another economic bubble

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Uncle Rico

1,000+ Posts
I am in my early 30s and am married, have an 18-month old son and within a month will add baby girl. I have home in a decent Fort Worth neighborhood that has a mortgage associated with it. I drive a paid off 2000 Toyota sedan with 100,000 that I will continue to drive another 4 years (the paid off part is huge and I only put on about 12k miles per year). My wife is a stay at home mom driving a 2006 Expedition and that I put roughly half down on. I have graduate school student loans and zero credit card debt. I contribute to my 401k the amount my company matches, have a Roth IRA, and use whatever is left in savings, college 529 plan for kids or into home repairs/upgrades if necessary. I have far from a fortune saved and consider myself a middle class family.

My point here is that I look around at people in the 20-40 range and see a lackadaisical approach to saving any money for their future. Credit is an extremely evil part of our society that creates such a false image of success and it ends up ruining families and marriages. What the **** are people thinking putting zero down and then financing it with variable interest when…they are already leasing a car and have $10k in credit card debt paying 20%? No equity = no bueno = NO DICE.

My wife is extremely cool with how we run our finances and our policy of having zero credit card debt. However, she will ask me on occasion, “how does so and so afford xyz”. I don’t really know or care about anyone else’s financial situation but my answer is usually, they are leveraged out the *** but feel some need to run with the big dogs.

As a supporter of capitalism I am on board with the shift from pensions to 401k and putting saving/retirement in the hands of individuals. IMO pensions and labor unions make us less competitive and capitalism has a brutal way of exploiting those who can’t compete. I’ve long argued that future generations won’t be as dependent on Social Security because previous generations were basically told “the government will take care of you”. Now, I fear for the economic health and future of society.

Disclosures:
1. I lived 7 years in Dallas so my view of ridiculous materialism and 30k/year cheesedicks needs to be noted.
2. No I don’t consider myself rich or some finance bad ***. I don’t look down on anyone for the choices they make and everyone has the right to do whatever makes them happy so please spare me the soapbox of how I’m judging others.
3. I’m simply trying to initiate a discussion of personal finance and if anyone else knows why the hell people feel the need to sacrifice the future for a pair of $100 jeans and a trip to Mexico when they barely make rent payments.
 
in the middle of a go-go economy, tech bubble, real estate bubble, whatever, it is difficult to say with certainty who has real money and who doesnt.

when the world ends, as it is in the process of doing, it becomes much more clear.

i believe the quote is, "you have to wait for the tide to go out to see who is swimming naked"
 
Have you ever heard of the Stanford marshmallow test? Back in the 70's it tested a bunch of four year olds by giving them a marshmallow and telling them they could either eat it now or wait 5 minutes to eat it. If they waited, they would get a second marshmallow, if they ate it right away, they would not. Then they periodicaly checked in on them later in life and found that the kids that had held out for the second marshmallow pretty much blew away the non-waiters in every quanitfiable measure of success (grades, income, etc.).

Well, these people that your wife is asking about did not wait around for the second marschmallow.

As an aside, we gave that test to my daughter, and not only did she hold out for the second, but offered to wait another 5 minutes if she received a third one.
 
As my 23 year old sister once said "I gotta ride in style." She said that after she dropped WAY too much on a car she didn't need.

The answer is that America is the land of conspicuous consumption. Hell, the entire economies of some cities is based on this principle. (Dallas, L.A., Phoenix, etc.) When your identity is based off of your possessions, you will sacrifice long term gain for short term social status.

There was a good book out a few years ago called "Green With Envy." It's basic premise is that everyone is spending themselves broke to keep up with the Jones' but upon further review, the Jones' are just as broke as everyone else.

It looks like others afford things so easily but in truth, they don't. They're leveraged to the hilt.

My theory is that over the next 25 years or so, "retirement" is going to take on a different meaning. The baby boomers and younger have done a piss poor job saving and "retirement" for them is going to mean taking a part time job to supplement their Social Security and what they have of a 401(k). It'll be a "working retirement" of sorts.

This topic interests me because I spent my young adulthood in Dallas and while never a cheese dick $30K millionaire, I did end up spending more than I should have on certain things, like a car. As I got into my older 20's and early 30's, I broke the cycle and just stopped caring and am much happier and much more liquid for it.

As a result now, I'm having a hard time trading in my paid off my 2000 Jeep Cherokee for a $25,000 Jeep Wrangler. I know that's a good price for an SUV but the principle is etched into my head that I don't need it so I shouldn't buy it.
 
Unfortunately even the cheesedickiest 30k millionaire in all of Dallas looks like warren buffet in comparison to our government.
 
This economy is based on consumer spending and if you are not doing your part you must be on the side of the terrorists, communists, Chinese, radical Islamic fascists, balanced budget libertanian wackos, French, feminazies, PETA-loonies and whoever else wants to bring America to its knees. Get some credit card debt for America.
 
Uncle Rico-
My situation is a lot like yours, except my kids are a little older and I'm done paying for school, mainly because I decided to MBA in real life, if you get me.

