Читать книгу The Value of Debt in Building Wealth - Thomas J. Anderson - Страница 14

Considering that while we would rather not have debt but that it is often a necessary tool, let's reframe the “Debt is Bad” attitude:

Debt adds value, and when used in a balanced way, has a positive effect on people's lives.

Let's test this theory. Imagine there are two households, the Nadas and the Steadys. They live in a magical world with no taxes or inflation, interest rates never change, and investment returns are certain. This world is also magical in that banks will let people borrow however much they want for homes. Let's also imagine the following:

They both start at 35 years old.

They start with zero assets.

They both make $120,000 per year and never make a penny more or a penny less.

If they invest money they earn a rate of return of 6 percent.

If they borrow money they can borrow at 3 percent.

Their house appreciates by a rate of 2 percent per year.

They both save $15,000 per year ($1,250 per month).

They never move.

Imagine they both purchase a house when they are 35 years old for $300,000, 100 percent financed. Therefore, they both have a $300,000 mortgage. With a 30-year amortization, this has a house payment of about $1,250 per month, which is covered from their cash flow, not their savings.

For how much they have in common, it turns out they do have one big difference between them: Their attitudes about debt. The Nadas want to get rid of it as fast as possible. The Steadys are OK with it as long as they build up their savings. The Nadas direct all of their savings to paying off the house. The Steadys never pay down a penny extra on their house and build up their savings. Let's look at their lives at 65.

They both have a house worth approximately $550,000. They never intend to move, they have to live somewhere, and they both live in a house of the exact same value so the value of the house isn't relevant.

The Nadas paid off their house in 142 months, or in a bit under 12 years. They have owned their home free and clear since they were 47. At this point, they redirect their $2,500 per month savings toward retirement. This is their $1,250 former house payment + $1,250 monthly savings (monthly savings = $15,000 per year / 12 months). At retirement, they would own their house and have about $1 million.

The Nadas followed the traditional glide path with a conventional “Debt is Bad” attitude. But questions remain: Are the Nadas able to accomplish their retirement objectives? Was this plan optimal?

While $1 million sounds like a lot, they were making $10,000 per month and used to spending $7,500 per month. If they have a 6-percent return on their investments, they will receive a monthly income of about $5,000 per month (6 percent × $1 million / 12). According to conventional wisdom they “did everything right” but will have to take a pay cut of about $2,500 per month.

The Steadys took a different approach. They made the minimum $1,250 per month payment on their mortgage. They directed the additional $1,250 into savings, which grew to approximately $1,250,000. They paid off their mortgage the day they retired. So they not only own their own house, but have $250,000 more than the Nadas. At 6 percent per year, their income is $75,000, which is $6,250 per month. This is about $1,250 per month better than the Nadas, but $1,250 shy of where they would like to be. Perhaps their expenses change a little so maybe this is all right and maybe the Steadys are OK.

Let me introduce you to a third family, the Radicals. They are on a new glide path and take an entirely different approach to debt: They never pay it down.

The Radicals only pay interest on their mortgage, which is $750 per month (3 percent × $300,000 = $9,000 per year, or $750 per month). They take the rest of their money, about $1,750 per month, and contribute it to savings for the same 30-year period. Everybody worries about the Radicals because everybody knows that on the day they retire they have a $300,000 mortgage – but their savings have grown to $1.75 million. On the day they retire, the Radicals could pay off their mortgage and still have $200,000 more than the Steadys and $450,000 more than the Nadas!

Same people, same lives, same investment returns, just different decisions with debt. Vastly different outcomes!

But these are the Radicals, so what if they left their $1.75 million invested and kept the mortgage forever? At the same 6-percent return, they would have a monthly income of $8,750. They would still have to make the $750 interest payment on their mortgage leaving them with $8,000 per month in income. This is more than the $7,500 they were spending when they were working. The Radicals' monthly income increases during retirement.

What about inheritance?

If the Nadas don't change their spending habits, they are on track to run out of money in 18 years.

If the Steadys don't change their spending habits, they are on track to run out of money in about 30 years.

If the Radicals don't change their spending habits, they are on track to have about $2.5 million when they are 105 years old.

And the Radicals' kids? Sure, they'll inherit debt – $300,000 worth of it – but they are inheriting far more in assets and are easily able to repay that debt and still have more money than the Nadas or the Steadys. Would you rather inherit $2 million of assets and $300,000 of debt, for a net of $1.7 million, or $500,000 with no debt?

The math proves the “Debt is Bad” belief is false and that “Debt Adds Value” is true. This short story summarizes The Value of Debt and The Value of Debt in Retirement, my earlier works.

The problem is, simply saying “Debt adds value” is generally unsatisfactory for many reasons:

● The assumptions are too broad and unrealistic; it doesn't represent the real world. This leads to more questions than answers and a lot of debate.

● It is unlikely to be right; the actual results will be dramatically different.

● It isn't dynamic. It doesn't reflect the changes we experience throughout life.

● It isn't specific or actionable. It doesn't provide a glide path or insight into the appropriate amount of debt to carry throughout life.

Because of the dynamic nature of our lives and the world in which we live, we need something more.