Taming the Debt Monster - Attitudes to debt for young players

May I also add my congratulations for an excellent post.
It's lessons are always worthwhile remembering, even for the most experienced of us!
 
May I also add my congratulations for an excellent post.
It's lessons are always worthwhile remembering, even for the most experienced of us!
Good to see you pop back Peter. It's been a while.

Your last post here was about Nathan Birch, who has gone from strength to strength since.
 
Thanks for starting this post Simon.

As a young guy fairly early on in my investing life its great to be reminded of these points. My comfort level and attitude to debt have changed alot since I have changed my perspective on how debt can be used. I like to think of it in a simple return vs. cost way - how much is this debt going to cost me - can I use that debt to generate a return that covers that cost and makes me a profit?

This way of thinking has certainly helped take away some of the 'fear' when big numbers are involved. I'd be interested to hear others thoughts on how they think about / make decisions about taking on more debt.
 
That's the first level of thinking. The next level is how do you maintain a fine balance of debt to swoop on rare opportunities when it comes. If you are leveraged to the hilt for marginal returns, you have no ammo when everyone cannot buy.
 
That's the first level of thinking. The next level is how do you maintain a fine balance of debt to swoop on rare opportunities when it comes. If you are leveraged to the hilt for marginal returns, you have no ammo when everyone cannot buy.
Good point Deltaberry. It's definitely a fine balancing act! Those always tend to be some of the more difficult judgements calls to make I think.
 
interesting thought, I think a lot of people starting out in development face this dilemma... to hock up to the back teeth with debt and retain stock or just churn em and burn em
 
Great post Simon!
I am 22 and ready to start investing. This reminds me not to blow all my money on a brand new car and depreciating items that I don't really need. It is also changing my attitude to "good debt". I also got the "all debt is bad debt" "credit cards are evil" mentality when growing up. Just glad I have done some research and found this forum.


Thanks!

Fresh
 
Great post Simon.

Avura, if I may ask. You?€™re capable of doing the calcs, so what possessed you to buy a $65k car (knowing that it depreciates 30% the moment you start it up) when you?€™ve already made the decision to become financially independent?
Alex
Alex, I think I can understand Avura's psychology. I am an avid car fan myself, and when I turned 23 and got my first job out of Uni, I was at this crossroad where I could either get a $30-40k coupe, or continue saving up for a house.

It took me a great deal of discipline to have chosen the latter, and I am by no means oblivious to these bad/good debts topics. In fact, I have started reading investment books since high school. Even so, the decision not to buy the coupe was painful.

I'm quite glad to say that back then, I bought a $10k sedan with cash, and have recently settled on my IP (with some downpayment help from parents). This is a year from that crossroad and I am 24. Hope that answered your curiosity, Alex.


EDIT: wow, I did not realise this was a post from 2006.
 
Great post Simon.


EDIT: wow, I did not realise this was a post from 2006.
Hard to believe we are 8 years down the track from that old post. I still see the odd kudos coming through for it.

Glad to see it is still being read, shame I didn't pop out more of them :)
 
Thanks Simon for a great post!

I was lucky enough that these ideas about good/bad debt were taught to me by my parents so I feel like I had a step up as I didn't have 'bad habits' to unlearn. Watching some of my friends now (in their late 20s) trying to figure this stuff out on their own is much harder. Kudos to anyone who tries to re-learn better financial habits.
 
What i took from the OP was. Pay IO loans, use offset account/loans.

I will have roughly ~40k saved by the end of the year and have started looking or the right property.

The only debt i have is my HECS but nothing else.
 
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