At any rate, I can't imagine what people are thinking with the debt they are taking on. It's like they are renting their own lives.
 
What I love is I profit from the credit card system that enslaves so many others.

Fidelity has a credit card where you earn 1.5% cash into your brokerage account on all purchases. I literally spend every dollar possible on that bad boy.

But then I pay it in full, every month. I treat credit card debt like the cash has left my wallet. I keep track of it in my financial software. I make sure I come ahead every month. My wife is on board with it, too.

So I make about $60 to $75 a month free from this credit card, just by using them on any expense I can.

I am their worst nightmare. I've been getting rewards like this for about 10 to 11 years now, and I have never paid a cent of financing charges. At this point, they have given up that I will ever cave and carry a balance.

I find that to be very similar to the marshmallow analogy.
 
What really is going to hack you off is that you are going to get stuck paying for those spendthrifts and cheesedicks as you age.

Can't have our elderly eating dog food, you know.

I read a bunch of Macroeconomics and PF blogs and one of them correctly pointed out that those that save and DON'T leverage themselves are suckers.

See: proposed govt bailouts of lenders carrying loads of bad commercial paper (Citi, BoA), Ambac/MBIA, overstretched homeowners, commercial lenders, dollar deflation via rate decreases to prevent economic deflation, etc etc etc
 
Well, at least there is one difference in this real estate bubble and the .com bubble of the 90's......there are a lot of empty houses out there that savvy entrepreneurs will cash in on one of these days vs. worthless cyber stock certificates that couldn't even line a birdcage.

Just an observation.
 
good answer scopro- and to gardner, that's why it's better not to be leveraged, to take advantage of buying opportunities when the time comes. Sure, my real assets are being devalued too, but as long as I don't plan to sell them, the loss is only paper. Oversupply, on the other hand, is real.
 
BC:
Understand that I am speaking on a macro level here and referencing the BoAs and other institutions of the world and not the average joe middle class. Perhaps this does not follow the theme of the original post, but I think it is relevant.

My point is that those that took unintelligent risks are going to be bailed out while those of us that build wealth slowly or even vulture invest WITH leverage are missing the boat if there is a government safety net acting as a put.

If the government goes hands off and allows bad investments to blow up in the face of the leveraged debt investor, well, that is another story. Right now, however, this does not appear to be the case.
 
We do similar activity as Syntex though I miss the 5% cashback days.

We are exactly the same way as you described rico. We bought a small house compared to friends who bought houses at the same time. We drive older cars than them and our furniture, electronics aren't as nice. I'm not sure my wife cares, which is awesome, but it has bothered me some.

As Gardner mentions, I'd love to have that big house down the street. Its ******* beautiful. We qualified easily but felt it stretched the budget too much and our down payment was inadequate. Since I ended up back in school, we would have had trouble paying for it but now it appears that would have been okay. Unfortunately, I am kicking myself even though I know I did the right thing for me and my family. ****, it sure would be nice to be in that house with the lender letting me miss payments and the government looking to freeze a rate or kick in a payment or two. I'm being punished for being smart. My 401k is tanked, my cash reserves are devalued, and my house is small and ugly.
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Being just bit dramatic.

If we were like others I have read about in print, we would have bought that house down the street and let this house foreclose after maxing its equity in an heloc to buy new cars and furniture for the new house.

Hey, we are doing the right thing...
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Just buying a smaller, less expensive house doesn't always make you financially smarter. I've known people who bought cheap starter homes in the far far suburbs. Sell them 5 years later at about 1-2% above their buying price. they might have been better off renting a house. While someone else buys a more desired house closer to the city. Put down 20%, and then sell it for 30-40% more than the buying price 5 years later.

the key is that you need to be able to afford the payment. Its not just about having the smallest mortgage payment. you want to use debt for your advantage not just shoot for zero debt.

But I realize that most people use debt unwisely.
 
Guys... KNOWING what our national savings rate is the head of our country routinely asks comsumers to keep the economy going with spending is just one of the many factors in the reason our country is the way it is. Preapproved credit cards given to college students, before they can even legally drink. Need to fight a war? No need for sacrifice we can borrow the money says the Government. Social security contributions ivedted for the future? Nope spent for today's needs.

It's a American mindset. I honestly believe it has a great deal to do with our overall sense of optimism. I think that most Americans actually think things will "get better" in the future at most points in time. THus the idea that we could face a real disaster financially is an almost unreal scenario.

Sounds like you are on a good foting for a young guy. Keep it up and you will find yourself more secure as a retired person than you did as a worker.
 
look anywhere from 45th st (bull creek/shoal creek) up to allandale north of 2222 with some carryover to brentwood/crestview. you could find fixer-uppers (nothing structural) in those areas, though you'd have to look harder the further south you went, for low $200ks a few years ago. 45th st area is almost all $350k+ now and allandale fixer-uppers are closer to $300k with renovated houses going well over that.

i was painting with average to large strokes there, but that general area adheres to those general price constraints. anyway, it irks me that financial responsibility is not being rewarded by the market, at best, and penalized at worst.
 
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