Step-sis has different opinion on debt

iVillage Member
Registered: 02-23-2001
Step-sis has different opinion on debt
8
Sat, 05-03-2003 - 10:10am
My step-sister just refinanced her motgage for about $500,000. She racks up lots of debt, borrows on her home equity, and then just refinances her mortgage after a few years, combining it all into one payment. She said this is what the rich do and how they stay rich (her mom and step-father have always been wealthy and probably told her this). She said debt is a good thing and not many people pay off their mortgage in their lifetime, anyway.

Huh??!!

I was brought up somewhat poor (as we were on welfare and we all lived with my grandparents after my parents divorced) and just cannot relate to what she's talking about. I plan on having all our debt eliminated by the end of this year. I send $1300 a month to our last 2 credit cards (0% APR). I cannot WAIT to have all that extra money each month to put into savings. We choose to live very frugally now in order to attain the goal of being debt free.

But then I think that when dh and I finally decide buy a house (which we may never do since we have it pretty good where we are), we will have maybe 20% of a down payment for a $300,000 house - average price in NY - and be in practically the same financial place as my step-sis (not ever seeing an end to maortgage payments).

Is she right about how the rich live?



Angela

Angela


Come see my BLOG!

Avatar for mrslove2000
iVillage Member
Registered: 03-26-2003
Sat, 05-03-2003 - 10:34am
Angela,

I can't really confirm what your step-sister said about " this is what the rich do and how they stay rich". Working in the banking industry, I see the exact opposite. The people that I see with money have zero debt, automobiles that are paid off and at least 7 years old, zero mortgage and they save money in safe investments.

My advise for you is do what is right in your gut. I can't tell you how many times when I was faced with a financial decision (something just didn't "feel" right) and I went against that agging feeling and ending up in a situation that was not good for me. I would suggest not buying a house if where you are is working for your family. Homeownership is not for everyone, and that is OK.

Susan

<ahref="http://www.TickerFactory.com/debt/wJLmWvM/"><imgborder="0"src="http://tickers.TickerFactory.com/ezt/t/wJLmWvM/debt.png"></a>

Avatar for cl_phocid
iVillage Member
Registered: 03-26-2003
Sat, 05-03-2003 - 12:23pm
Angela - this is just my opinion - but I think your ss is living in denial. SOME debt is good - say...the debt you owe to your mortgage company, but EQUITY is ALWAYS better than debt. Maybe most people don't always pay off a mortgage, but wouldn't you like to say buy a house for 300K, pay the mortgage for however many years you plan to live there, and then majory PROFIT on the sale?

You and your dh are doing exactly the right thing. Get ready to start SAVING that money! Bud and I are currently seeing a financial advisor, and it's helping us tremendously in terms of envisioning future goals - and every time you put something on a cc or take equity from your home...you're stealing from your future to pay for trinkits and such today. That's not the way we're choosing to live. Sounds like you and your dh are feeling the same way :)

All my best,

Danni

All my best,
Danni

Avatar for zaboz
iVillage Member
Registered: 03-26-2003
Sat, 05-03-2003 - 6:46pm
Your step sister's parents might be wealthy but I'm willing to bet that they are not

doing what she is, namely wracking up debt only to use their equity to pay it off.

That can only continue so long before she can't afford the payments.

Probably the truth is that her parents have a large mortgage but have also

worked hard to get where they are and have investments in other places that more than make up for the mortgage. I don't think having a mortgage at 6% is bad if you're making 9% on your investments (as an example).

I'm starting to understand that you can treat money one of two ways. You can work for it by spending it before you make it and paying interest for the privilege of using it. Or you can make your money work for you by spending it carefully and wisely and putting it away somewhere where it can multiply and grow. I don't see how your wealth can ever increase unless you are spending less than you are earning.

You keep socking away a little at a time, until the interest it's making for you becomes an avalanche. Your step-sister's method is also an avalanche, but unfortunately the interest is working the opposite way, slowing sinking her.

Of course, I'm not rich either so who am I to say?

I think you have the right approach. Hopefully she'll learn something from you.

iVillage Member
Registered: 03-31-2003
Mon, 05-05-2003 - 9:21am
Hi Angela,

I know PLENTY of people who prefer renting to owning. There's nothing wrong with either choice - it's a purely personal matter.

You do what's right for you and your family, and never mind about what anyone else says.

Lee Ann

Lee Ann

www.werenotafraid.com

iVillage Member
Registered: 03-26-2003
Mon, 05-05-2003 - 8:15pm
BWAHHAAHAA!

~wipes tears~

Hardly.

I'm in nonprofit fundraising. Yes, some people who look rich live that way. The people who are actually rich look down on them.

Donors who give $10K are by no means poor, of course. They drive luxury cars, wear flashy jewelry and designer clothes. They make a show of their money, and want to be seen with the right people. These folks are usually doctors and lawyers. We know not to ask them for more money than that, because they don't have assets. They may earn big paychecks, but as soon as that paycheck's deposited, it's gone to pay bills. I'm sure you can relate to that.

Donors who give $1 million drive older, modest cars. Their clothes are nice, never tattered, but not flashy. The only jewelry is a wedding ring. They have no need to flaunt their money. They're as happy speaking with the janitor as the governor. These people are entrepreneurs, investors, techies, and hiers. They wouldn't stand out walking down the street, but they have millions in stocks and real estate. These people got to where they are by running businesses well, and understand the importance of earning more than you spend. They say the doctors and lawyers are "living hand to mouth," and they're not far off. What's really amazing - they admire people who follow their dreams, even if it means earning less money.

The millionaires I know would be much more impressed with you than with your step-sister.

Avatar for joieprice
iVillage Member
Registered: 03-26-2003
Tue, 05-06-2003 - 12:13am
Its funny, that is so true. I used to have a part time job helping a woman who did foundation management. She helped the very rich set up fund to donate hundreds of millions of dollars. Not to say that there weren't some very odd, obnoxious clients. Interestingly, those ones tended to be the ones who had inherited the money and the control of the foundations. But the wealthiest of the bunch tended to be self made and live exactly as you said. One of them was the sweetest old Jewish man. There was nothing flashy or showy about him. He was a Holocaust survivor who had left Hungary and spent some time in Venezuela before coming here. He's now one of top twenty wealthiest in America I think. He has given money away to all kinds of charities and organizations and when he dies, the majority of his wealth will be turned over to his foundation, at the time I was working around him, it was in the billions. But you would NEVER know it if you were to run into him.

The woman I worked with was exactly the opposite. She made an incredible amount of money but she spent enormously just trying to project this image to those around her. I don't think it ever completely worked.

Joie

Joie

"We are what we think.  All that we are arises with our thoughts.  With our thoughts we make the world."

iVillage Member
Registered: 03-31-2003
Tue, 05-06-2003 - 9:46am
I like the description of the latter group in your post. They are the "Millionaire Next Door"
iVillage Member
Registered: 05-08-2003
Thu, 05-08-2003 - 5:51pm
I recently read a very interesting book about millionaires which basically verifies what people here are saying, it's the people you'd never suspect who are the real millionaires, and then there are the ones who look flashy who actually have nothing.

It's a great read, has lots of interesting facts about the people who really have all the money and how they got it and keep it. I recommend it to everyone. I borrowed it from my library. It's called "The Millionaire Next Door" by Thomas J. Stanley & William D. Danko