For anyone thinking of taking out a loan

jtrain609 said:
Like I said, ANY financial instrument (including debt) is a tool. If you misuse it, you'll get burned.
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Firearms are tools. Giving them to children is beyond stupid.


Just like I have taught my son to shoot, first with a BB gun, then with a .22, and eventually with other weapons, so to will I teach my son that Debt is a tool that should be used sparingly and only with a great deal of thought.

I do not share Dave Ramsey's mantra of "No Debt At Any Cost", but I do agree with him that it should be held to an absolute minimum, and paid off ASAP.
 
gliderboy said:
There is a pervasive myth that the poor are poor because they have no money. In fact, the poor are poor because they are not smart enough to figure out how to get, keep and grow money. Worse, the poor tend to indulge in spending they cannot afford because it makes them feel like they're not poor. Talk about a vicious circle!

The two videos above offer excellent advice for those lacking in money smarts, but how many can follow it?
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You paint with a pretty broad brush and appear to be perpetuating some myths yourself.

I know some very intelligent single mothers that make excellent financial decisions but are unlikely to reach the income threshold that will facilitate home ownership, the primary means by which the middle class build wealth. Yes, they are victims of their own decision-making and I guess you include that in your "smart enough" criteria. I live in one of our nation's poorest states and I see many poor that do not attempt to live beyond their means.
 
stormchaser said:
I can't wait to get to the point where I just hand my First Officers/children/wife/hangar rats/forum junkies my little book of "My sayings." Gettin' old ain't all that bad.
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Oh, neither.

I used to be more hard core in my opinions but I've actually mellowed over the years. That's why I seldom go back to the old stuff like that thread - I've seen too many exceptions to the rule, and I'm still learning that there are no absolutes. Still fun to look back at those posts (and some of the others that posted in that thread) and compare to my thoughts on the same subject today.
 
Yes, being debt averse isn't to say never, ever take on debt, but always be working on debt minimization or avoidance.
 
Wealth tends to corrupt.

Happy and poor is way better than well-off and unhappy.

My post was merely an observation on why some people can't seem to get ahead financially.
 
scooter2525 said:
I'm curious what discipline it has taken for you to get to that point. And is that all from trading?


Sent from my iPad using Tapatalk
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Originally it was all from trading. That was the only way to accelerate my meager funds. Now I'm much more diversified but trading is still a major backbone.

Discipline, whew lots.
I worked and continue work a full time career.
I usually wake couple times a night a few days a week to adjust trades etc. while still putting in 55hours ish at the office.
Give up many Friday nights due to watching the market.
Work 70-80 weeks and still maintain a happy wife and family life.
Move to Australia when the frank Dodd act robbed me of my ability to hedge trading. Obtained residency there so I could open trading accounts there and in Singapore.
Get a degree while living there so I could maintains full good paying work and trade.
I have long term goals and if my short term goals don't line up I scratch and fight until they do.
Wife is disciplined, she doesn't spends no deserves better clothes etc. luckily form me she is onboard and sees the benefits.

To list a few.

Sometimes I'm flat out exhausted and take breaks from some of it. I've had to. I started to burn out. I've out on 20lbs because I literally have no more time in the day to exercise. In reality I need to create more balance but it's a decision. Do I want balance or financial freedom and at what cost.

However it's very nice knowing if I quit right now I could go years without having to raise a finger. I couldn't retire but I'm not sure I will.
 
jtrain609 said:
I've been asking that for years.

Also, what a sexist jackass.

And now I'm listening to this whole thing. This guy thinks that lawyers make big money? Especially to start out?
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My mom's firm started associates around 140k. But they worked for it, and either went to Yale or Harvard. And were going to be rich no matter what they did.
 
jtrain609 said:
So let's back this up, and make some assumptions about taking out the debt.

At 18 you enter undergraduate and pay $60,000, plus do a flight program so you're in the hole for flight training to the tune of $130,000. Lots of money, right? Maybe.

At 22 you graduate, but you did your training quickly and started instructing at 20. At 22 you're hired by a regional. At 27 you upgrade. At 32 you're hired at a mainline carrier. You make $100,000 a year for 10 years, then $200,000 a year for the remainder. You make $7.6 million over the course of your flying career at a mainline carrier, and have to repay $189.271.20 in student loans back (MAYBE, more on this in a second).

