Recession hit home!!!!!!

[Zuffen]

Here in Australia Credit Card interest rates are rising (whilst interest rates in general plummet) due to the bad debt situation.

I see credit card debt the same as a bank overdraft. You're spending money you haven't earnt yet and one day you will need to go without to pay it off. Maybe even after what you purchased is worn out or in the dump.

People don't think for themselves. There's no such a thing as a free lunch and credit debt is exactly the same.

Smartest move anyone can make is to get their cards under control and ensure you pay them off at the end of each month. I haven't paid interest to a credit card company in perhaps 15 years as I don't buy what I can't cover at the end of the month.

I think I saved a lot of money over the years and it also stopped me making impulse purchases.

 

[jibbby]

You're right Rod in many ways....

However, if everyone in the world took your financial view at how to use credit cards, the credit card companies and banks would surely go out of business because they would no longer recieve any interest payments from credit card and lending debt.... All consumer spending would drop astronomically..Small and large businesses would then suffer world wide.. This form of spending and saving would surely be the doom of our future economy and economies world wide..

Good for the individual but not good for the masses... Kinda like when you remove your cat converters and EGR systems off your cars.. Good for the car modifier but not good for the masses and our environment.....

Now the moral question is do you live for yourself or do you live for the masses?

 

[Zuffen]

You live for yourself.

Look at those that live on Social Welfare. They're not living for the masses.
They're rorting the system to avoid work and get a free ride on the work (and Taxes) of others.
I believe I contribute by not creating a credit problem in my little part of the world and paying my taxes. With the money I don't pay the credit suppliers I then spend on consumer goods. Essentially I'm stopping the banks making more money rather I'm injecting more money into the economy where it generates jobs by purchasing goods. Even if it is red wine!

I'm not saying don't spend money what I'm saying is only spend the money you own. Big difference.

Too many spend money they don't own on things that don't count, matter or will not improve their life or the world in general.

 

[cribbj]

I'm with Rod on this one, and I think it's an age/generation thing. We both are of a generation where credit was used sparingly, and then only for large items such as houses or cars. But then we both can remember when there were no credit cards - only "charge" cards such as AMEX which required to be paid in full each month.

We were a cash based society from the 50's through the 70's, and people wrote checks for the things they needed, and we never ever wrote a check for more than we had in the checking account.

That kind of cash based philosophy has stayed with people of our generation, which is probably why we still shy away from using credit cards.

In my wallet there's an Amex, a MasterCard, and my checking debit card, and I've been thinking recently that the MC probably ought to go, as I haven't used it in years (it used to be just a simple AT&T phone card, but AT&T managed to evolve it into a credit card, which I didn't want or need. I think there's a lesson to be learned there.....)

I typically buy our family cars for cash, or mostly cash with a small loan (which then gets paid down quickly), and we keep them at least 8-10 years. We also live in a relatively modest house that is paid for - no mortgage.

The idea of using credit daily, and always being in debt, is a strange, and downright scary concept for me.

 

[jibbby]

Yeah, I know exactly what both of you gents are saying... Living within your financial means is the "smart" way to live your life... Still, if you lose your job and your monthly income and you carry a large debt on your personal home you may still suffer... In a down market your stocks are now probably worth less then when you originally bought them so selling is not an option.. A depleting savings account is what you would then get, and the rush begins to find work again before all your liquid assets are fully depleted... That's pretty much me... I think even home debt can cause problems for some in a bad economic time...... Your specific field of work is big too..

My older brother is a saver and doesn't believe in carrying any kind of debt at all just like you guys.. Even if it helped him with tax write offs at the end of his fiscal year, he's says debt is like a cancer that eats at you.. I use to laugh at that comment of his but not so much anymore..........He now lives comfortable and secure but does pay high taxes every year.... He's a 9 to 5 er too, and barely makes six figures a year...He has over a half a million in the bank and in stocks, he is sending both his kids to elete colleges with saved college trust funds..He owns his home and cars out right... It does go to show you with proper saving and investing even with a moderate income you can be very secure and safe later on in life.. Time and finiancial planning is big...

I was just simple pointing out the worlds economies function on interest and debt unfortunately.. I look at countries like Isreal where most of it's people share this same secure and financial point of view..The only down side is that it is very difficult to do business and make money in Isreal because of that way of thinking... Infact, many come to America just to try and make a decent living and aquire real wealth.....

I know this because I have a business partner that moved from Israeli and tells me how hard it was to survive in old Israel growing up and living there with a family.. He went from poverty in Isreal to riches here in the USA all within 10 years... He started driving a cab for starters with his broken english and lived in an run down apartment with 4 kids and a wife..He then drove a cab for a year or two and started selling computer chips in bulk on the side, he then graduated to diamond dealing and invested in commercial real estate with his saved money.. Now he is worth over 10 million dollars, has a big home, nice cars that he owns out right.. What I don't like about him is that with all this new found wealth he is still a very cheap man at heart......

