Living a Completely Debt Free Life
Discussion
I got myself into a lot of credit card debt in my twenties and it left me with a strong dislike of it forever. I paid off my mortgage on my first house at 37, and that was it for debt for me.
After a very expensive divorce I slashed my lifestyle to nothing for a couple of years and still stayed debt free. Remarried now for many years, and all good. I think the really big thing is that there is no worry about housing prices as there is no possibility of being upside down in the mortgage. Also you do not buy things if there is not enough operating cash. This stuff really hits home when you get older and have to raise and educate kids, hit your fifties and realize that you have ten or fifteen years to build sufficient equity to last you after retirement, illness or just getting laid off or fired.
Its not the only answer, and everyone has different circumstances. I have known people with higher risk appetites who have borrowed heavily and bought rental properties for example, and who got out before the housing downturn. Very few of us could buy our first house without a mortgage and I borrowed for my first non-junker car. Still, for my personally I have found it very liberating not to worry about the collection calls I once had in my youth. It took my two years to become free of credit card and consumer debt and I have never regretted it.
After a very expensive divorce I slashed my lifestyle to nothing for a couple of years and still stayed debt free. Remarried now for many years, and all good. I think the really big thing is that there is no worry about housing prices as there is no possibility of being upside down in the mortgage. Also you do not buy things if there is not enough operating cash. This stuff really hits home when you get older and have to raise and educate kids, hit your fifties and realize that you have ten or fifteen years to build sufficient equity to last you after retirement, illness or just getting laid off or fired.
Its not the only answer, and everyone has different circumstances. I have known people with higher risk appetites who have borrowed heavily and bought rental properties for example, and who got out before the housing downturn. Very few of us could buy our first house without a mortgage and I borrowed for my first non-junker car. Still, for my personally I have found it very liberating not to worry about the collection calls I once had in my youth. It took my two years to become free of credit card and consumer debt and I have never regretted it.
hapless said:
Maxf said:
hapless said:
boobles said:
Do you pay rent at the moment? If so, you are not debt free. 
Only if it's overdue, surely?ETA - this is how little I trust myself with debt / money / credit. The only thing I have on direct debit is my BT phone bill, everything else I pay for in advance or as soon as the bill arrives.
Edited by V8Triumph on Thursday 12th July 15:37
sideways sid said:
V8Triumph said:
sideways sid said:
V8Triumph said:
CaptainSlow said:
davepoth said:
Get a credit card, buy something small (like a packet of crisps) on it each month, and pay it off in full each month. You'll pay nothing in interest, but it'll get you some good credit history fairly rapidly.
This, plus a pay monthly phone if you don't have one already. Maybe even take out a small unsecured loan and pay it back over the term...it'll cost you in interest but will make your credit history a lot stronger.
ETA - If so why?
A mortgage is secured on a property and enables you to live where you want to live today and pay for your home over time using the money that you would otherwise be saving up. You obviously understand the horrors of unsecured debt that can creep up quickly and multiply.
Perhaps you should consider saving until you have 25% of the value of your house (£25k or £45k given your examples) and then apply for a mortgage with two or three years of accounts behind you. The mortgage would be for the remaining £75k or £135k, which you could easily pay back over the normal 25-yr term, or overpay at your savings rate of £17k pa. That way you could be a homeowner in a couple of years and debt-free 5 years after that if being debt-free is still your priority then.
If I had a mortgage and after a couple of years, I'd be remortgaged to buy *that* E-type I've always wanted and one thing would become the next because I'd managed it once the next time it'd be an Aston Martin etc. etc. I know it sounds absolutely ridiculous. I know that really I should be able to control myself but the fact is I know I can't. If my access to money is locked away in assets - I'm fine. If it's liquid / attainable I have an overwhelming desire to spend it and yes that includes money I do not have!
For the past few years I've learnt to live credit free and as far as assets I have bought, completely depreciation free as well (not just cars, I buy other 'stuff' as well) which has not only satisfied my horrendous need to spend but has proved to be rather prudent.
