Tuesday, April 30, 2013

Adding to MMM

A couple things to add to the MMM post:

1) Given complete ability to chose your own spending level, how much you spend per year is inversely proportional to how much you value money.  There are some one-off things that MMM comments on (if you really like bicycling, and that saves you money on gas then that is not a value of money trade off), but someone who spends ~$25k/year for their family actually places a pretty large value on money.  He would rather put forth effort to cook, clean, repair things than pay others to do the same, so he values money more than his time and effort to do those things...Yes, he may also enjoy those things, and that does get back to the not-exactly aspect, but essentially, and somewhat counter-intuitively, money has higher value to savers than to spenders. 

(Note: we may not value other persons' lives the same, but everyone pretty much places the exact same value on their own life, so if you chose to spend $80k/year on your living, then it isn't because you value your life more, but because you value money less...well, and you have it, this analogy requires a person be able to set their spending more or less without constraint.)

2) Living debt free is all and good, but it shouldn't be an end to itself.  At one level MMM clearly understands this (he had a mortgage when he bought his first house), but it isn't clear from the conversation that he really buys it.  Sometimes you are better off taking on debt to buy a large thing now rather than wait until you can pay cash.  Houses are an obvious thing here, and for most people cars are as well.  It does go beyond that, however...

If you have money tied up in investments paying 7%, and you want to buy something that would require dipping into those investments, but you can get a loan that charges 5%, then you will be better off, in the end, getting the loan, and keeping your investments in tact.  There are other reasons that go beyond total dollars.  If you want to renovate your house, you could save up and pay cash, but that may take years, and how much would you value the years of enjoyment of the renovated house vs. the interest you would pay to get a loan to cover it?  What if an emergency taps you out for the month, but something you need/want badly is on sale/about to be gone?  It could well be worthwhile to you to buy it on credit and pay it off in a month or two (or, really, even a year).

Debt--like alcohol, cheese, and bacon--is a really good thing that only becomes bad when it is indulged in too much.

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