Taming the Debt Monster - Attitudes to debt for young players

[IanF]

Whilst very much agree with general principles of buying doodads and expensive cars on the other hand we only buy new cars.

Number of reasons:
1. we negotiate very hard to get best deal. Last car, we drove ALL over Brisbane for two whole days to get best deal - saved about $7k and got driveaway pricing on a $40 people mover.
2. we have a child and consider generally increased safety of newer cars
3. we tend to keep cars for 10+ years therefore minimising total depreciation compared to buying 2-3 yr old car and keeping for 3 years
4. we have full history so take care of it to get full warrenty (5 years). Rather than buying 2nd hand history and perhaps 1 yr warrenty if lucky.
5. Tend to buy run-outs and at end of month to maximise discounts.
5. we have minimal price difference between new and good 1-2 yr old from dealerships.

We know about massive depreciation in first year but above outweighs in our opinion. Also we tend to buy just what we need, no SUV, no sports, no bigger or fancier than necessary.

Ian

 

[avura]

I was brought up to believe that new cars were for older, successful people who earned them.

I didn't realise 'younger' and 'successful' were mutually exclusive.

 

[Simon]

I didn't realise 'younger' and 'successful' were mutually exclusive.

When I was 19 all successful people I knew were older. I was talking about my belief here - not yours

 

[johnnyb]

Only ever owned one new car bought for cash after I was first wed to my sweet young bride. Regretted that ever since...

Just to clarify...that was buying the new car you regretted, not the wedding??

 

[avura]

When I was 19 all successful people I knew were older. I was talking about my belief here - not yours

I was exactly the same Simon, no disrespect intended... and just for the record, I am far from successful! I think my earlier post is testament to that.

 

[Simon]

Just to clarify...that was buying the new car you regretted, not the wedding??

The new car yes. The wedding - on occassion

 

[avura]

Avura, if I may ask. You’re capable of doing the calcs, so what possessed you to buy a $65k car ...
Alex

Ahhh, possessed, good word. Maybe I was possessed and that's the only explanation! hehe

Seriously though, I just have a love for cars, similar to Peter Spann's admittance in one of his books. But in addition to that, I don't think I had the knowledge of what was required to become financially independent.

The basic calcs that didn't consider all costs went something like: 95% business use under hire purchase, top tax bracket, have the business pay a car allowance pre-tax, so I was paying about half of the costs from my own cash. That equalled about $8k or 10% of my after-tax salary. A small price to pay for one of my favourite cars. But my logic was flawed and here I am today trying to repair the damage.

 

[aussierogue]

I agree

I agree that i think a luxury car is for older people who have earnt it. Most young people no matter how much they earn cant afford a luxury car. When the price of your car exceeds yr net worth then you can afford it. I reckon i can afford a luxury car when the income from my investments allows me purchase and run the car...

Anyway young people look stupid in flashy expensive luxury european cars. Far from being impressed i mostly think (for the smallest of moments) that they are silly for going into so much debt, and that this picture doesnt quite look right. A bit like Bert Newtons wig - i can see what they are getting at but it doesnt really work !!!!!!

Its interesting when we use words like 'ive always wanted'......'ive always said by the time im 30.....' etc etc... truth is we are not the same person we were when we were 18 and we first said that. We move on, mature and make sensible decisions like giving up smoking, only binge drinking once a month, watching foreign correspondant rather than the footy show, etc

Theres lots of other ways to get 'status' rather than buying a bmw. Do charity work....high society loves that and yll feel good about yrself at the same time..

I dont think Aussie like conspicous consumption anyway...

 

[JamesGG]

These are not the clients I want James - if I never have another one I will be happy!

What I really need are wealthy couples with heaps of income and equity buying really expensive property..... Someone like yourself?

Thanks Simon - flattery will get you everywhere

I did mention good business, didn't I???

Cheers,

James.

 

[suburbangirl]

Wow!

As a relative 'newbie' on the boards here (one who is reading everything she can get her hands on, and asking questions every second second, lol) I just wanted to say thanks for such a fantastic post.

I come from a background where "debt" was a reeeeallly bad word - ie getting into debt was a completely bad thing, and something that you avoided at all costs. This included "risking" money on property and shares.

