I just bought a dozen new pairs of underwear today.
True story.
Why am I telling you this? It’s the punchline to a very old joke – Hell! I’m telling everybody!
And whistling “If I Were a Rich Man” from “Fiddler On The Roof.”
May you all realize your dreams as easily and as – relatively – inexpensively as I’ve realized mine.
Amen.
Isn’t Reynolds a billionaire?
According to the internet, no, he’s only getting by on about $350M.
When you get to that level, a LOT of your wealth is OPM. Other People’s Money. You swing a big bat using borrowed money. Of course that can go spectacularly wrong. But done smartly and honestly it’s normal big biz / fat cat behavior.
A lot of regular people’s wealth is OPM.
Most people don’t own their home outright. They take out mortgages. In other words they are building wealth in the form of home equity using the banks money.
A lot of people who don’t know a lot about money don’t really understand the concept of “leverage”. It’s ok to borrow money in order to use it to build wealth. The main risk is you need to be able to make the interest payments or you can get fucked.
Sort of like what happened to the economy in 2007-2008.
I did not mean to suggest that OPM (“leverage” as you say is the correct term) was disreputable or dishonest. Sorry if I gave that impression.
What I was getting at was that Reynolds with his net worth of $350M can reasonably be able to buy at least control of a sports team worth a bunch more. By judicious use of OPM.
My husband has been trying to get this through my skull for a while. The working class and middle class orientation toward debt is All Debt is Bad. It’s hard to unlearn that, or trust otherwise.
I mean just look at any financial self-help guru, where the pinnacle of achievement is held up as being 100% debt free.
In all fairness, for most people, 100% of their debt is credit card debt, which is “bad”. Usually high interest rates to buy crap your don’t need.
So a “frustrated billionaire”.
For sure. We got rid of all credit card debt about 25 years ago and got rid of mortgage payments about 15 years ago. Amazing how quickly the bank account piles up when you don’t have those two anchors around your neck.
Credit card debt = bad, for sure.
But a more grey area might be student loans. Pay them off or invest the money? Depends on your cash flow. Depends on the interest rate.
Yet these gurus have a very black and white prescription: you won’t be truly free until you’re debt free.
The hard part is, that’s how I feel. I can look at compound interest calculators all day long and see the rational choice is investment, but my gut hates debt.
Dave Ramsey in particular advises people to avoid debt. He’s an Evangelical Christian himself and is popular among that crowd. To be fair, many people get into trouble with acquiring debt when purchasing depreciating assets like cars, boats and other stuff. I don’t know if or how such people advise people to buy a home without a mortgage, which for many is not really feasible.
I’d also add not buying vehicles on loans. We paid off student loans and credit card debts 20 years ago, never had a vehicle loan (only having one vehicle helps), and paid off the house 7 years ago. Yes, the bank account piles up. It will allow us to both retire early but right now it’s a discussion of how early. If it weren’t for medical insurance, I’d be tempted to do it right now. We’ll probably do it even earlier than we are planning, but have one of us take on a remote job for the insurance.
I’ll distinguish between:
The former is generally a much better financial strategy than the latter. I think I just heard that the average credit card holder now has ~$6,500 in credit card debt.
Couple that with the stat (still true?) that the average American can’t come up with $500 for an emergency without leaning on debt.
No bueno.
But that could just be my brand spanking [NPI] new Fruit of the Looms talking.
This seems to vary according to source, but tends to be between $5K and $7K. The problem that I see is these sources rarely differentiate between credit card debt that gets paid off interest-free every month, and credit card debt that gets carried month-to-month, thus incurring heavy interest charges. My wife and I pay for damn near everything with a credit card, and then we completely pay the cards off within the grace period. We’ve got the cash - we could pay for these items with a debit card - but recovering from the inevitable incidents of credit card fraud seems easier than recovering from debit card fraud, and the credit cards we have also rack up benefits like FF miles, hotel points, or money to spend on Amazon.
This source says that just over half of all credit card accounts in the US carried a balance at some point in Q3 2022, but they don’t say how regularly this happens or what the average carried balance was. I feel like those stats would provide a more useful picture of what portion of the population is actually struggling with consumer debt.
Enjoy your Loom Froots. 
Cash only for me for many years. The best part of all this was when we sold our last house. There was no mortgage left to eat up any of that cash, so it’s all sitting in CDs at the moment.
Unlike credit card and car loan debt, mortgage debt can be fine if you can take advantage of the tax benefit and have a better place to put the money, one that has a higher interest rate than what you pay on the mortgage. The money we had in our investment account grew nicely and had an effective interest rate higher than our mortgage. When they changed the tax laws our effective mortgage interest rate rose (we didn’t owe a lot) and we paid it off mostly to improve our cash flow.
If you have any reasonable amount of money, I hope you can find a good investment adviser and find a better place to park it than CDs. (Except for emergency money, of course.)
Excellent points.
And – to the extent that there’s not a whole lot of variability over time in the "What % pay it off in full every month vs. carrying a balance – " the absolute dollar figure that we have might still be a good relative indicator.
At this point in my life I don’t need the stress of the stock market. We don’t know to do with the cash as it is, let alone more of it.
Huh. I thought the Mint Mobile deal put him over.
Ergo “investment adviser” 