Other people's facepalm financial management

[mike74]

Speaking as someone who's never had a loan or even a credit card in my life and always lived well within my means it's certainly very frustrating to see the current situation where feckless, financially irresponsible debt junkies are rewarded for their behaviour whilst prudent, sensible people who live modestly within their means are made to pay.

I've never felt more like loading up with as much debt as I can possibly acquire and having no worries about the consequences... it seems to work for the majority of society.

[AndrewEH1]

mike74 said:

Speaking as someone who's never had a loan or even a credit card in my life and always lived well within my means it's certainly very frustrating to see the current situation where feckless, financially irresponsible debt junkies are rewarded for their behaviour whilst prudent, sensible people who live modestly within their means are made to pay.

I've never felt more like loading up with as much debt as I can possibly acquire and having no worries about the consequences... it seems to work for the majority of society.

Thinking about buying a house soon? Might be worth thinking about getting a credit card to pay your regular bills and then pay them off so you can improve your credit rating.

[walm]

mike74 said:

Speaking as someone who's never had a loan or even a credit card in my life and always lived well within my means it's certainly very frustrating to see the current situation where feckless, financially irresponsible debt junkies are rewarded for their behaviour whilst prudent, sensible people who live modestly within their means are made to pay.

I've never felt more like loading up with as much debt as I can possibly acquire and having no worries about the consequences... it seems to work for the majority of society.

Other than with houses that's not true though is it.
Debt is still a nightmare for many - see: cars they can't afford, extortionate high interest short term loans, escalation of credit card debt.

NONE of those get wiped out by inflation or have an asset underlying that appreciates.

Really what you are complaining about is choosing to rent not buy.

[MrBarry123]

The anecdote about the couple jetting off to New York to "sort" their problems is funny however if ever PH didn't need a thread created for a topic, this is it.

[RenesisEvo]

AndrewEH1 said:

Thinking about buying a house soon? Might be worth thinking about getting a credit card to pay your regular bills and then pay them off so you can improve your credit rating.

"Want a better credit rating before you take on a huge amount of debt? Yes? Well, better get yourself into some debt."

Tongue in cheek, - in all seriousness however it confuses/annoys the hell out of me that people who pay on time and don't spend beyond their means are considered 'worse' than those indebted. My credit report was poor despite everything being paid early or on time. It seems so backwards - why do I have to show an inability to pay? If I was lending out money I know what I'd do. I've now changed my card strategy in the hope of turning things around - may backfire as its a 0% card. Time will tell.

[Vocal Minority]

emicen said:

This is the one I was thinking of;
http://uk.businessinsider.com/lottery-winners-who-...

I think the biggest issue is the notion of a millionaire lifestyle.

If you were to win a UK lottery [rollover] jackpot and bag £5,000,000 or so, the best interest bearing accounts and funds will probably give you 5% on that, so £250k a year.

It sounds a lot, and is, a lot by normal standards. However, its not accounting for inflation eroding the core value and you'd be taxed on it. £15k a month I suspect isn't very hard to piss away when all you have to do in life is spend money with no other foibles like work taking up your time.

Anything under £10m I would still be showing up for work every day. How I arrived at work would be subject to an upgrade and the holiday budget would be seriously improved though.

I have thought this through a similar way to you. I may not continue doing what I am doing - but I would definitely require a 'purpose' in life. Not just endlessly partying or doing track days or whatever the usual stock answers on here are.

[pmanson]

RenesisEvo said:

AndrewEH1 said:

Thinking about buying a house soon? Might be worth thinking about getting a credit card to pay your regular bills and then pay them off so you can improve your credit rating.

"Want a better credit rating before you take on a huge amount of debt? Yes? Well, better get yourself into some debt."

Tongue in cheek, - in all seriousness however it confuses/annoys the hell out of me that people who pay on time and don't spend beyond their means are considered 'worse' than those indebted. My credit report was poor despite everything being paid early or on time. It seems so backwards - why do I have to show an inability to pay? If I was lending out money I know what I'd do. I've now changed my card strategy in the hope of turning things around - may backfire as its a 0% card. Time will tell.

Do you mean show an ability to pay?

I think there are two sides to this....