Being brought up with this kind of mindset, it was very difficult for me to finally break outside of that way of thinking, and it took me many, many years to do so. But I finally did.

Oh how I wish I had had this advice when I was 20!!!

Well done, thank you for your valuable insights.

 

[Simon]

Wow!

As a relative 'newbie' on the boards here (one who is reading everything she can get her hands on, and asking questions every second second, lol) I just wanted to say thanks for such a fantastic post.

I come from a background where "debt" was a reeeeallly bad word - ie getting into debt was a completely bad thing, and something that you avoided at all costs. This included "risking" money on property and shares.

Being brought up with this kind of mindset, it was very difficult for me to finally break outside of that way of thinking, and it took me many, many years to do so. But I finally did.

Oh how I wish I had had this advice when I was 20!!!

Well done, thank you for your valuable insights.

I think this was the story for all of us - certainly my generation. I remember my Grandpop cursing me for having an ATM card at 22 yrs of age - he didn't realise they weren't credit cards.

Save up for it and then buy it was the mantra. But these folks generally retired with just their home on a pension. They wondered how the rich got rich and put it down to luck or crime.

Please cut and paste my post onto an email and send it to anyone you want to help out. Please leave my details on the bottom as author.

Thanks for your kind words.

 

[Lily House]

Hi Simon,

Some terrific advice there.

Just one little thing (this is probably nitpicking but you did ask for feedback).

Your hypthetical couple pay off their debts in 1-2 years (except home) then start to put the $3,000 a month cash flow onto their home loan. Next they are investing in an IP. Just wondered if you could put an approximate time in here for this investment??
They have a $250k debt on a $300k property. Unless the market was in a big upswing stage - can't figure how they could then borrow another $60k odd against their home equity. (The way it reads to me is that the investment happens after that intial 1-2 years). Perhaps you have assumed that the $300k property is now worth a little more? - and maybe they have been decreasing the $250k loan by $3000 a month for a while??

Just thought some clarification of this would make your advice even more excellent.

Lily

 

[Simon]

Hi Simon,

Some terrific advice there.

Just one little thing (this is probably nitpicking but you did ask for feedback).

Your hypthetical couple pay off their debts in 1-2 years (except home) then start to put the $3,000 a month cash flow onto their home loan. Next they are investing in an IP. Just wondered if you could put an approximate time in here for this investment??
They have a $250k debt on a $300k property. Unless the market was in a big upswing stage - can't figure how they could then borrow another $60k odd against their home equity. (The way it reads to me is that the investment happens after that intial 1-2 years). Perhaps you have assumed that the $300k property is now worth a little more? - and maybe they have been decreasing the $250k loan by $3000 a month for a while??

Just thought some clarification of this would make your advice even more excellent.

Lily

I deliberately left detailed numbers out of this model. I didn't want to estrange people on lower incomes nor make it seem possible to do this in a quick or slow timeframe.

No figures will be universal so I just left it at concepts.

Your assumptions are correct - I assumed that the property is appreciating and also that the loan is being paid down by their newfound savings ability. Don't fight the numbers. Double the time frame, halve the savings amount - whatever. Just take away the message.

Cheers,

 

[perky29]

Kudos to you Simon for a great post.

 

[Monopoly]

Exceptional post!

Kudos to you Simon,

If I ever need to engage the services of a broker, I'd hope to find someone as cluey (ie. at the very least, have the foresight) to write such a post!

Cheers,

Jo

 

[buzzlightyear]

Anyway young people look stupid in flashy expensive luxury european cars

So you assuming that all so-called expensive cars driven around by 'young people', whatever age that is, are being 100% financed. You don't know their specific circumstances, so this attitude is a bit condescending IMHO.

In anycase, so to do 'mature gentlemen' in mid-life crisis driving around an expensive sports cars.

 

[Les]

G'day Buzz,

Mate, it helps if you reference just who made the quote - so that others (like me) know the author, and the context of the quote.

I agree that i think a luxury car is for older people who have earnt it. Most young people no matter how much they earn cant afford a luxury car.

Hmmm - sounds true enough to me. Isn't it said that around 5% of the population will retire financially independent. To me, that indicates that, when younger, 95% don't make the right choices (perhaps including over-spending on cars...)

