49 Unique Guild Members 14 Level 100 characters 401 Website/Forum Members 0 Posts in 24 hours 0 Posts in 7 days 84313 Total Posts Nelthilta is the last poster
49 Unique Guild Members 14 Level 100 characters 401 Website/Forum Members 0 Posts in 24 hours 0 Posts in 7 days 84313 Total Posts Nelthilta is the last poster
Listen... she's got people telling her she should go into debt to pay for school when she has available money laying around. That's just plain dumb. It doesn't matter how low the rate may be, it's still choosing to pay more for school than you have to. Paying cash is always better than borrowing with interest. She needs to talk to me.
if paying cash is always better than how come the u.s. government, corporations, home owners, car owners, college students, and countless others borrow ALL the time even if they have the cash lying around?
borrowing is a smart way to finance what you want to do.
and with a lump sum like 150k you could lock a majority of it away and make a killing in the money market, bond market, and mutual fund market.
you will make more money if you invest right than you will have to pay out in interest you'd have to pay on subsidized and unsubsidized government loans.
Listen... she's got people telling her she should go into debt to pay for school when she has available money laying around. That's just plain dumb. It doesn't matter how low the rate may be, it's still choosing to pay more for school than you have to. Paying cash is always better than borrowing with interest. She needs to talk to me.
Negative. If she can get 8% on the money in the bank, but 3% interest on her student loan, it will net a win. She might pay more for her schooling, but as a result of paying more, she'll MAKE MORE from the interest. It's a net win.
Granted, Tanaca's "Why does the US gov" do it, doesn't make much sense, since the US gov owes 50 gazillion dollars. I wouldn't call that a good example.
But not all debt is "Bad debt." If Debt nets you money, then it's good debt.
there are a couple of options for the government to get the funds it needs:
you can either print more money
or
borrow
it's been widely proven that borrowing is a sign of an effective economy because it moves funds from those who have them to those who need them.
the government always needs money, always. printing money can be about as bad as borrowing, it increases inflation and makes investing less effective.
borrowing can be bad but government t-bills are a significant part of any smart investors portfolio due to the almost non existent default risk. investors love government bonds and so does the government.
this whole bullshit argument of mortgage our grandchildren isn't valid at all because the government can always print the money if the shit hits the fan. that argument is just something to spur voters into political action, just like the balanced budget amendments you hear.
Or it could not spend frivolously, that's always an option too.
Printing more money means inflation. Print enough to pay all debts and a dollar then has buying power of less than a modern penny.
Chops, on the surface your argument sounds correct. But you are blind to other factors that come into play. Essentially what you're saying is borrow money at 4% so you can make 8%... more or less.
First of all, inflation has averaged an annual rate of about 4% for decades. So that right there means she's already only breaking even. But it doesn't stop there. Next, you have to figure on the capital gains on that 8% profit if it's in anything but a tax free or deferred account. Say she is in the 25% tax bracket, that means 2% of that 8% is lost to taxes. So instead of making 8% she's really making 6%. Inflation puts her back at 2%, and she's borrowed money at 4%. In addition to all of this, you have created unnecessary risk where there didn't need to be any. If borrows for school, but then locks the money away in mutual funds, CD's, or retirement accounts, she cannot touch it. If the shhtuff hits the fan and she can't make a payment on the money she borrowed, she can't touch the money she put aside without major penalties... talking upwards of 40% if it's in a retirement account. You are neglecting the factor of risk, and betting your house, your property, or your livelihood to try to scrape a few percentage points off the top just isn't worth the gamble. Yes, mathematically it looks at simple as 8% minus 4% equals 4%... but that math fails. There are a number of other variables involved, it is not simple subtraction.
If you have the cash available, pay in cash. Whatever is left you can invest.
tomorrow we could wake up and the u.s. banking system could have collapsed and the u.s. dollar would be worthless.
i understand that risk is always there, but borrowing from the government and investing in low risk investments will net you a better return in the long run.
im not saying invest everything and borrow everything.
im saying borrow as much as you can from the government, keep a modest amount for living expenses, like 50k and invest the rest of the 100k.
