Worse, nothing is guaranteed. I knew people who died young. All my savings will be wasted if it turns out I'm one of those who don't make it to retirement age. The best thing to do could be charge my credit cards to the max and enjoy life as best I can now - letting my estate be bankrupt. We have no way of knowing until after I die what I should have done.
This argument relies on the assumption that 'getting nice things' yields 'enjoy[ing] life as best I can now'
This isn't necessarily true. Some people, myself included, feel much more satisfied living below our means. Above a base level, I don't think 'stuff' really makes us happier, and the security of having savings gives me peace of mind that is much more valuable and happiness-inducing than, say, an expensive car.
I do, however, look at friends who make significantly more than me and see that their lifestyle has grown proportionately with their income. Many of them could probably retire early if they embarked on 5-10 years of MMM-style extreme frugality, which to me seems like a missed opportunity.
Depends on where the wealth comes from, and if it's related to the spending of money (networking in expensive bars, for example).
There's another argument: what is retirement? Time spend on 100% leisure? But in this case we live frugally (100% work) in order to get that retirement. the reason we take so long to retire if we don't live frugally, is that we split time among work and leisure - i.e. we are partly doing what we'd do if we retired anyway.
I actually enjoy working. I don't see myself not working when I retire. It will probably be more casual work at my own pace, but I'd still like to be useful.
Many of the "retire early" people I've interacted with on /r/personalfinance are doing it because they hate their jobs and want to spend their life travelling or otherwise not working. To do that, they spend as little as possible (and save as much as possible).
Many people are okay with that. I'm not. I tried simulating that again for the first few years out of college to pay down some student loan debt. I stopped the minute I was able to refinance all of my existing debt into one with lower interest.
I think I dislike living frugally so much because I grew up poor and being poor sucked.
Then again if you already find your work fulfilling and expect to continue to do so, I understand that there wouldn't be the same urgency to retire (with the caveat that everyone should save something for retirement as well as having an emergency fund).
I'd say a new car loan is good debt, even though it's a depreciating asset. For the last 15 years or so, the interest rates are so close to inflation that it doesn't even make sense to pay cash for a new car.
At times when I was in the market for a used car, I opted to buy new because the interest rate was lower on the new car and it was irresponsible for me to pay cash for the used car.
I would beg you not to tell this nonsense to people but I suspect you will think you know better.
What appreciating assets should people get in debt to buy? Surely you aren't trying to label houses as appreciating assets.
You should go into debt to buy any assets that you know will appreciate at a rate greater than the interest you pay on debt incurred to finance them.
>Surely you aren't trying to label houses as appreciating assets.
Real rate of return on real estate is slightly positive in historical data.
However, a house can provide a lot of enjoyment so I am not advocating you don't buy one, just be realistic about what you are buying.
Also, water is wet.
I "knew" when I bought corporate bonds paying 15% in 2008 that they would appreciate.
>house prices in a community are not as secure as you might believe
You're grabbing anecdata as evidence. I'm looking at the data. Yes, Detroit is bad. How about we look at Mountainview, too?
>Plus you're ignoring the carrying cost of a property and the transfer costs.
Real returns
No, you're ignoring the case where they might have defaulted.
The housing market oftentimes works in cycles and changes with time. In my life I've watched the neighborhood I grew up in go from highly desirable to highly undesirable and now it's back to being desirable again. 30 year mortgage is enough time to see wild swings in technology, the economy, industry, and plenty else.
These all effect housing prices. Dramatically sometimes.
Mountain View is currently dependent on the tech industry and the flow of VC capital to maintain housing prices. Another .com crash and Mountain View house prices will crash accordingly. "Silicon Valley" may even move to the South or something in 20 years.
Right now the neighborhood I currently live in is in a boom due to a large employer here heavily ramping up production and the associated influx of people moving here from other parts of the country for work. I don't really expect the sort of growth we are experiencing now to last in the long term but who knows what will happen.
There's always the unknown.
A house is a house, enjoy it, but don't count on making money on it.
How on earth do you know what I'm ignoring? I most certainly accounted for the fact that the companies could default.
>The housing market oftentimes works in cycles and changes with time. In my life I've watched the neighborhood I grew up in go from highly desirable to highly undesirable and now it's back to being desirable again. 30 year mortgage is enough time to see wild swings in technology, the economy, industry, and plenty else.
And yet, the long term real rates of return are positive (but small). You have your strategy, I have mine.
How does this rate of return compare to prevailing interest rates from the same period?
Sometimes higher, sometimes lower, depending on a million variables. Does that surprise you?
Good debt is one where you use other people's money to build your own wealth in appreciating assets.
Bad debt is where you borrow on credit to buy yourself a momentary satisfaction, like a trinket.
Most people think they're richer than they actually are. Which is why it's so common for people to "spoil" themselves. Learning to live cheaply is a skill and takes a bit of pride swallowing as the people around you live more lavishly on less income.
Unfortunately there a lot of people who are quite a bit overconfident about their financial state due to swollen housing prices.