"What is 'your' definition of Debt-free? This is our situation, a financial question. - Page 2 - Talk About Marriage
Financial Problems in Marriage When financial times are tough, it adds to the stress we deal with on a daily basis. This section is for talking about how financial problems affect our relationships and ways to cope.

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post #16 of 40 (permalink) Old 01-20-2017, 09:54 AM
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Re: "What is 'your' definition of Debt-free? This is our situation, a financial quest

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Direct living expenses (ie, mortgage or rent) are typically not counted as 'debt'. You are debt-free by the standards of most people.

However, I strongly agree with the above posters that 'debt' can be used to your advantage. For instance, you asked why anyone would want to buy a house in California. My family bought a house in the early 1980s in what was then being developed as a high-end LA community (Rolling Hills Estates). At the time it cost somewhere in the upper $300k. When it was sold two decades later, it sold for somewhere around 3 million.

Paying rent will never give you equity in anything. It will never increase your wealth. It is a very safe plan, but if you don't take risks, you won't increase your wealth.

I have been buying and selling properties for years. When I bought the first one (a 200+ acre farm), I had to borrow money. So I was not debt-free. But when I sold it, I made a ton of money and used that money to buy another property, which I also flipped for a profit and which I didn't have to finance.... and on and on.

I also don't pay my bills the second I receive them. You don't get extra credit (no pun intended) by doing that. As long as you pay it before it's due, you will get the same credit benefit and you will have your money to use for a longer period of time. I too pay off my credit cards in full every month, but I do it on the day before the payment is due (online).

It depends on what you want. People who are very risk-averse and conservative don't usually build much wealth. You might eventually want to consider buying a home of some sort to build equity, because at 30 years old you have a lot more years of rent to pay. As long as you are smart about where you are buying and what you are buying, you can have your place paid for in 20 or 30 years when you really need to stop thinking about paying rent.

One of the best things you could consider doing is to buy a duplex and finance it - live in half and rent the other half. Let someone else's rent pay off YOUR property.
Yes if bought at the right time ad in the right place property can be a good investment. Some people have also a talent for spotting undervalued properties.

"My family bought a house in the early 1980s in what was then being developed as a high-end LA community (Rolling Hills Estates). At the time it cost somewhere in the upper $300k. When it was sold two decades later, it sold for somewhere around 3 million."

Over 2 decades, it works out at around 11% per year which is quite good. Buying property as your own home is in majority of cases a good idea but buying as an investment, one has to be careful. There is also the potential headache of managing it.

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post #17 of 40 (permalink) Old 01-20-2017, 10:19 AM
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Re: "What is 'your' definition of Debt-free? This is our situation, a financial quest

I think the key question on debt is whether or not the debt provides tools to future financial gain.

Mortgage - yes. You save on rent and in many cases the value of the property will increase.

Business / property investments: Potentially yes, but there is a substantial risk with any business, and your debt should never be more than you can cover if the investment fails.

Car: Maybe - if you need a car to get to work, borrowing to buy one is reasonable, but it should be for a functional car. Debt on a "fun" car" is rarely a good idea.

Student loans: Usually yes if you are getting a degree in something that will lead to improved job prospects in the future.
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post #18 of 40 (permalink) Old 01-20-2017, 10:39 AM
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Re: "What is 'your' definition of Debt-free? This is our situation, a financial quest

To me, being "debt free" means the following: having no revolving credit card debt, having no monthly automobile payments, having no student loans, having no mortgage, and having no other such liabilities

Items such as paying for your children's college tuition while they are in school so they do not have debt when they finish I would not consider "debt", as this is just a worthwhile expense.

To be in a situation where you have zero mortgage debt, no student loans, no credit card debt, all cars paid off, etc, is a great place to be.

Personally, for me, as someone who is in his early forties with 4 children, whose only debt is a mortgage and my student loans and an acceptable amount of vehicle debt with the number of vehicles I have had to purchase for my family, I am happy with that. I remember Larry Burkett once said "You cannot use a credit card wisely, you can just use one less foolishly". If you don't pay any interest to the credit card companies, then you're winning. I do not think I will be "debt free" for many years, as I expect to be paying on a mortgage for the foreseeable future. The real question is do you have money left at the end of the month and whether or not you're living within your means. Every situation is different. I once had credit cards, thru college, and afterwards, and it took me years to pay them off, and I vowed to never own one again.
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post #19 of 40 (permalink) Old 01-20-2017, 10:47 AM
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Re: "What is 'your' definition of Debt-free? This is our situation, a financial quest

Debt is a useful tool. It allows you to accomplish many things that you would otherwise not be able.

Carefully subjugating the liability for that debt is critical. By having the lenders buy in, usually with the carrot of profit as greed is king, they will provide much...in the event it goes south...they get to own the loss.