What I was asking is for a person like this, am I best off staying completely credit free even as far as buying a house goes?
Anyway, I think we've established that, yes as far as credit is concerned I need to grow up. However, I cannot for the life of me trust myself with it!
hapless said:
Maxf said:
hapless said:
boobles said:
Do you pay rent at the moment? If so, you are not debt free.
Only if it's overdue, surely?V8Triumph said:
66comanche said:
So OP is saying she can save £100k over 6 years, to the people advocating building your own house over time, just how does this work? First she will have to buy the plot of land, which is likely to cost surely at least tens of thousands of pounds for something with planning permission, maybe a couple of years savings. Then she will have £16-17k a year to put towards the building of the house, probably enough to employ a labourer but not many materials for him to work with! The idea of a static caravan on site is a good one as the extra rent saved can be ploughed into the house, but I think this is something to be done years down the line, building a house piecemeal as funds come in sounds a nightmare.
Maybe a way onto the ladder sooner would be one of the shared ownership properties? Even if you start with one which is only 25% ownership, with the amount you profess to be able to save you can pay that off pretty quickly, then move to 50%, paying reduced rent from the off and reducing it further over time. Being self-employed though and sounds like you are fairly new to it? Just a word of caution to being overly optimistic too soon.
If you can amass a good pile of cash then buy at auction, get something which needs some work doing and you'll get plenty for your money.
This is exactly the sort of advice I was after, thank you. Maybe a way onto the ladder sooner would be one of the shared ownership properties? Even if you start with one which is only 25% ownership, with the amount you profess to be able to save you can pay that off pretty quickly, then move to 50%, paying reduced rent from the off and reducing it further over time. Being self-employed though and sounds like you are fairly new to it? Just a word of caution to being overly optimistic too soon.
If you can amass a good pile of cash then buy at auction, get something which needs some work doing and you'll get plenty for your money.
My income is a fairly steady one and I've been self employed for two years now.
I have thought of shared ownership properties but few seem to have much drive space. I'm also concerned about the residual value of buying a new / newish property. More likely to fall than an old one bought that needs a load of work - I'm not afraid to get my hands dirty. Perhaps I'm wrong - I know next to nothing about the property market and whilst I know that I could buy (for instance) ten cars per year and make £1000 on each one, I don't have the knowledge about property to make money on it. However, I don't wish to lose money on it either.
I personally wouldn't be worried about the residual value aspect - if you're talking about 25% or even 50% of a £80k new(ish) build house, your exposure is minimal, with the market as it is. The parking space issue is a bugbear, if you were going down that road you'd either need to shift a few of your fleet or find storage for them - I did a very quick Rightmove search in Derbyshire and there were places with parking areas next to the houses, how your neighbours would take to you using 5 spaces is dunious. Go along to a property auction local to you, a run down rural bungalow/house with loads of space for parking might fit the bill but I think you'd have many years saving before you could buy outright let alone then improve it.
If I were you, get your feet on the ladder, whether it be 25% or 50% - at least you are partly buying your property straightaway, every months rent you currently pay is money thrown away. Lets say you spend another 2 years pondering, perhaps your rent is £500 pcm so £12000 gone. I've never paid rent to a landlord ever and it's stood me in decent stead I think, have plenty of friends who are similar, but houses were cheap when I was a youngster. Makes me sound an old git at 34!
Basically everyone who needs a house to live in has three ways to pay for it.
1) Rent
2) Buy with mortgage (so rent the money from the bank)
3) purchase with cash (but lose opportunity cost of investing elsewhere)
I appreciate that people have different attitudes to risk but in my opinion purchasing with cash is the worst option due to losing the opportunity of investing that money elsewhere. As house prices have more than doubled in the last decade and the stock market has been flat. This would suggest to me that the stock market will outperform property for the next decade and you would be much better off investing the £100k in the stock market and using the dividends to pay your rent than buying a property with cash.