1) Lenders like to see that you are capable of meeting your obligations as a borrower (eg. paying off your card)
2) Certain behavioral traits are profitable for them - eg. only paying the minimum payment off your card each month

In this country banking is typically a 'free' service if you end up £0 each month you're costing the bank money because you either haven't got anything invested with them (that they can loan to somebody else at a higher rate than they pay you in interest) or you in your overdraft and they are able to charge a fee for the privilege. Going on interest rates for cash in the bank vs. interest on overdrafts I suspect the later is a more profitable activity for them.

[BoRED S2upid]

drainbrain said:

BoRED S2upid said:

and the "landlords" who are renting a property for less than the repayments! Some people really don't have a clue.

I know a chap who rents out his old home - a really nice and quite expensive apartment. The rental income doesn't cover the cap and int mortgage and he has to put in about 10% a month of it from his pocket. He reasons that in about 10 years the mortgage will be paid off and he'll have bought a really nice and quite expensive flat for a tenth of what he'd have paid ordinarily. He sees his current contribution as savings.

I see where he's coming from. It's not that stupid really.

I was referring more to people who have jumped into BTL on interest only who still can't cover the repayments and running costs with the rent.

[emicen]

BoRED S2upid said:

drainbrain said:

BoRED S2upid said:

and the "landlords" who are renting a property for less than the repayments! Some people really don't have a clue.

I know a chap who rents out his old home - a really nice and quite expensive apartment. The rental income doesn't cover the cap and int mortgage and he has to put in about 10% a month of it from his pocket. He reasons that in about 10 years the mortgage will be paid off and he'll have bought a really nice and quite expensive flat for a tenth of what he'd have paid ordinarily. He sees his current contribution as savings.

I see where he's coming from. It's not that stupid really.

I was referring more to people who have jumped into BTL on interest only who still can't cover the repayments and running costs with the rent.

It's the terminology interest payment vs repayment.

If the rental doesn't cover the interest payments, it's really just a leveraging gamble. You wonder how many people in that situation don't click that their, commonly used terminology, "repayments" really aren't repaying anything.

Whilst we're on a mortgage and interest only theme, friend of mine bought his flat a year or so before me (so mid 2007, peak of the Scottish market) and elected to go for 110% interest only, to bundle up his credit card debt in to a lower percentage. Rationale was leave it a few years for the value to go up and then remortgage with an LTV that made repayment more affordable. To be fair, as far as I know, he's not in trouble but certainly will not have seen any rise in value in that time. The area has flatlined at best.

[DoubleSix]

emicen said:

It's the terminology interest payment vs repayment.

If the rental doesn't cover the interest payments, it's really just a leveraging gamble. You wonder how many people in that situation don't click that their, commonly used terminology, "repayments" really aren't repaying anything.

Whilst we're on a mortgage and interest only theme, friend of mine bought his flat a year or so before me (so mid 2007, peak of the Scottish market) and elected to go for 110% interest only, to bundle up his credit card debt in to a lower percentage. Rationale was leave it a few years for the value to go up and then remortgage with an LTV that made repayment more affordable. To be fair, as far as I know, he's not in trouble but certainly will not have seen any rise in value in that time. The area has flatlined at best.

Yet I took on a 100% mortgage BTL in 2007 and am up a 100k (50%).

I guess hindsight is 20:20, who'd have guessed?!

[Ozzie Osmond]

DoubleSix said:

Yet I took on a 100% mortgage BTL in 2007 and am up a 100k (50%).

You could have saved yourself the trouble and expense of buying real estate and just invested in the stock market. Up 50%, nice income stream, no tenants to deal with, no transaction costs. Kushdi!

[DoubleSix]

Ozzie Osmond said:

DoubleSix said:

Yet I took on a 100% mortgage BTL in 2007 and am up a 100k (50%).

You could have saved yourself the trouble and expense of buying real estate and just invested in the stock market. Up 50%, nice income stream, no tenants to deal with, no transaction costs. Kushdi!

I'm a stockbroker, got that covered...

Besides, you really shouldn't look at property and equities as 'either/or' assets. All part of a diversified strategy alongside other investments.

Edited by DoubleSix on Wednesday 18th May 21:46

[Fastdruid]

Vocal Minority said:

emicen said:

This is the one I was thinking of;
http://uk.businessinsider.com/lottery-winners-who-...