If you make the same assumptions for career expectations, you come out MUCH further ahead, by MILLIONS OF DOLLARS if you're able to get to working quicker.

But what about repayment options? Can you really afford that $1500 a month loan payment every month while you're instructing?

Of course not, and every lender knows this, which is why they have alternative repayment plans.

Let's say you enter into the Pay As You Earn repayment program, because you did your flying in college, and you have Direct Loans through the federal government.

When you're making $15,000 per year you will owe zero dollars per year.

http://studentaid.ed.gov/repay-loans/understand/plans/pay-as-you-earn/calculator
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I agree with using debt as a tool, however you have to go into this with your eyes open.

Between taking that $130,000 debt and being able to start making payments fourteen years later, that debt has gown to $220,000 (based on current federal loan interest rates). Assuming you pay that back over the next ten years, you'll be paying back some $2200 a month for a total of $265,000. That's a scary amount of money.

But, federal loan interest rates are currently very low. What if you'd taken that loan in 2006 (because of that pilot shortage(tm)!)? You'd be paying back almost $400,000.

You are still ahead of the guy in the other example, of course.

How about another example. Consider the guy who starts training at a small FBO at 18 while working full time. He spends his $1000 a month, and starts CFI-ing at 20. He's in class with jtrain's graduate at the regional at 22. Debt free, but without a degree. Over the next ten years at the regional he uses his time at the hotels well, and gets his degree online. He goes to a major at 32, debt free.

This stuff can be done a lot of different ways. Credit is a tool to be used, but like all tools, read the instruction manual!
 
NickH said:
I agree with using debt as a tool, however you have to go into this with your eyes open.

Between taking that $130,000 debt and being able to start making payments fourteen years later, that debt has gown to $220,000 (based on current federal loan interest rates). Assuming you pay that back over the next ten years, you'll be paying back some $2200 a month for a total of $265,000. That's a scary amount of money.

But, federal loan interest rates are currently very low. What if you'd taken that loan in 2006 (because of that pilot shortage(tm)!)? You'd be paying back almost $400,000.

You are still ahead of the guy in the other example, of course.

How about another example. Consider the guy who starts training at a small FBO at 18 while working full time. He spends his $1000 a month, and starts CFI-ing at 20. He's in class with jtrain's graduate at the regional at 22. Debt free, but without a degree. Over the next ten years at the regional he uses his time at the hotels well, and gets his degree online. He goes to a major at 32, debt free.

This stuff can be done a lot of different ways. Credit is a tool to be used, but like all tools, read the instruction manual!
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It's worse than that, actually, but I wanted to keep it simple. But to get better numbers you'd have to assume for currency inflation, training cost inflation, and wage stagnation. Or said another way, in 10 years that $30,000 a year job loses 30% of its purchasing power, and if history is any indicator, wages won't keep pace with inflation to compensate.
 
Also, most of my student loans are at 7.9%, and capitalized over the four years I was in school. That's hardly an enviable interest rate on what is nearly a secured debt.
 
I'll first say that I'm shocked at his level of understanding of our industry. He probably gained quite a bit of it from his operation running the Gulfstream.

I also agree with not going seriously into debt to get into this game.
Now, as far as financial advice, for anyone who has even a basic understanding of finance, his advice is beyond idiotic. You will never get ahead paying cash for everything. The only way to grow any sort of business is with leverage, and that comes by going into debt. Further, given how cheap credit has been lately, it's practically free money.

Save up and pay cash for a car? Why in the world would you do that when you can borrow money at 1.5%? I'll keep my cash invested in whatever I happen to have it invested in at the moment and take the bank's practically free money and pay it back on my own time.
What's really funny to me, is when a friend of mine (who thinks just like I do) ran into Dave Ramsey on an airline flight (apparently the Gulfstream was unavailable that day- wink wink). They got to talking, and he said that he was going to pickup his rental car once they got in. My friend asked him "so, since you don't have any credit cards, how do you plan on renting a car?" A little shocked, he responded "oh, well, no, ugh, well I have one credit card." Sure ya do!!!!!
 