Buying with a mortgage in my opinion is the best option due to the leverage you get on your deposit. If you buy a house for £100k with £25k deposit and the price of the house eventually doubles your £25k would become £125k so 5x your original investment.
1) Rent
2) Buy with mortgage (so rent the money from the bank)
3) purchase with cash (but lose opportunity cost of investing elsewhere)
I appreciate that people have different attitudes to risk but in my opinion purchasing with cash is the worst option due to losing the opportunity of investing that money elsewhere. As house prices have more than doubled in the last decade and the stock market has been flat. This would suggest to me that the stock market will outperform property for the next decade and you would be much better off investing the £100k in the stock market and using the dividends to pay your rent than buying a property with cash.
Buying with a mortgage in my opinion is the best option due to the leverage you get on your deposit. If you buy a house for £100k with £25k deposit and the price of the house eventually doubles your £25k would become £125k so 5x your original investment.
SAAB93AERO said:
Basically everyone who needs a house to live in has three ways to pay for it.
1) Rent
2) Buy with mortgage (so rent the money from the bank)
3) purchase with cash (but lose opportunity cost of investing elsewhere)
I appreciate that people have different attitudes to risk but in my opinion purchasing with cash is the worst option due to losing the opportunity of investing that money elsewhere. As house prices have more than doubled in the last decade and the stock market has been flat. This would suggest to me that the stock market will outperform property for the next decade and you would be much better off investing the £100k in the stock market and using the dividends to pay your rent than buying a property with cash.
Buying with a mortgage in my opinion is the best option due to the leverage you get on your deposit. If you buy a house for £100k with £25k deposit and the price of the house eventually doubles your £25k would become £125k so 5x your original investment.
I don't see how buying with cash is the worst option. If I get a £100k mortgage im paying interest on that £100k at what 3/4% so if I were to go with your option I would invest that £100k elsewhere so I need to make 3/4% just to offset the interest im now paying on my mortgage and some more to make the investing elsewhere a viable option so say 7% to make it worthwhile. 1) Rent
2) Buy with mortgage (so rent the money from the bank)
3) purchase with cash (but lose opportunity cost of investing elsewhere)
I appreciate that people have different attitudes to risk but in my opinion purchasing with cash is the worst option due to losing the opportunity of investing that money elsewhere. As house prices have more than doubled in the last decade and the stock market has been flat. This would suggest to me that the stock market will outperform property for the next decade and you would be much better off investing the £100k in the stock market and using the dividends to pay your rent than buying a property with cash.
Buying with a mortgage in my opinion is the best option due to the leverage you get on your deposit. If you buy a house for £100k with £25k deposit and the price of the house eventually doubles your £25k would become £125k so 5x your original investment.
BoRED S2upid said:
SAAB93AERO said:
Basically everyone who needs a house to live in has three ways to pay for it.
1) Rent
2) Buy with mortgage (so rent the money from the bank)
3) purchase with cash (but lose opportunity cost of investing elsewhere)
I appreciate that people have different attitudes to risk but in my opinion purchasing with cash is the worst option due to losing the opportunity of investing that money elsewhere. As house prices have more than doubled in the last decade and the stock market has been flat. This would suggest to me that the stock market will outperform property for the next decade and you would be much better off investing the £100k in the stock market and using the dividends to pay your rent than buying a property with cash.
Buying with a mortgage in my opinion is the best option due to the leverage you get on your deposit. If you buy a house for £100k with £25k deposit and the price of the house eventually doubles your £25k would become £125k so 5x your original investment.
I don't see how buying with cash is the worst option. If I get a £100k mortgage im paying interest on that £100k at what 3/4% so if I were to go with your option I would invest that £100k elsewhere so I need to make 3/4% just to offset the interest im now paying on my mortgage and some more to make the investing elsewhere a viable option so say 7% to make it worthwhile. 1) Rent
2) Buy with mortgage (so rent the money from the bank)
3) purchase with cash (but lose opportunity cost of investing elsewhere)
I appreciate that people have different attitudes to risk but in my opinion purchasing with cash is the worst option due to losing the opportunity of investing that money elsewhere. As house prices have more than doubled in the last decade and the stock market has been flat. This would suggest to me that the stock market will outperform property for the next decade and you would be much better off investing the £100k in the stock market and using the dividends to pay your rent than buying a property with cash.