Manipulating the system to maximize rewards while limiting risk should be ultimate goal.

TLDR...debt free means zero debt....as well as a low tolerance for risk

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post #20 of 40 (permalink) Old 01-20-2017, 11:07 AM
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Re: "What is 'your' definition of Debt-free? This is our situation, a financial quest

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Yes if bought at the right time ad in the right place property can be a good investment. Some people have also a talent for spotting undervalued properties.

"My family bought a house in the early 1980s in what was then being developed as a high-end LA community (Rolling Hills Estates). At the time it cost somewhere in the upper $300k. When it was sold two decades later, it sold for somewhere around 3 million."

Over 2 decades, it works out at around 11% per year which is quite good. Buying property as your own home is in majority of cases a good idea but buying as an investment, one has to be careful. There is also the potential headache of managing it.
PS: It is very likely that you would have got better returns if you put 300k in the stockmarket and left it for 20 years; this was an unusually good period for property. But his is of course with hindsight.
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post #21 of 40 (permalink) Old 01-20-2017, 02:33 PM
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Re: "What is 'your' definition of Debt-free? This is our situation, a financial quest

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PS: It is very likely that you would have got better returns if you put 300k in the stockmarket and left it for 20 years; this was an unusually good period for property. But his is of course with hindsight.
True, but you can only do that if you have $300k in cash up front.

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post #22 of 40 (permalink) Old 01-20-2017, 02:51 PM
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Re: "What is 'your' definition of Debt-free? This is our situation, a financial quest

I think I would consider paying rent as not living debt free. Debt free to me means no housing expenses so house is paid off in full.

"I've paid double for every transgression I've ever made and that motel and that boat are little to ask for"
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post #23 of 40 (permalink) Old 01-20-2017, 03:06 PM
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Re: "What is 'your' definition of Debt-free? This is our situation, a financial quest

Putting three hundred grand in the stock market twenty years ago may have brought a big return but it depends on where you invested.Investing in a single company is fraught with danger,consider Enron.People are advised to use investment trusts to spread their investment over many different companies,consider Bernie Madoff.You always risk losing everything when dealing on the stock market unless you know what you are doing and are willing to research companies financial records and even then you are taking a chance.
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post #24 of 40 (permalink) Old 01-20-2017, 03:09 PM
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Jasmine,

First, 100k is a good income. Most families don't make that in total (even in CA).

I agree with your definition of debt-free. Those are common words with a clear definitions. However, that other lady brings up a good point that debt-free does not necessarily mean well-off or better off than someone who has some debt.

I, for instance, owe $250k on a house worth around double that. My mortgage payment would not cover most apartments in my area. Plus, that payment is fixed and the home will be paid eventually.

You'd have a hard time convincing most people that I am worse off than someone making the same money but paying my mortgage to rent a small apartment.

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post #25 of 40 (permalink) Old 01-20-2017, 05:03 PM
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Re: "What is 'your' definition of Debt-free? This is our situation, a financial quest

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True, but you can only do that if you have $300k in cash up front.

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Actually you can easily borrow to invest (at rates below that offered by mortgages). It's not usually recommended (because people get greedy and over-leverage to boost returns).
Buying a house is essentially a leveraged investment too.
People who bought houses in the US around 2006 experienced the full meaning of that.

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post #26 of 40 (permalink) Old 01-20-2017, 05:12 PM
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Re: "What is 'your' definition of Debt-free? This is our situation, a financial quest

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I think I would consider paying rent as not living debt free. Debt free to me means no housing expenses so house is paid off in full.
My home is paid for in full, I still have housing expenses. My real estate taxes are about 15K per year, there is also home maintenance to be considered. When you rent repairs and maintenance are covered by your landlord. Living expenses can't be avoided, even my family cemetary plot had a pretty expensive buy in that covers ongoing maintenance of the grounds.
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post #27 of 40 (permalink) Old 01-20-2017, 05:14 PM
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Re: "What is 'your' definition of Debt-free? This is our situation, a financial quest

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Putting three hundred grand in the stock market twenty years ago may have brought a big return but it depends on where you invested.Investing in a single company is fraught with danger,consider Enron.People are advised to use investment trusts to spread their investment over many different companies,consider Bernie Madoff.You always risk losing everything when dealing on the stock market unless you know what you are doing and are willing to research companies financial records and even then you are taking a chance.
I obviously meant putting the money across the market (in SP500 tracker for example), not in a single stock or Bernie Madoff! (No speculation).
Actually I looked it up, the return between 1980 and 2000 would have been 17.5% pa. $300,000 would have turned into $8,000,000 (with dividends reinvested, see here: https://dqydj.com/sp-500-return-calculator/

But that was a pretty unique period for both housing AND the stock market.
I just mean that there are other (better) ways to accumulate wealth, without speculation.
Which is indeed how we accumulated our wealth, to some degree. (The other part came from hard work).
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post #28 of 40 (permalink) Old 01-20-2017, 05:25 PM
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Re: What is 'your' definition of Debt-free? This is our situation. A financial questi

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[[ We Debt-free, zero debt. No student loans debt, we never have school debt. No credit cards debt. No medical debt.. Cars are paid off, long paid off. I mean we have insurance, but both our cars his and mine are paid off.