He still shops at the 99Cent stores if you can believe that..

 

[Zuffen]

Jib,

I started with nothing and worked my way up to the point I don't anyone any money so this recession won't hurt me as much as it would have if I owed people money.

My wife and I have always paid off loans at well over the required rate (eg a 20 year mortgage in just over 4 years) by living a bit tighter than we had to but the end result was we are now quite comfortable.

If you have $15,000 on credit for a year @ 15% (a cheap credit card rate in Australia) it will soct you $2,250.00 in interest. Now that's almost $50.00 per week. That would let you buy an awfull lot of fuel, parts or just eat better without earing any more money.

John has hit the nail on the head we are of a cash generation, I can remember getting my first unsolicited credit card in the mail in 1974, and we are still adverse to debt.

Personally I carry an Amex (supplementary card on my wife's account) and a Visa and Mastercard.

I haven't used my Mastercard or Visa in ages but hang onto them for O/s travel.

We only earn a finite amount of money what we all need to do is spend it as smartly as we can to give us what we want in our hand rather than pay it away in interest for which you get nothing back.

 

[XR8tt]

Now lets go back through a few threads about nice cars to buy ??
Where was the $$.000 going to come from ???

 

[jibbby]

Now lets go back through a few threads about nice cars to buy ??
Where was the $$.000 going to come from ???

$50,000 equity line on my house which I am embarrassed to say now.... I did have a 0 balance and an interest rate of 5%...Combined with some money in a savings account which I may have or may not have used at time....... That idea quickly flew out the window when the financial blows started to hit one after another...... I'm very glad I didn't buy a Z06 Vette, and the last thing I need right now is another bill to pay.... Although a 600hp Vette car may have temporarily relieved alot of financial stress that I was experiencing a month ago..:lew:

My life liquid savings account is helping me now with my void income for the time being... What's funny is I received a letter less then a month ago saying my bank is no longer servicing my $50,000 home equity line... Apparently alot of banks are now wiping out previously approved equity lines on homes that are not being used..... Regardless of the positive amount of equity you have in the home..

Banks are really tighting up in every way possible..

 

[cribbj]

John I admire you for admitting what you "almost" did with the home equity line. I think you made a very wise choice.

I knew I was a stranger in a strange land when these home equity lines started popping up everywhere a few years ago, and they were being pushed hard by financial "experts" that I (used to) trust.

One VP @ BoA who has handled our banking for years couldn't believe I refused a line of credit on our house, especially since "she" had one on hers (and she's supposed to be the financial expert?). When I explained to her that I wasn't about to allow BoA a mortgage on my house, so that I could borrow a few thousand dollars for a vacation or another BS reason, she was downright insulted. I then asked her if she'd go to a pawn shop and let them hold her $20,000 wedding ring for a loan of $500 and she said "H*ll no!" to which I replied, "What's the difference?"

 

[jibbby]

Well, John thanks....

Well, as far home equity lines of credit are concerned, I believe if you must go into debt it's better to use an equity line over credit cards...Reason being that the interest paid year to date will be a tax write off where credit card interest is not.. Also the monthy payments on an home equity line is based on 30 year pay back schedule which inturn equates to very low monthly payments... Much better then credit cards..

That is why I considered using my home equity line at the time... $50k loan on equity equates to $250 payments per month on average...... Alot cheaper then leasing a new car even... Do that on a credit card and you are in trouble... That was my reasoning at the time..

Leveraging to make investments is not a bad idea.. Like aquiring a rental property where your tenants pay back the big loan on your property then one day the loan is gone and you own the property free and clear...That is the only justified lending I can think of... It's a nice feeling when your money is working for you and you are not working for money...

 

[stevechumo]

House prices are dropping dramastically along with the interest rate. Home equity loan isn't as good as it used to be. The only good thing is the gas prices are dropping dramastically, too. That means we can boost more freely. :laughing:

 

[turboandrew]

These economic times have really made me evaluate what's important to be financially stable:

1) Live below your means. Absolute #1 rule. If you can't do this, then you are not serious about being financially secure.

2) Minimum 6 months of cash reserves. In other words, you must have 6 months worth of cash (not loans, not credit lines) to cover -all- expenses. I ignored this rule for a long time, and I am still trying to catch up to 6 months worth. There's no telling what can happen to your job. Even jobs thought to be secure are now not (I see even health care jobs in decline). Don't forget: if you are in a country where you health insurance is not guaranteed or affordable (in the USA, at least for now), you must factor that in. You can easily spend $2000/month on just insurance premiums if you are married and have a couple kids.

3) Postpone expenses for hobbies. I used to always "collect" parts, etc for my car of other hobbies until I got all I needed, then completed the project. Don't do this, unless you can easily afford it _AND_ you got the parts at deal which will never be offered again. Related to that -don't talk yourself into thinking this gem of deal you fund can't be found again -it almost always can. This is incredibly hard to me to do.