Buying with a mortgage in my opinion is the best option due to the leverage you get on your deposit. If you buy a house for £100k with £25k deposit and the price of the house eventually doubles your £25k would become £125k so 5x your original investment.
(Obviously this is far more risky than even stocks and shares - at least with them you can only lose 100% of your investment while with a house negative equity allows you to lose more.)
A 7% long term return on stocks isn't a terrible approximation.
Even with a flat decade stocks have returned nearly 10% per annum over the last 30 years.
walm said:
BoRED S2upid said:
SAAB93AERO said:
Basically everyone who needs a house to live in has three ways to pay for it.
1) Rent
2) Buy with mortgage (so rent the money from the bank)
3) purchase with cash (but lose opportunity cost of investing elsewhere)
I appreciate that people have different attitudes to risk but in my opinion purchasing with cash is the worst option due to losing the opportunity of investing that money elsewhere. As house prices have more than doubled in the last decade and the stock market has been flat. This would suggest to me that the stock market will outperform property for the next decade and you would be much better off investing the £100k in the stock market and using the dividends to pay your rent than buying a property with cash.
Buying with a mortgage in my opinion is the best option due to the leverage you get on your deposit. If you buy a house for £100k with £25k deposit and the price of the house eventually doubles your £25k would become £125k so 5x your original investment.
I don't see how buying with cash is the worst option. If I get a £100k mortgage im paying interest on that £100k at what 3/4% so if I were to go with your option I would invest that £100k elsewhere so I need to make 3/4% just to offset the interest im now paying on my mortgage and some more to make the investing elsewhere a viable option so say 7% to make it worthwhile. 1) Rent
2) Buy with mortgage (so rent the money from the bank)
3) purchase with cash (but lose opportunity cost of investing elsewhere)
I appreciate that people have different attitudes to risk but in my opinion purchasing with cash is the worst option due to losing the opportunity of investing that money elsewhere. As house prices have more than doubled in the last decade and the stock market has been flat. This would suggest to me that the stock market will outperform property for the next decade and you would be much better off investing the £100k in the stock market and using the dividends to pay your rent than buying a property with cash.
Buying with a mortgage in my opinion is the best option due to the leverage you get on your deposit. If you buy a house for £100k with £25k deposit and the price of the house eventually doubles your £25k would become £125k so 5x your original investment.
(Obviously this is far more risky than even stocks and shares - at least with them you can only lose 100% of your investment while with a house negative equity allows you to lose more.)
A 7% long term return on stocks isn't a terrible approximation.
Even with a flat decade stocks have returned nearly 10% per annum over the last 30 years.
I love debt, and will almost certainly die owing millions. But I have a very good and longstanding friend who hates it and doesn't owe a penny to anyone. He's always thought "Can I afford it"? I've always thought "Can I afford the payments on it"? Tell you what, it's obvious which of us has enjoyed more of the fruits of materialism.
People like me who use debt really don't care if we own an object or not. In some ways I enjoy my house/car/etc far more for knowing I didn't have to pay for them upfront. And whilst so far (and for many years) I've serviced my debts as agreed, I don't lose any sleep stressing about not being able to pay them. Things and circumstances change. Up AND down.
Recently another friend (coincidentally the brother of the one who hates debt) told me about a largish business loan he'd made some years ago which had never been repaid, although the interest continues to be paid weekly. The sum total of interest now considerably exceeds the original loan. The borrower used it to create what's now a big and successful ice-cream business. And whilst he is free to pay the capital sum any time he chooses, he seems to prefer not to. I totally understand that, but also understand how happy the lender is with the arrangement. Properly arranged, debt's a great tool.