Anyway young people look stupid in flashy expensive luxury european cars. Far from being impressed I mostly think (for the smallest of moments) that they are silly for going into so much debt, and that this picture doesnt quite look right

Well, that's the quote - sounds like just an opinion to me. And I've probably been guilty of such opinions from time to time too... In my day, the comment "Daddy's car" was common when we saw another youngster driving something far newer than we had..... So I guess this attitude has been around awhile. Decades even.

So you assuming that all so-called expensive cars driven around by 'young people', whatever age that is, are being 100% financed. You don't know their specific circumstances, so this attitude is a bit condescending IMHO.

Buzz, I think you might be assuming a little here too - reread Aussie's words above. His words were along the lines of "going into too much debt" which is not necessarily "100% financed" (but financed none-the-less).

Re "a bit condescending" - do you know Aussierogue in real life?

To me, condescension occurs when a person of "lofty status" looks down on someone else. i.e. that aussierogue has $$millions, drives such a flashy car, is older, and is denigrating others attempting to reach the same heights. Since I really don't know aussie's position, I'd steer clear of such emotive language, as it could otherwise be quite unfair. That's my opinion.....



PS For anyone wanting to show "Who's quote it is", when quoting, simply add =Name] after the [quote bit. I can show it using ROUND brackets e.g. (quote=aussierogue) with (/quote) at the end gives the examples above (using square brackets, of course)

Regards

 

[avura]

I have to admit Les, I feel exactly the same as Buzz. While I am new to the forum and I did bite my tongue, I don't think it pays to be rude and insulting. Sure it's just his opinion, but we're only younger, we're not the enemy. From what I have seen, the younger people here have nothing but respect for all of the members of this board; is it ok for us to expect the same?

I certainly don't mean any disrespect, just backing up my age-deficient brethren.


PS. I just came back from the Canberra Audi dealership (I'm being completely honest here). My fellow-director, aged 23, just spent close to $80k on a new Audi A4 turbo.

PPS. I sold my car last night! yay! back on track again.

 

[Simon]

PS. I just came back from the Canberra Audi dealership (I'm being sompletely honest here). My fellow-director, aged 23, just spent close to $80k on a new Audi A4 turbo.

And I have no problems with him doing so. I wonder, in ten years time, when he has a 10 yr old Audi that costs a fortune in maintenance (someone posted an auto transmission as costing $19K I recall) whether he will be wishing he'd spent that $80K in a blue chip investment that should have at least doubled and be paying him 5% yield fully franked...

But hopefully if he is your company partner he is way ahead of me and done his planning. I didn't write this for the smart young executive. Rather for the person just starting out that buys a new car and does nothing else. We all know them.

I am in no way suggesting that there is a right path and a wrong path. I do not mean to judge your friend in the slightest.

Cheers,

 

[buzzlightyear]

G'day Buzz,

Mate, it helps if you reference just who made the quote - so that others (like me) know the author, and the context of the quote.

Hmmm - sounds true enough to me. Isn't it said that around 5% of the population will retire financially independent. To me, that indicates that, when younger, 95% don't make the right choices (perhaps including over-spending on cars...)


Well, that's the quote - sounds like just an opinion to me. And I've probably been guilty of such opinions from time to time too... In my day, the comment "Daddy's car" was common when we saw another youngster driving something far newer than we had..... So I guess this attitude has been around awhile. Decades even.


Buzz, I think you might be assuming a little here too - reread Aussie's words above. His words were along the lines of "going into too much debt" which is not necessarily "100% financed" (but financed none-the-less).

Re "a bit condescending" - do you know Aussierogue in real life?

To me, condescension occurs when a person of "lofty status" looks down on someone else. i.e. that aussierogue has $$millions, drives such a flashy car, is older, and is denigrating others attempting to reach the same heights. Since I really don't know aussie's position, I'd steer clear of such emotive language, as it could otherwise be quite unfair. That's my opinion.....



PS For anyone wanting to show "Who's quote it is", when quoting, simply add =Name] after the [quote bit. I can show it using ROUND brackets e.g. (quote=aussierogue) with (/quote) at the end gives the examples above (using square brackets, of course)

Regards

Les, I am making reference to the comments not the man.