A Momma and Two Boys Living on a Budget asks: Do you mind having debt? I suppose nobody who has read this blog for any amount of time will be surprised by my answer, but yes. I do mind having debt. I mind it to the point that the idea of taking out a loan on a house scares me to death. While I want a house, and while I know that there are few options besides taking out a loan, the idea of owing anybody that much money freaks me out.
I can attribute this phobia to my parents. They drilled it into me that DEBT IS BAD. I now know that they were referring to consumer debt, like credit cards and the like, when they drilled me on this, but at the time they did not really specify. Debt was bad, and my parents lived (and live) a debt free life. On my dad's salary as a military officer and my mother's occasional part time work, they paid off their 30 year mortgage in 12 years, they have never taken out a car loan, they don't have credit card debt, and they paid for our educations without taking out a loan. (The Evil Student Loan that my husband and I are paying off is from his college years, not mine.)
Like them, my husband and I are doing everything we possibly can to stay out of debt and pay down the debt we do have very quickly. Logically, we know that there is good debt and bad debt. The student loans my husband took are going to be paid back in a reasonable amount of time, and he will earn far more than he ever took out. He is in a decently paid field, and now, on his salary alone, we have paid down about a third of it in five months. Not bad. Neither my husband or I have ever carried credit card debt. Ever. Both my husband and I are still driving the cars we bought in cash in high school. So far *knock wood* they're holding up, and if something did happen to one of them, I think we could buy a reasonably priced used car in cash.
However, if we want a house, we're going to have to do into (non school) debt sometime. And I know that a mortgage is "good debt" and we'll get tax breaks and blah blah blah, but it still scares me! I worry that we will buy a house, and everything in it will break, and we'll blow through our savings, and then we'll start depending on credit cards, and the next thing I know we will have all the consumer debt that we so carefully avoided, and will be stuck in it because we have to pay the mortgage, and there's hardly any money leftover for the credit cards. Despite the fact I am credit card debt free, I can see how people get stuck in it.
Reading over what I've just written, I don't think it's the specific debt of a mortgage that I fear. I think it's the snowball effect; the what ifs that may or may not happen. And I can snowball no matter what situation I am in- renting, owning a home, living in a box. I also think I need to become more comfortable with "good debt." It seems a lot of people don't count good debt with debt. I do, but maybe I need to relax a little. Perhaps it's not debt I fear, but lack of security.
Incidentally, though I wish my mom and dad would have clarified earlier about 'good' debt and 'bad' debt, I am eternally grateful for the financial lessons that they taught me. Not only for what they said, but for how they showed me that debt free living was possible, and for showing me the sacrifices they made that made this possible.
6 comments:
I wouldn't necessarily say mortgages are "good" debt. Just "better than bad" debt. It's difficult trying to buy property without debt - it's just almost impossible. But I still would have planned much better had I known then what I know now.
Definitely having an emergency fund would have saved us a lot of fear, worry, trouble and expense. The yard flooded, and it leaked into four rooms. Had we the funds to level the yard, we might not have lost all the carpet we did. And so on. I think $5k would be a good goal to set aside for home repair emergencies in the beginning.
But each plan you make, each contingency you prepare for is another disaster averted. Or at least, another one you can confidently handle. You're on the right track. ANd your fingernails will thank you when you aren't chewing them!
To me there are two kinds of 'reasonable' debt, and one of them is questionable. One is your house. You have to have a roof over your head. And when you downsize in the far future, you might actually make money out of the deal. When my husband and I sell our house in a few years, we will move to a smaller place. The difference (after paying off the mortgage) will be money to live on besides his retirement.
The second debt, which is perhaps questionable, is a car loan. If you don't have mass transit, you need to get to work. Although I'd try to get a car within your budget. Who needs that monthly payment?
Maybe a student loan is a third one, but I'd rather see a kid go to a community college he can afford.
I go back and forth on student debt. On one hand, it is still debt, and you may or may not get a good job at the end. On the other hand, my husband could not have gotten his Master's at a community college, and could not have been an engineer without his undergrad degree in engineering. He earns good money doing what he does, and will earn more as soon as his thesis is done, which is all he has left on his Master's degree. His family is fairly frugal, but they could not have afforded to send him to college without some loans. He is the only one out of his brothers and sisters who went, and he earns far, far more than them.
But then, spending wisely is important even with student loans. He spent all of his on tuition, books, and some minor living expenses. We had friends who used their student loans to pay for Spring break trips and other fun things. Plus we owe money now, and while his field pays well, students take out loans just as big for degrees that do not necessiarly lead to high paying jobs.
I see both sides of it.
I think that you have a very healthy fear of debt(well from what I've read so far(: )
Because you have "awareness" and you are concious of debt and the pitfalls of debt you will be fine. It's people who live their lives in a debt fog and don't know any better that is worrysome.
I think books are what kills you. It's amazing how expensive they are. And used books don't always work because often there's a new version.
But you do what you gotta do!
I'm on my second condo, and think owning your own home is a great investment. It's worked out really well for me.
I think it makes a big difference how much you pay for your home. A lot of people go for the maximum they can afford and then if anything goes wrong they are in hot water. My husband and I didn't even bother finding out how much we could qualify for; instead we aimed for a house for which the mortgage payments would be the same as the (pretty low) rent the two of us were paying before. By not maxing out our home debt, we've had a lot of flexibility to: (a) pay down the mortgage early, which we're working on; (b) be able to get by on less than our usual income (which has happened once when my husband was laid off & it took several months to find a new job); and (c) have a little extra money for travel, etc.
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