People like me who use debt really don't care if we own an object or not. In some ways I enjoy my house/car/etc far more for knowing I didn't have to pay for them upfront. And whilst so far (and for many years) I've serviced my debts as agreed, I don't lose any sleep stressing about not being able to pay them. Things and circumstances change. Up AND down.
Recently another friend (coincidentally the brother of the one who hates debt) told me about a largish business loan he'd made some years ago which had never been repaid, although the interest continues to be paid weekly. The sum total of interest now considerably exceeds the original loan. The borrower used it to create what's now a big and successful ice-cream business. And whilst he is free to pay the capital sum any time he chooses, he seems to prefer not to. I totally understand that, but also understand how happy the lender is with the arrangement. Properly arranged, debt's a great tool.
Edited by groak on Saturday 14th July 17:40
I lived my 20s, got big debt, went bankrupt after uni and rolled over on my student loan, now 8 years on I have a perfect credit score and saved a six figure sum and am looking for a house, problem is, my plans have changed and my sights are higher so i'm also getting a mortgage after originally deciding to save and pay cash!
6 years is a long time, however its good to wait as house prices are falling fast, i'm watching a few houses and most have dropped 10-15k, one from 299 to225 since it first went up, and now down to 215 in last few Weeks.
6 years is a long time, however its good to wait as house prices are falling fast, i'm watching a few houses and most have dropped 10-15k, one from 299 to225 since it first went up, and now down to 215 in last few Weeks.
e8_pack said:
I lived my 20s, got big debt, went bankrupt after uni and rolled over on my student loan, now 8 years on I have a perfect credit score and saved a six figure sum and am looking for a house, problem is, my plans have changed and my sights are higher so i'm also getting a mortgage after originally deciding to save and pay cash!
6 years is a long time, however its good to wait as house prices are falling fast, i'm watching a few houses and most have dropped 10-15k, one from 299 to225 since it first went up, and now down to 215 in last few Weeks.
6 years is a long time, however its good to wait as house prices are falling fast, i'm watching a few houses and most have dropped 10-15k, one from 299 to225 since it first went up, and now down to 215 in last few Weeks.
opcorn:Young lady my advice: Don't buy property for a good while yet (2-5yrs) and put any money you have, that you can be sure not to need for a rainy day, into silver bullion, held in a vault or in your own safe.
If you don't follow my advice promise me you at least will follow the price of silver. Gold will work well too.
Colin.
ps. I mean physically delivered metal not ETFs or any paper derivative.
If you don't follow my advice promise me you at least will follow the price of silver. Gold will work well too.
Colin.
ps. I mean physically delivered metal not ETFs or any paper derivative.
longone said:
Young lady my advice: Don't buy property for a good while yet (2-5yrs) and put any money you have, that you can be sure not to need for a rainy day, into silver bullion, held in a vault or in your own safe.
If you don't follow my advice promise me you at least will follow the price of silver. Gold will work well too.
Colin.
ps. I mean physically delivered metal not ETFs or any paper derivative.
Holding a large chunk silver will give you a heart attack with the fluctuations. I know because I bought a £50k worth at $21 before it dropped to $8 in 2009 although to be fair its not looking too bad now. Platinum is cheaper than gold at the moment(historically normally the other way round) so probably a better buy and a lot of platinum mines are closing due to spiral costs in south Africa so likely to be supply reductions in the future. If you don't follow my advice promise me you at least will follow the price of silver. Gold will work well too.
Colin.
ps. I mean physically delivered metal not ETFs or any paper derivative.
FLASHG1981 said:
Holding a large chunk silver will give you a heart attack with the fluctuations. I know because I bought a £50k worth at $21 before it dropped to $8 in 2009 although to be fair its not looking too bad now. Platinum is cheaper than gold at the moment(historically normally the other way round) so probably a better buy and a lot of platinum mines are closing due to spiral costs in south Africa so likely to be supply reductions in the future.
