Comment by _8j50 | Hacker News Reader

Comment by _8j50 | Hacker News Reader

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FWIW, I strongly believe debt is never ok. It can be ok in the same way a hospital surgery is ok (you have no choice). Mortgages are not sustainable either. Just because the practice has been popularized in the west for centuries,it does not make it a sound practice.

It is possible to buy a house with money you saved. This also makes a lot of sense when the house will be passed on to the next generation (like it is done in africa).

Debt is spending your future cashflow for short term gains. Cash flow/liquidity is much more important than equity and net wealth(short term). I'm sure you know the old principle of "being poor is expensive" and "you need money to make money". Debt takes away your liquidity, the small things/"broken windows" you will always need to care for become neglected. Unplanned emergencies ruin your plans,etc...

At a national level, you should know how many african nations have borrowed endlessly and still gotten nowhere. Even after debts are forgiven and stable peacful times last decades.

Accepting debt is accepting a parasite. Havig a plan to pay it off is essentially saying you have a plan to kill the parasite before it kills you. Similar to how people think "it's ok, I can quit" before getting hooked on drugs.

YMMV.

>Debt is spending your future cashflow for short term gains.

No, debt is spending your future cashflow to increase your future cash flow.

>"you need money to make money"

Yes. This is where debt comes in.

>Debt takes away your liquidity

No it increases it. Debt lets you turn an illiquid asset like a building or accounts receivable in to immediate cash.

> No, debt is spending your future cashflow to increase your future cash flow.

No, with debt you gain capital now. Future cashflow is not guaranteed oe even expected in most cases (e.g.:how will a mortgage generate future cashflow? Rent your house,hope future rent value is higher?). You might get more cashflow in the future if your debt was for a good investment. But even then, until you pay off the debt, your future cashflow will have your debt payments subtracted from it, even if you have positive cashflow after that, your argument only makes sense if the that cash flow is more than your existing cashflow (possible but rare).

There is a big difference between calculated debt made for a business investment and debt (however calculated) made to aquire equity or to afford goods and services.

> Yes. This is where debt comes in.

No, this is where revenue stream comes in. For a salary man, this means getting promotions and saving up. For a business person, this means making profits and increasing profit margins. In both cases what you can "afford" is liquid cash , not loans.

> No it increases it. Debt lets you turn an illiquid asset like a building or accounts receivable in to immediate cash

It does turn it into cash, but you're getting into debt to spend that liquidity right away. Who gets into debt for long term liquidity? If your business is modeled to grow then you should see increasing profit margins over time, this profit is what should sustainably provide liquidity. Your future decisions are not made in fear of missing bank payments. You will always need more cash, so whatever revenue you will make in the future will always go to banks since you're always getting into debt (unless you have remarkable discipline). If you get into debt because an unexpected event requires you to have more immediate liquidity than what you have, I think that's fine. But my position is that you shouldn't plan on getting into debt from the begining.

Not interested in discussing consumer debt. Poster made it clear he was talking about learning how the business world works.

No leveraging with debt is not rare. Every small business owner I know uses debt. Some quick googling tells me the average for small businesses is $200k in the US.

You don't need remarkable discipline to manage it. It's pretty simple math. Fear doesn't need to come in to it. I'm not recommending everyone go out and redline their company with a ridiculous gearing ratio.

I get what you are saying. I agree with most of it. There is a time and place for debt. When you need to expand an existing growing business. A business one has started with their own money, validated it to work and would like an extra piece of equipment to scale up. Debt for the sake of debt is indeed a problem. As for government debt I think that is off topic for this particular thread. That's a whole other story.

VC investment is not debt, I have no problem with trading equity for investment.

It is slightly different for business than people since a business loan is more on a case by case basis than consumer loans. With consumer debt, entire markets are restructures with consumer's ability to get loans in order to afford goods and services.

> Mortgages are not sustainable either. Just because the practice has been popularized in the west for centuries,it does not make it a sound practice.

> It is possible to buy a house with money you saved.

...with decades of savings. Until you have those savings, how is paying rent to a landlord preferable to paying mortgage interest to a bank?

It wouldn't be that expensive if the practice of mortgage wasn't so rampant. It's worth what people are willing to pay for it. And like i said, if people lived with their family longer,even after marriage and houses were passed along generations more, there would even less demand driving down the cost. Not too many decades ago, all you had to do is save up a few years (US) to buy a house, am I wrong? It costs an arm and a leg now because the default way is debt and people will take on a million dollars of debt with $30k/yr income if someone gives them the loan. So the driver of housing prices is not people's income but bank's willingness to loan -- that's why it costs decades ,one spectacular example of why debt is not "ok".

Pierce the abstraction.

A builder spends 2000 hrs this year making your home. You pay him back 420 hrs annually over 5 years.

Some debts are just fine.

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