Rent and All bills are pay on time early every month way before the due date; once we get the bills we pay it right away mail out the payment the next day.. Credit card bills, same thing. Mail out payment next day way early before the due date. We have excellent/perfect credit scores.
Our credit card bills is just what we use charge with our credit cards for that month, and once we get the bill we mail out the check right away next day pay it off. Never once we own credit cards a penny, let alone own a dollar.
Everything, Rent and all bills including credit cards bills are all pay on time way early every month actually. Never once we have a late payment, let alone a missed payment.

My husband make decent income, he make 100K a year (money don't fall down from the sky. He has to work long hours in order to make that income. But he has No difficulty of bring in 100K income a year).. Despite we live in a HCOL state California, but life is comfy for us due to we both Debt-free. And we both are not big spender.
He very responsible with money, he work hard to secure for our future. To make sure we always be in a comfortable financial position.
It's very admirable how you & he have handled your money & have the future well covered...Clearly you are both "savers" ... Your husband may be more of the careful planner between you, but you are his frugal helpmate ... it's a superb match... I don't think the 2 of you will be fighting over finances any time soon!!

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We dislike debt. We never over spend. We budget everything.. Every month money go in what in what, we have everything budget lay out all and ready.
We do live BELOW our means. We rent in the lowest monthly rent place. No, we don't need to live in a high-end place with swimming pools and work out gyms and all that, lol. we don't care those stuff.. I told my husband why pay the top expensive rent monthly when we can find a place with much lower/cheaper rent? It helps each month to add MORE money into your savings if we paying lower rent.
Myself and husband have always lived below our means too.. as you describe here.. in our early years.. this helped us put down a whopping down payment when we found the house of our dreams.. then pay it off quickly, saving a ton on interest... I would recommend that to anyone, if they can swing it, for whatever their future goals are .... often they say "save for a rainy day".. I like to call it a "torrential downpour" ...to have this sort of savings set aside...it gives a couple a lot of "Peace"... for when emergencies come up, too many vehicle troubles, just buy another one...if we need a lawyer.. whatever.. and also to achieve that "debt free" state.. whether it's with renting with a ton in the bank (like yourselves) or for a family like ours.. we make less a year than you & your husband - but have 6 kids !! A goal of ours was always to buy a house... we didn't want to rent..

Question: Do you both want to be home owners someday? .. what does that look like: Do you want a yard, to live in the city close to everything going on, more suburban where the houses are spread out a little.. or are you a Country girl ...dreaming of more peace & quiet, possibly some land? Where do you imagine raising some children? Do you & he have this in common also.. have similar dreams?

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Anyways, I'm very frugal. I'm a coupon person; I cut coupons, I save coupons, I use coupons.. I save every dollar as I can.
My husband make 100K a year and I'm here cutting coupons out of weekly grocery ads, lol.. even coupons like buy one get one half off, or .75 cents off I still cut out use and save.
I'm not a huge planner like my husband, but I'm frugal.
Smart wife... I am sure your husband very much appreciates your being this way...his being such a careful planner himself...and if you stay at home, you have the time to devote to seeking out the best deals, cutting those coupons in your free time.. I did this for years too.. still do when I get my hands on some.. to be honest.. posting on this forum.. is what took me away from cutting as many in the past so many years... every little bit helps !! Do you try to get as many rebates as you can too?

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Is Debt-free and making 100K a year income comfy to others? Probably not, but to us it comfy. And being Debt-free sure help alot.. And what added further to the help it our lifestyle, we both are not big spender and we live Below our means. We hate debt, so our goal is lifetime Debt-free.
It would be "very comfortable" for us as a family- where we live, it's a high unemployment area, relatively lower cost for buying houses.. not many good jobs around.. Even making considerably less than your husband with 5 kids still at home.. we would be considered "Middle class" on this calculator (below)... though take what we make & place us in New York City or California.. we'd be low income for sure..

