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Wait now, I didn't say be in debt to your eyeballs and I didn't say to over extend on debt. I said use an efficient level of debt with interest and payments you can afford, for better cashflow management and leverage.
First, what exactly do you mean better cashflow management? Debt reduces cashflow.
Second, how much leverage do you think a working individual should employ, and why?
Are you saying I should march to my bank and ask for a personal loan over 3 years to invest more into my stock portfolios?
Or have a margin account and draw to the max hoping the market won't dip and result in margin calls I can't cover except by selling at a loss?
First, what exactly do you mean better cashflow management? Debt reduces cashflow.
Second, how much leverage do you think a working individual should employ, and why?
Are you saying I should march to my bank and ask for a personal loan over 3 years to invest more into my stock portfolios?
Or have a margin account and draw to the max hoping the market won't dip and result in margin calls I can't cover except by selling at a loss?
1.) Better cashflow management in terms of maintaining your bank balances and savings reserves to deal with unexpected downturns, a job loss, etc.
2.) The amount of leverage depends on your level of expenses and the stability of your current position.
Let me give you an example. Say a person can take out a $25,000 personal loan with a 10 year term at a 6% APR. The money isn't going to be spent, but instead it's just going to sit in their bank account. This same person works a sales position where they get a salary but the BULK of their monies are bonuses and commissions, which go up and down. Plus, their position is not that stable, they could be recalled in 1-2 years and be forced to do something else. Having the loan proceeds in the bank account helps to protect them in the case of a job loss where no or much lower income is coming in.
The way the banking system works, when you DON'T need any money, that's when they want to give you credit line increases and personal loan approvals. When you DO need money, you can't find an approval anywhere.
So that's why I say you should build up your credit lines on the side, let them sit there and keep them there just "in case". Same goes for the loan proceeds, there's no need to pay it off tomorrow, I would wait until you have build up enough reserves and savings so IF your position gets cut....you can live reasonably off your savings until you find another gig.
Some people recommend a 6 month emergency fund, but with this new economy, I say you want a 2 YEAR emergency fund at minimum. I would use your actual savings in combination with the loan proceeds to make sure you are covered in case your job disappears, is cut, or your income decreases.
1.) Better cashflow management in terms of maintaining your bank balances and savings reserves to deal with unexpected downturns, a job loss, etc.
2.) The amount of leverage depends on your level of expenses and the stability of your current position.
Let me give you an example. Say a person can take out a $25,000 personal loan with a 10 year term at a 6% APR. The money isn't going to be spent, but instead it's just going to sit in their bank account. This same person works a sales position where they get a salary but the BULK of their monies are bonuses and commissions, which go up and down. Plus, their position is not that stable, they could be recalled in 1-2 years and be forced to do something else. Having the loan proceeds in the bank account helps to protect them in the case of a job loss where no or much lower income is coming in.
The way the banking system works, when you DON'T need any money, that's when they want to give you credit line increases and personal loan approvals. When you DO need money, you can't find an approval anywhere.
So that's why I say you should build up your credit lines on the side, let them sit there and keep them there just "in case". Same goes for the loan proceeds, there's no need to pay it off tomorrow, I would wait until you have build up enough reserves and savings so IF your position gets cut....you can live reasonably off your savings until you find another gig.
Some people recommend a 6 month emergency fund, but with this new economy, I say you want a 2 YEAR emergency fund at minimum. I would use your actual savings in combination with the loan proceeds to make sure you are covered in case your job disappears, is cut, or your income decreases.
So you take a ten year loan 6% loan(I believe unsecured lines would be more expensive) just incase you lose your job? Terrible advice. Live within your means in your sales job and save some money. You could get a credit card or two in case **** happens, couple that with your savings and that's a better what if plan
You can be debt free with use of debt and still have a high credit score. In fact having to much debt to income can hurt getting mortgages and other large loans regardless of cerdit score.Even credit cards limit credit by history and income to debt.
So you take a ten year loan 6% loan(I believe unsecured lines would be more expensive) just incase you lose your job? Terrible advice. Live within your means in your sales job and save some money. You could get a credit card or two in case **** happens, couple that with your savings and that's a better what if plan
I thought I said that you should get lines of credit as well as loan approvals when times are good? Keeping the lines of credit on the side? The Loan is a 6% APR, that's a very good rate, it's designed just to be additional cushion because after you pay off your expenses you might not have enough in savings to handle emergencies. Once you have enough, then start to pay down on the Loan Principal more.
It's no where close to Terrible advice. For example, I do this with my student loans right now. All of my college education was paid for through scholarships and grants, I took out student loans on the side just to bulk up my bank account. With the interest rate reduction and tax deduction, I'm paying about 5.8% give or take in interest a year on my student loans in which the loan proceeds are ALL in my bank account by the way.
I could pay them off tomorrow, but why do that in case of a downturn? If I get into a downturn, I could look at doing a number of things like running and working for a Non Profit, keeping my income dirt low but enough to pay bills, and getting my balance of student loans forgiven using the IBR/PSF combinations.