And Tanaca... the risk of using your house as collateral on borrowed money and potentially losing it, while not fun by any means, is not even on the same plane as the entire banking system collapsing. To compare the two like they are somehow comparable risk is nonsense.
P.S. The FDIC insurance of up to $100,000 is meaningless. It's like a rent-a-cop standing in front of a jewelry store. It only serves to make people feel good. But if the economy really was in so much trouble that the FDIC had to make good on the hundred grand, the government would not have enough money to reimburse the insured accounts. In other words, don't worry about FDIC insurance. It's just there to make you feel good and is almost completely meaningless.
Tanaca apparently knows nothing about business or how to handle money, sorry.
Chops has a pretty good clue what's going on, not sure if it's raging or not, but I still have to disagree with some of the stuff about the net win and the gains.
I hate to say it but I agree with Rade. Instead of taking out loans, you should pay cash for school. For starters, the less you owe the more you have, simple as that. Being in debt is a bad thing, and if you have 150k for school, use it. If you get a decent academic scholarship and don't go ivy league, you'll have a decent chunk of it left. Plus if you get off your ass and work as well as have the inheritance, you'll be even better off.
Granted most people can't pay everything with cash for school, but if you can, you should.
im not comparing them, im just saying that risk is always there.
i agree, the insurance is somewhat meaningless but people rarely understand how fragile the economy really is and it's measures like the insurance that keep faith in the economy.
if there are the bank runs like there were before the great depression the banks would not have the money to pay off what they owed. i understand that.
but then again if we threw off all risk and acted accordingly we would all be cashing our paychecks and shoving the money under our mattress which is not good for the economy at all.
Good call on the inflation bit, forgot about that.
I had to see the effects for myself, so I verified your results with a spreadsheet, and it turns out that (assuming 4% loan interest, 4% inflation, and 8% investment interest, and school being 5k for the year), and it turns out that after a year of interest and inflation, taking out a loan will result in an $8 loss vs paying up front. (ignoring capital gains tax, too)
Assuming a 20% taxes on the returns then, it looks like a 10.5% interest rate is needed to break even.
The solution is to overthrow the government so they stop spending like retards, causing them to print money they aren't technically earning, to pay their outrageous bills, causing a retarded level of inflation.
It's wrong, so very wrong that they can just print money, and MY money becomes worth less to pay the bills they can't afford. Normal people would be forced to have that money taken from them automatically from paychecks, but because it's the "government" it's OK that they don't pay back their bills? Horseshit.
If we owed money to a more powerful country, they'd have every right to invade and sieze control of the country, just as the government would do if you don't pay them their gangster fee.
God, I need to run for office, this shit gets me worked up.
Good call on the inflation bit, forgot about that.
I had to see the effects for myself, so I verified your results with a spreadsheet, and it turns out that (assuming 4% loan interest, 4% inflation, and 8% investment interest, and school being 5k for the year), and it turns out that after a year of interest and inflation, taking out a loan will result in an $8 loss vs paying up front. (ignoring capital gains tax, too)
Assuming a 20% taxes on the returns then, it looks like a 10.5% interest rate is needed to break even.
The solution is to overthrow the government so they stop spending like retards, causing them to print money they aren't technically earning, to pay their outrageous bills, causing a retarded level of inflation.
It's wrong, so very wrong that they can just print money, and MY money becomes worth less to pay the bills they can't afford. Normal people would be forced to have that money taken from them automatically from paychecks, but because it's the "government" it's OK that they don't pay back their bills? Horseshit.
If we owed money to a more powerful country, they'd have every right to invade and sieze control of the country, just as the government would do if you don't pay them their gangster fee.
God, I need to run for office, this shit gets me worked up.
My apologies for disagreeing.
Well now that you have your campaign speech written out, let's print up some fliers, shall we?