Are you in the US middle class? Try our income calculator | Pew Research Center

Quote:
BUT then there is a replied from a poster, she quote me and she said that is Not Debt-free.. okay, she got me confused and I second think question what really Debt-free is then?
This is her replied, I cut and paste what she wrote to me in CafeMom to here: [[[ You pay rent every month. I don't view that as debt-free, it's akin to having a mortgage. One that you'll never pay off. ]]]
So by her quote above replied to me, and her viewpoint of what Debt-free is. Me and my husband we not Debt-free Solely because we pay 'Rent'.. But we rent in the lowest monthly rent place, so we can have More money save added to our savings and retirement. Our rent is way low compared to my husband income. I don't see how can our rent is considered our debt? We don't own rent a penny, once we get the rent bill, we sign a check immediately mail out next day pay it.
Try to take no mind to her opinion....here is how I would interpret this...: in HER WORLD she likely wants/ plans to be a home owner and she views having a monthly rent payment as excess money going down the drain.. (again it's just an opinion).. some home owner TAXES alone cost more than RENT in a years time.. so really.. we're all a slave to TAXES anyway...

To be honest.. I can see where this woman is coming from ... but that's not to say you aren't debt free either, as you see the posters here feel you surely are ....it's just HER WAY , what she personally considers "debt free"... I guess one could look at it as "Debt" always carries some form of "interest" with it, or something can be repossessed... Rent doesn't carry any of those things.. right..

Quote:
IF by her definition what she wrote (in the blue bold bracket), nobody is Debt-free then unless they born with a silver spoon in their mouth.. Because those who rent, whether it high or low rent they have to pay monthly Rent. If not rent, then those who buy house, whether it high or low monthly mortgage payment, they still have to pay Mortgage.
Then by her definition, nobody is Debt-free then (since we have to pay Rent or Mortgage).
What she meant was.... nothing to do with coming from a rich family.... just that she wouldn't consider it debt free until the last monthly mortgage payment was satisfied in full = no more payments.. just paying utilities, common repairs & taxes on the house/ property...Period...

One doesn't have to be come from high income parents to achieve this, we certainly didn't..

Quote:
So my question is, do you agree with what that poster said (her quote in blue bracket above)--her definition of Debt-free? According to our situation above, we Debt-free to me. Am I thinking Debt-free definition wrong here?
Yes, I'm an easily confuse girl, and right now I'm confuse. That poster she throw me off. So what is really Debt-free then? What is 'your' definition of Debt-free?
My feeling is this... don't allow her definition to throw you off, to confuse you or anything like this. You & husband are doing wonderful.. at the rate you are going...give it a few years .. I bet you could take all the money you have saved... and near buy a house, paying in cash & never make 1 mortgage payment.. so you go from being your definition of debt free straight to Hers !! All good.


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I remember Larry Burkett once said "You cannot use a credit card wisely, you can just use one less foolishly". If you don't pay any interest to the credit card companies, then you're winning. I do not think I will be "debt free" for many years, as I expect to be paying on a mortgage for the foreseeable future. The real question is do you have money left at the end of the month and whether or not you're living within your means. Every situation is different. I once had credit cards, thru college, and afterwards, and it took me years to pay them off, and I vowed to never own one again.
I'm one of those people who LOVE credit cards.. I put everything on there.. all our food (using the card that gives 3% back), Gas (using the card that gives 5% back)... I pay our kids Orthodontist bills with it, cable...I even paid for one of our used cars with my credit card... EVERYTHING I possibly can.. I wish I could put our house taxes on there.. but they won't let me.. I do this because I get "cash back".. I specifically look for the best cash back awards cards... I've never paid interest on a credit card... I make about $400 a year doing this.... I appreciate that using credit has it's other perks -like when you have a dispute, done that a time or two...

But true.. if you can't pay in full when the bill comes.. by all means...cut them up!

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post #29 of 40 (permalink) Old 01-20-2017, 05:55 PM
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Re: "What is 'your' definition of Debt-free? This is our situation, a financial quest

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Actually you can easily borrow to invest (at rates below that offered by mortgages). It's not usually recommended (because people get greedy and over-leverage to boost returns).
Buying a house is essentially a leveraged investment too.
People who bought houses in the US around 2006 experienced the full meaning of that.
I didn't know that!

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post #30 of 40 (permalink) Old 01-20-2017, 06:06 PM
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Re: "What is 'your' definition of Debt-free? This is our situation, a financial quest

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I didn't know that!

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Trading on margin is one way, but there are many other ways to leverage long term investments. It has a bad name because it is normally associated with speculation/gambling but if used carefully, it's actually a very powerful tool (Buffett uses it too, even though he always speaks negatively about over-leveraging, rightly so). Because stock markets are more volatile, you have to be more careful and having only a 10% "downpayment" would be too risky (though traders often use much higher leverage ratios).
I always used a bit of gearing with my investments between 10-20% typically (increasing a little during stressed times and reducing in better times when markets are doing well) and have done very well (around 20% pa for the last 12 years). I would have been happy with half this return.
Anyway, my focus is on income (dividends) and it's a nice feeling when it starts overtaking your salary. Work becomes a bonus, not a necessity.



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