I thought I said that you should get lines of credit as well as loan approvals when times are good? Keeping the lines of credit on the side? The Loan is a 6% APR, that's a very good rate, it's designed just to be additional cushion because after you pay off your expenses you might not have enough in savings to handle emergencies. Once you have enough, then start to pay down on the Loan Principal more.
It's no where close to Terrible advice. For example, I do this with my student loans right now. All of my college education was paid for through scholarships and grants, I took out student loans on the side just to bulk up my bank account. With the interest rate reduction and tax deduction, I'm paying about 5.8% give or take in interest a year on my student loans in which the loan proceeds are ALL in my bank account by the way.
I could pay them off tomorrow, but why do that in case of a downturn? If I get into a downturn, I could look at doing a number of things like running and working for a Non Profit, keeping my income dirt low but enough to pay bills, and getting my balance of student loans forgiven using the IBR/PSF combinations.
Yup terrible financial advice here. I hope everyone reading this can see that and avoid duplicating your loan scenarios at all costs
I thought I said that you should get lines of credit as well as loan approvals when times are good? Keeping the lines of credit on the side? The Loan is a 6% APR, that's a very good rate, it's designed just to be additional cushion because after you pay off your expenses you might not have enough in savings to handle emergencies. Once you have enough, then start to pay down on the Loan Principal more.
It's no where close to Terrible advice. For example, I do this with my student loans right now. All of my college education was paid for through scholarships and grants, I took out student loans on the side just to bulk up my bank account. With the interest rate reduction and tax deduction, I'm paying about 5.8% give or take in interest a year on my student loans in which the loan proceeds are ALL in my bank account by the way.
I could pay them off tomorrow, but why do that in case of a downturn? If I get into a downturn, I could look at doing a number of things like running and working for a Non Profit, keeping my income dirt low but enough to pay bills, and getting my balance of student loans forgiven using the IBR/PSF combinations.
Beauty of a message board is that you can see exactly what you said.
Quote:
Originally Posted by jotucker99
2.) The amount of leverage depends on your level of expenses and the stability of your current position.
Let me give you an example. Say a person can take out a $25,000 personal loan with a 10 year term at a 6% APR. The money isn't going to be spent, but instead it's just going to sit in their bank account. This same person works a sales position where they get a salary but the BULK of their monies are bonuses and commissions, which go up and down. Plus, their position is not that stable, they could be recalled in 1-2 years and be forced to do something else. Having the loan proceeds in the bank account helps to protect them in the case of a job loss where no or much lower income is coming in.
The way the banking system works, when you DON'T need any money, that's when they want to give you credit line increases and personal loan approvals. When you DO need money, you can't find an approval anywhere.
So that's why I say you should build up your credit lines on the side, let them sit there and keep them there just "in case". Same goes for the loan proceeds, there's no need to pay it off tomorrow, I would wait until you have build up enough reserves and savings so IF your position gets cut....you can live reasonably off your savings until you find another gig.
Some people recommend a 6 month emergency fund, but with this new economy, I say you want a 2 YEAR emergency fund at minimum. I would use your actual savings in combination with the loan proceeds to make sure you are covered in case your job disappears, is cut, or your income decreases.
The red part is the insanity in your suggestion. Taking out a loan to pad your savings account is stupid and just throwing money down the drain. If you can invest it somewhere and make 10%, maybe that changes things, but you're not going to get that with a stable investment. No one should ever consider existing debt a safety cushion. $25k at 6% means you're paying $125/month... just because?
1.) Better cashflow management in terms of maintaining your bank balances and savings reserves to deal with unexpected downturns, a job loss, etc.
I know what you are saying but you aren't going to convince anyone here. They are either for it or against it there aren't any fence sitters on this one. To simplify it, Borrow other people's money, die in debt with asset and cash. The greatest risk is miscalculating and living too long that your assets are depleted.
Apparently many, you must not have been shopping for a mortgage in the last 3 years. The funny thing is many people can get a lower rate, but just don't want to and are told by the media, peer, and messages boards that they can't.
Beauty of a message board is that you can see exactly what you said.
The red part is the insanity in your suggestion. Taking out a loan to pad your savings account is stupid and just throwing money down the drain. If you can invest it somewhere and make 10%, maybe that changes things, but you're not going to get that with a stable investment. No one should ever consider existing debt a safety cushion. $25k at 6% means you're paying $125/month... just because?
I hope no one follows that suggestion.
Listen, it's NOT terrible financial advice, this is actually how MOST small businesses operate today where they will use cheap debt financing as a way to manage cash inflow and outflow, maintain a certain level of bank balances, handle slow seasons, etc. The purpose of it is just to maintain bank balances and to have emergency reserves. The "cost" of that capital is what you would pay in terms of the interest on that money, which if you are using it for business purposes you do get another benefit of writing it off as a business expense.
Actually the "beauty of this message board" is that you can see that many of you just have never operated a small business before to understand this concept known as "CashFlow Management".
You and LowExpectations really have no idea what I'm referring to when I discuss CashFlow Management.
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