I think the biggest issue is the notion of a millionaire lifestyle.

If you were to win a UK lottery [rollover] jackpot and bag £5,000,000 or so, the best interest bearing accounts and funds will probably give you 5% on that, so £250k a year.

It sounds a lot, and is, a lot by normal standards. However, its not accounting for inflation eroding the core value and you'd be taxed on it. £15k a month I suspect isn't very hard to piss away when all you have to do in life is spend money with no other foibles like work taking up your time.

Anything under £10m I would still be showing up for work every day. How I arrived at work would be subject to an upgrade and the holiday budget would be seriously improved though.

I have thought this through a similar way to you. I may not continue doing what I am doing - but I would definitely require a 'purpose' in life. Not just endlessly partying or doing track days or whatever the usual stock answers on here are.

Totally this. If it was a "small" win I wouldn't even give up my job. Pay off the mortgage and probably build something new. Set aside a chunk for the rainy day fund, the holiday fund and aim to retire early. While I'm not in the powerfully built director class I earn enough that without a mortgage we'd be very comfortable.

Beyond about £7-10M I'd give up my current job but I think start my own business.

[mike9009]

55palfers said:

mike9009 said:

2. Couple in mid 50s. Sold their house 3 years ago, having almost paid off mortgage and much equity in it (don't know exact figures). Moved into mobile home, bought for £85k. Bought various electrical goods and new car with the rest of the equity from the house and paid off remaining mortgage. After 18 months, they are told they cannot live permanently on the holiday park (no st, but the salesman who subsequently left said they could - nothing in writing though!!) Holiday park offer them £22k for their 18 month old mobile home, they see no choice and accept (completely unregulated industry, as I checked things out for them.) Move into rented accommodation, having another £22k spending spree decking out rented house and taking entire family on holiday to Florida. No pension provision, a three year old battered Hyundai and various white goods is all that is left.


Arrrrgggghhhhh! Neither of them earns a huge amount either.... but helping them financially is difficult. One has opted out of the workplace pension too.


Mike

That is very sad indeed - did they have no-one to they could ask some advice?

I think discussing life options, especially when finances become involved, is quite a taboo subject within a workplace or even social situation. This is maybe one of the underlying issues with some peoples financial awareness, a willingness to have a sensible discussion with someone knowledgeable in advance of the st hitting the fan.

I have only known them for a year or so. I noticed she was quite upset and offered to assist last year during the mobile home sale fiasco. Unfortunately the subsequent Florida holiday booking was announced to me when she asked for three weeks off work to be approved.....

I suspect their social/ family network may also be similarly financially inept and perhaps actively encouraged their decision making process. (free holiday, yippee!!)


Mike

[Granfondo]

Where is daemon the protector of all debt monkeys when you need him?

[otolith]

mike74 said:

Speaking as someone who's never had a loan or even a credit card in my life and always lived well within my means it's certainly very frustrating to see the current situation where feckless, financially irresponsible debt junkies are rewarded for their behaviour whilst prudent, sensible people who live modestly within their means are made to pay.

I've never felt more like loading up with as much debt as I can possibly acquire and having no worries about the consequences... it seems to work for the majority of society.

They've got no data - they don't know you're not a cash in hand drive tarmacer.

[Audemars]

Careless spending will catch up those that can't afford it later down the line. Such people will live their old age blaming the government for their living conditions.

[MrBarry123]

Audemars said:

Careless spending will catch up those that can't afford it later down the line. Such people will live their old age blaming the government for their living conditions.

Oh goodness, not you...

[ThunderGuts]

A couple I know earning ~£30k between them have decided they MUST have a new A6.

Neither is saving into a pension.

But hey, short term shiny shiny.

[walm]

BoRED S2upid said:

I was referring more to people who have jumped into BTL on interest only who still can't cover the repayments and running costs with the rent.

As emicen says I think you have the terminology wrong which certainly confused me - so apologies for that.

If you have an interest only mortgage then you aren't making any "repayments"!!!
Sure, you have payments but they just keep the principal balance flat - you aren't REpaying anything...

Anyway, totally agree that NOT making the interest is a crazy bet.