move to lower cost location and renting
out their current homes.

What other market inefficiencies are there which would tip the scales toward
renting? Is there a business opportunity in allowing people to rent houses
that private parties want to sell? What I mean is a service, where a renter
goes out and finds any house for sale on the market they'd like to rent, then
I'd step in and arrange the financing, the property management, etc.. They'd
pay monthly rent and wouldn't have the burden of home ownership, but they
would have housing options that wouldn't normally be available. Are there
already companies that do this?

------
conjecTech
The author mixes the notions of debt and over-consumption. These aren't even
close to being the same thing. There are very valid and financially beneficial
reasons to take on debt.