My post was to give the young lady some advice based my own experience trading PMs. I'm sorry to hear you bought high at the time but if you held on you're in a 25% profit today. The silver market is heavily manipulated but not so as to be unprofitable. My advice is time sensitive and I wouldn't have recommended buying silver at $21 in 2008 just as I wouldn't have suggested buying at $49 in early 2011. However, I would advise buying it at $27 today.What the young lady and possible many other people need is someting close to a sure bet. Obviously this is hard to call and one day I too will sell my PM holdings. But, for the foreseeable future, gold and moreso silver are, in my opinion, very safe puts for the man in the street looking to store their life savings.
Your comments on platinum are not describing the price relationship with respect to gold. The resistance of gold to the selldown in commodities such as platinum and silver is in principle to do with central banks around the world buying.
For the young lady I would suggest silver stored in the physical metal sense and wait 2-5 years.
Colin.
longone said:
My post was to give the young lady some advice based my own experience trading PMs. I'm sorry to hear you bought high at the time but if you held on you're in a 25% profit today. The silver market is heavily manipulated but not so as to be unprofitable. My advice is time sensitive and I wouldn't have recommended buying silver at $21 in 2008 just as I wouldn't have suggested buying at $49 in early 2011. However, I would advise buying it at $27 today.
What the young lady and possible many other people need is someting close to a sure bet. Obviously this is hard to call and one day I too will sell my PM holdings. But, for the foreseeable future, gold and moreso silver are, in my opinion, very safe puts for the man in the street looking to store their life savings.
Your comments on platinum are not describing the price relationship with respect to gold. The resistance of gold to the selldown in commodities such as platinum and silver is in principle to do with central banks around the world buying.
For the young lady I would suggest silver stored in the physical metal sense and wait 2-5 years.
Colin.
I agree with what you've said and I do think Silver is a good investment long term. I was just highlighting the extreme volatility I wouldn't recommend the OP going out and putting £100k on Silver that is meant for house deposit entirely in Silver although 20-25% would probably be a good idea. I think a larger chunk in Gold and Platinum would be fine as they are are less volatile.What the young lady and possible many other people need is someting close to a sure bet. Obviously this is hard to call and one day I too will sell my PM holdings. But, for the foreseeable future, gold and moreso silver are, in my opinion, very safe puts for the man in the street looking to store their life savings.
Your comments on platinum are not describing the price relationship with respect to gold. The resistance of gold to the selldown in commodities such as platinum and silver is in principle to do with central banks around the world buying.
For the young lady I would suggest silver stored in the physical metal sense and wait 2-5 years.
Colin.
Buying silver bullion is ridiculous advice for the OP.
Silver and other precious metals need to be stored expensively, with fluctuating value that might not coincide with her future requirement to convert it back into cash to buy a house, and do not pay an income.
Completely off-topic but at least buying shares in miners gives exposure to commodity prices whilst maintaining liquidity, zero-holding costs, and dividends. But I wouldn't recommend that either.
The best hedge against house-price inflation for the OP would be to buy into a spread of property and construction companies & REITs, particularly those with resi assets. At least if prices rise, the shares should too, thus maintaining her purchasing power.
Silver and other precious metals need to be stored expensively, with fluctuating value that might not coincide with her future requirement to convert it back into cash to buy a house, and do not pay an income.
Completely off-topic but at least buying shares in miners gives exposure to commodity prices whilst maintaining liquidity, zero-holding costs, and dividends. But I wouldn't recommend that either.
The best hedge against house-price inflation for the OP would be to buy into a spread of property and construction companies & REITs, particularly those with resi assets. At least if prices rise, the shares should too, thus maintaining her purchasing power.
sideways sid said:
The best hedge against house-price inflation for the OP would be to buy into a spread of property and construction companies & REITs, particularly those with resi assets. At least if prices rise, the shares should too, thus maintaining her purchasing power.
There won't be any house price inflation to hedge against in the next 5 years at least.Gassing Station | Finance | Top of Page | What's New | My Stuff