Patrick said:
The only way to grow any sort of business is with leverage, and that comes by going into debt.
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I've listened to Ramsey enough to have heard him speak positively about using credit as leverage, but those calls are rare and very limited in scope, usually involving rental property. Most of his callers have gone in debt financing depreciating assets and are upside down in real estate.

It would be a more interesting show if some of the callers were financially responsible and had interesting questions.
 
Pilot Fighter said:
I've listened to Ramsey enough to have heard him speak positively about using credit as leverage, but those calls are rare and very limited in scope, usually involving rental property. Most of his callers have gone in debt financing depreciating assets and are upside down in real estate.

It would be a more interesting show if some of the callers were financially responsible and had interesting questions.
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I fully agree it'd be a FAR more interesting show if people who knew anything about how to manage money called in!!!

It only makes sense to purchase, never mind finance, depreciating assets unless they have a pretty high ROI (not including tax advantages). Further, the reason most people wind up upside down on real estate is that they count on appreciation for capital gain, and purchase at the height of a market, and pay retail at that. If you make you money up front when you buy, and buy based on how a property cash flows, it takes a massive hit for the property to underperform.
 
I don't entirely understand the blanket criticism. If you haven't listened to Ramsey, his thing it essentially financial triage to the completely uninformed. Sophisticated advice it is not. Having listened to him for many years due to the dearth of Nashville drive time radio (thanks Joe Biddle), the typical caller isn't an investor looking to make a smart decision. A typical caller has a combined income of $50,000, owes $200,000 in student loans (I went to Vanderbilt to be an elementary school teacher and my husband is a social worker with an MS from Duke), $40,000 in car loans, $10,000 in credit cards, zero savings or retirement and is in their mid 30's.

At a certain point you have to break it down Sesame Street style and he does that fairly effectively on a psychological level. His "snowball" method of paying down the lowest debt regardless of interest rate doesn't make much sense mathematically, but psychologically, to those in a seemingly insurmountable hole, its a quick and easy victory that keeps the process moving and leads to better success rates if I were to wager on it.
 
genot said:
I don't entirely understand the blanket criticism. If you haven't listened to Ramsey, his thing it essentially financial triage to the completely uninformed. Sophisticated advice it is not. Having listened to him for many years due to the dearth of Nashville drive time radio (thanks Joe Biddle), the typical caller isn't an investor looking to make a smart decision. A typical caller has a combined income of $50,000, owes $200,000 in student loans (I went to Vanderbilt to be an elementary school teacher and my husband is a social worker with an MS from Duke), $40,000 in car loans, $10,000 in credit cards, zero savings or retirement and is in their mid 30's.

At a certain point you have to break it down Sesame Street style and he does that fairly effectively on a psychological level. His "snowball" method of paying down the lowest debt regardless of interest rate doesn't make much sense mathematically, but psychologically, to those in a seemingly insurmountable hole, its a quick and easy victory that keeps the process moving and leads to better success rates if I were to wager on it.
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Well said.
There certainly is a difference at times between "financially smart" and "psychologically motivating."
 
Patrick said:
I'll first say that I'm shocked at his level of understanding of our industry. He probably gained quite a bit of it from his operation running the Gulfstream.

I also agree with not going seriously into debt to get into this game.
Now, as far as financial advice, for anyone who has even a basic understanding of finance, his advice is beyond idiotic. You will never get ahead paying cash for everything. The only way to grow any sort of business is with leverage, and that comes by going into debt. Further, given how cheap credit has been lately, it's practically free money.

Save up and pay cash for a car? Why in the world would you do that when you can borrow money at 1.5%? I'll keep my cash invested in whatever I happen to have it invested in at the moment and take the bank's practically free money and pay it back on my own time.
What's really funny to me, is when a friend of mine (who thinks just like I do) ran into Dave Ramsey on an airline flight (apparently the Gulfstream was unavailable that day- wink wink). They got to talking, and he said that he was going to pickup his rental car once they got in. My friend asked him "so, since you don't have any credit cards, how do you plan on renting a car?" A little shocked, he responded "oh, well, no, ugh, well I have one credit card." Sure ya do!!!!!
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I've seen 0% on cars in the past year. If I was actually dumb enough to spend 20k on a car, I sure as hell wouldn't use my money when I can use theirs for free.
 
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