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Re: I=prt and Credit Cards.
Not sure whether you’d call it a deep philosophical reason, but as a matter of policy I don’t borrow money. Since I can have the benefit of a credit card (with a debit card) without borrowing money, that works for me.
Not so much a moral issue as a life-stage one. I see nothing wrong with young folks borrowing to get an education or buy a home. Even a first car. But you pay for the privilege. It’s called interest. If you don’t need to borrow, why pay it? It just doesn’t make sense to have assets, be dealing with the problem of how to secure and grow them, and be borrowing at the same time.
In 1989 my wife an I bought a house on a balloon mortgage with a low introductory rate that escalated in fixed steps. By 1993, interest rates had gone down a lot so we refinanced at the new lower thirty-year rate. We paid down the balance some in the process and also eliminated PMI. This gave us a monthly cash flow windfall. Not knowing what else to do with it, we started investing in mutual funds.
This forced me to start learning about investing. I started reading. By the time 1998-1999 rolled around, I’d concluded the stock market had gotten to the point where the downside risk far exceeded the upside. More to the point, I realized that I wasn’t even investing only with my own money since I still had a mortgage. It was fundamentally no different than if I had gone out and borrowed the money just for the purpose of speculating in the financial markets. I was looking at a highly uncertain prospective return in the financial markets, but could get an iron-clad guaranteed "return" by paying off the mortgage. The rate was fairly low (6.75% if I remember correctly), but a 6.75% zero-risk return looked much more promising than the crap shoot the stock market had become. So we cashed in all the mutual funds and paid off the mortgage.
Best financial decision I ever made, and the prime mover for it was a policy of only investing money that I actually had, rather than creating an artificial situation where on the margin I was speculating by assuming I would get a higher return on financial assets than I would have to pay other people one theirs.
It only takes a few moment’s thought to realize that that’s just what was going on - I was paying other people a return on their financial assets on the assumption I would do better with them than they could. Moreover, because of all the intermediary overhead involved, the odds were stacked against me.
I prefer to have the odds in my favor.
Originally posted by Jim Nickerson
Not so much a moral issue as a life-stage one. I see nothing wrong with young folks borrowing to get an education or buy a home. Even a first car. But you pay for the privilege. It’s called interest. If you don’t need to borrow, why pay it? It just doesn’t make sense to have assets, be dealing with the problem of how to secure and grow them, and be borrowing at the same time.
In 1989 my wife an I bought a house on a balloon mortgage with a low introductory rate that escalated in fixed steps. By 1993, interest rates had gone down a lot so we refinanced at the new lower thirty-year rate. We paid down the balance some in the process and also eliminated PMI. This gave us a monthly cash flow windfall. Not knowing what else to do with it, we started investing in mutual funds.
This forced me to start learning about investing. I started reading. By the time 1998-1999 rolled around, I’d concluded the stock market had gotten to the point where the downside risk far exceeded the upside. More to the point, I realized that I wasn’t even investing only with my own money since I still had a mortgage. It was fundamentally no different than if I had gone out and borrowed the money just for the purpose of speculating in the financial markets. I was looking at a highly uncertain prospective return in the financial markets, but could get an iron-clad guaranteed "return" by paying off the mortgage. The rate was fairly low (6.75% if I remember correctly), but a 6.75% zero-risk return looked much more promising than the crap shoot the stock market had become. So we cashed in all the mutual funds and paid off the mortgage.
Best financial decision I ever made, and the prime mover for it was a policy of only investing money that I actually had, rather than creating an artificial situation where on the margin I was speculating by assuming I would get a higher return on financial assets than I would have to pay other people one theirs.
It only takes a few moment’s thought to realize that that’s just what was going on - I was paying other people a return on their financial assets on the assumption I would do better with them than they could. Moreover, because of all the intermediary overhead involved, the odds were stacked against me.
I prefer to have the odds in my favor.
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