Two people I care about are getting into debt. Deep.
To finance their purchase of a dream house, they are applying for a bank loan that’s THIRTY times their gross monthly salary (or 45x the family’s net ‘take home’ pay).
At 10.5% p.a. interest, to pay it off over the next 20 years, they are committing to return what amounts to between 60% and 85% of their ongoing monthly income!
All to live in a house that’s bigger than what they need.
An emotional decision, to leap towards a dream.
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A subscriber emailed me yesterday.
She had lost $17,000 on a coaching program that promised the sun, moon and stars - and didn’t deliver any value.
With no income coming in from her online business, she had financed it in the manner she was invited to… she put it on her credit card!
Now, 3 months later, her income is no higher. Her debt burden has peaked. And she is frustrated and desperate.
She isn’t alone. Between 1% and 5% of my subscriber list is made up of people like this.
Their hopeful jumps to reach out for a pipedream ended in a crash landing.
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All this makes me wonder…
Where am I?!!
Sometimes (like last night), I go to bed convinced I am right. And then, in the still, dark early hours before dawn, I awake troubled by doubts.
I’m fortunate enough to enjoy an income level that would allow me to purchase outright the kind of property my relatives are looking at, or comfortably absorb the kind of loss my subscriber suffered.
Still, I wouldn’t even think about doing deals like that… which commit me to repayments involving 60% or more of my future ongoing monthly income, or maxing out my credit card on a ‘hope and promise’ offer.
Am I simply too conservative and risk averse?
Maybe they really know what they are doing?
Perhaps I’m the one that needs to change?
And after my mind runs along these lines for a while, sanity returns.
I remember the important thing. It’s this.
I’m helping finance 15% of their equity - from my SAVINGS. But they are funding 80% of the remaining 85% through a high interest loan.
I go back to sleep - smiling.
3 Comments Received
June 18th, 2008 @10:31 pm
It’s a consumers community that we live in nowadays.
We’re bombarded with ‘world-wide’ ads every single day. It’s hard to resist what we are being offered, as long as we are able to get our part of that big pie.
The other side of the medal is, that as soon as our personal economic situation slows down, we’re in trouble.
Therefore, I’ve never, ever, bought anything above a reasonable budgets. All I ever did, even buying houses, was well planned and very do-able.
Call it conservative.
That makes two of us.
June 19th, 2008 @7:24 pm
Change that to three of us.
I’ve been looking at buying a house from a family member, price is great, location right where I’d like to be, but I’m not ready to purchase until I feel we’re financially secure enough to weather any economic changes that happen after we buy it.
Thankfully, because it is in the family, they were willing to wait until we’re ready to purchase, otherwise I was ready to walk away from it, no matter how great of a deal it seems now. Thankfully, I learned when I was younger, that a *great* deal when you can’t afford it, ends up costing more in the end.
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