4) Always save first, then spend. If you save "what's left" at the end of the month, there will always be less than you planned to save. I do this myself. It's so easy to just spend what you want throughout the month, then worry about what's left over. At the very least, set up a automatic withdrawal to a savings or retirement account at the -beginning- of you pay period.

5) Always have a budget. If you don't at least try to track where you money goes for a couple months. You might be surprised how you spend it.

6) Try not to equate spending money = happiness. This can be hard, because then what the hell is money for?!? What I am trying to say is you don't have to spend a lot of money to be happy. That's not to say you can't spend money to bring some happiness, however it's not the only way.

 

[XR8tt]

Here in Aussie we cannot claim interest on tax on our own home we live in.. There is no capital gains tax when we sell ..
Though investment property loans are tax deductible along with all other expenses..
Due to many selling rental / investment properties.. Rent has gone up. Mind you it sort of had to.. You would be hard pressed to get a nice house to rent for under $350 p.w and that would be in outer Sydney suburbs..Having investment properties has kept me real budget conscious!! Leave bills for more than a couple of weeks and it really hurts catching up..
We have a national health care cover.. Though if you want surgery you have to wait unless its life threatening... There is private health insurance available..
I am a little lucky in that I get a work vehicle with my job. It's dual cab light truck but it suites me fine. No insurance, fuel, running expenses to pay..
A Little off subject our local council rates are around $1200 a year which includes garbage / waste disposal once a week..
Water rates are around $1000 depending on usage..
Real estate charge between 7 & 9% from rent paid...
Credit card interest around 20%
Home loan around 7 % though its dropping...
Fuel / gas 1.10 a litre as of 20/12/08..

 

[WDoherty]

House prices are dropping dramastically along with the interest rate. Home equity loan isn't as good as it used to be. The only good thing is the gas prices are dropping dramastically, too. That means we can boost more freely. :laughing:

dramastically

I kinda like that word, mind if i use it?

 

[jibbby]

There is no capital gains tax when we sell

I'm moving to Australia...That's huge!!!!

 

[XR8tt]

I'm moving to Australia...That's huge!!!!

To be more correct there is NO capital gains on the home "you live in"..
You pay on the rentals when you "sell".. You'll pay C/G approx double what you can claim back in tax one year ..
So after having a few of them over 15 years, it doesn't bother me too much.. There is no way I could have saved the amount they are worth..

 

[jibbby]

Well, here in the States, if you live in your own home for 2 out of the last 5 years before you sell it you are entitled to a $250,000 free capital gains tax exemption..If your married your wife and you are both entitled too $250k each..

So a married couple living in their home for two years can sell it and enjoy a half a million dollars in tax free profits..... Not a bad deal actually..

We also have a 1031 tax property exchange program..Where you can invest your capital gains profits from a sale and re-invest in a simular or like property within a 45 or 60 day period..(not sure about the exact time frame) Another way to avoid capital gains tax...

Those are the only two loop holes in the US that I am aware of...

 

[XR8tt]

Yea I guess if they didn't have these loop holes ? There wouldn't be too many rental properties available...

 

[jibbby]

Well, capital gains tax is just like regular income tax here in the states when the numbers are big.... What? So you don't work and make a boat load of money just because you have to give 30-40% of it toward taxes...Same as Capital gains taxes...

Loop holes or not, real property sales probably wouldn't change all that much I would think regardless...

 

[XR8tt]

Well, capital gains tax is just like regular income tax here in the states when the numbers are big.... What? So you don't work and make a boat load of money just because you have to give 30-40% of it toward taxes...Same as Capital gains taxes...

Loop holes or not, real property sales probably wouldn't change all that much I would think regardless...

I was meaning to house low income people who cannot yet buy there own house. If the private sector wasn't renting out investment properties ? Rental would go up and it would be very hard to get a a home to live in..
Yes our tax varies and to compare we have go through the whole system.. I work a lot of overtime [electrical lineworker] and I would be nuts if I didn't try and reduce my tax..
Yes properties have dropped up to 30% here especially houses that havn't been maintained ..
I think having a "line of credit" on your home loan is part of the problem ??
Too much money loaned out from banks and too many financial institutions loaning to each other.. One hiccup and it all fails...
I see a lot of businesses are not keeping stock in house now..
You often have to wait up to 14 days for parts to arrive..
I know it takes 5 days for parts to arrive from Lextreme / Summit..
So its a no brainer these parts are coming from factory in Japan, Korea, U.S etc if not made here ??
3 weeks for injector tubes to arrive for diesel Hino engine.. This was under warranty too.. 3 weeks for a $150,000 EPV off the road is bad news...EPV is a hoist / cheery picker..