Debt and the danger of comparisons

by Simon 27 Replies latest social family

• 

  Simon

  Do you ever look at other people and think "blimey, they are doing well ... new house ... new car ... why am I not getting ahead like that?"

  Well don't !

  You will probably find out that the car is HP or bought with a re-mortgage of a re-mortgage which is interest only. No money is going to pay off capital and they don't have any savings and are not making any provision for their pension (other than imagining that the house they are *not* paying off will somehow suffice). Despite all this, they go off and but an expensive car for their wife to pretend to have "arrived" and work every stress filled hour to keep up the repayments.

  Turns out that when you look at the modest house and sensible car you may have (which you can afford) and the savings and pension you have built up that you are not doing so badly after all.

  Fast forward 20 - 30 years and the people who have only been managing to service the debt *now* will be in a sorry state. The car they worked so hard to run will be all but rust and too late they may realise that the money they borrowed was actually from their own, future selves.

  It's sad when you realise some of the people you work with are burying their heads in the sand re: their future and finances. At least you are not making the same mistakes and trying to live up to the comparable lifestyles.
• 

  HAL9000

  Agree - there is a tendency to remortgage / refinance as property values increase. So a $350,000 mortgage becomes a $450,000 mortgage based on the increased value of the property - some mortgaes here are 10% of market value. This usually finances a new 4WD / SUV for the wife and a fancy car for the husband.

  It is a real problem as small upward changes in interst rates can and do wipe people out as they can not afford to live.

  h9k
• 

  Simon

  Don't people understand that a mortgage is just a really expensive loan? (even though interest rates are historically low, the long time span makes them expensive).

  Instead of seeing it as something that they need to pay off, their property is seen as a money bank that can be raised every time it is revalued. Imagine paying for a car with a mortgage over 25 years?!?!? Jeepers !

  They should teach home finance at school (more useful than algebra or Pythagoras "who the heck cares about triangles anymore" theorem *)

  A guy I work with is so "on the edge" that he never takes a day off or a holiday. I can't imagine being so stressed. You should at leaqst be able to survive a few months if the worst happened job-wise (or economy/interest-rate wise). I can't imagine being stretched so thin that having some time off would be unthinkable.

  * I think its interesting but people should be taught more practical things first IMO - education, not 'facts'
• 

  Mulan

  .................or they jack up their credit cards to the max, because "the end is coming".
• 

  BlackSwan of Memphis

  I have known too many people that have gotten caught in that trap. They remortgage and remortgage.

  And you are so right about looking at other people and thinking they have all this stuff.

  I know many who are in such debt that while on the front they look like they have everything, they really don't and are stressed and stretched beyond their limits.

  They look at us and wonder why we aren't trying to keep up with them, it's because we're not willing to go into such debt to do so.
• 

  BlackSwan of Memphis

  .................or they jack up their credit cards to the max, because "the end is coming".

  Oh good grief, yes, I unfortunately know what you mean.
• 

  Simon

  There is nothing, absolutely nothing, better than **not** being in debt. We've been in debt and worked damn hard to pay things off.

  One thing I'm drumming into the kids is that saving, investing and compound interest is a damn good thing!

  I really feel sorry for people I see on a real treadmill. I hope they really enjoy the flash car etc. while they have it. To me, I don't see the value ... it just doesn't appeal (cars just go from A to B).

  The annoying thing is of course that all these people will cause a property crash - if not now, in 20 years time when they all want to "cash in" on the value of their property (who is going to buy them all and what will happen to prices when millions want to sell atthe same time?!?!)
• 

  crazyblondeb

  One thing I'm drumming into the kids is that saving, investing and compound interest is a damn good thing!

  I wish that I would have been taught that. I didn't have a clue about any of that. Or what credit was, how to pay bills, etc. I was told not to worry about that "stuff"!! It wasn't going to be around!!
• 

  anewme

  Thankyou Simon! I JUST LOVE FINANCIAL DISCUSSIONS! I really do! And funny, like Crazyblondedeb NOBODY EVER MENTIONED FINANCES TO ME, NOT PARENTS, TEACHERS NOR THE SOCIETY!
  
  Good for you that you are taking time to instruct your kids. They will be well ahead of the game.
  
  And you are so right about not envying others who look well off.
  Just this past month three couples have fallen apart financially, maritally and otherwise. Three couples that I admit made me feel a bit green at times.
  
  So, everybody has to learn the same lessons in life about being smart financially and living within their means (and keeping loyal to their mates). Few skip these lessons and live the beautiful life.
• 

  Sad emo

  Yep, I was raised not to spend beyond my means. I feel sad for those who feel they must have everything 'now'.

  The only debts I have are my mortgage (only 6 years left woohoo!!) and student loan over which I suffered a great deal of discomfort when deciding to take it - I'm halfway through my degree though and fully funded myself for the first half of it.

  I'll never have a credit card, that's an absolute no-no for me.