Some people, like myself, are just built different. Debt makes me worry. Worrying about money is a stressor on my marriage, one that I don’t have. I want to know that I could continue living under the same roof, with the kids going to the same school, and able to wander next door to play with their best friends – if things go badly. If know that if I lose my job and have to get a lower paying one, my kids will be blissfully ignorant. I want to insulate them. Meanwhile I’m relatively indifferent to how nice my house is. In Austin, where I live, I could live in a $170k house or a $270k house based on my salary. The more expensive house is larger. It has designer appliances. But if I pick the right $170k house my kids go to the same (more or less) schools. Both houses have 2 car garages, a backyard, enough bedrooms for all, toilets the flush, and kitchens capable of the most daunting thanksgiving feast. Maybe my immediate neighbors aren’t doctors and lawyers, but they are good people. Heck, I was able to get a good deal on some tile work precisely because my neighbor was a blue collar guy.

Same deal with cars. A lexus is nice. A corolla is only marginally less nice. Given free choice I’d choose the Lexus. Given the option between a corolla and or a lexus + $15k in debt, I’m taking the corolla. Those seats on the lexus are comfy, but its really just transportation.

Everyone’s utility function is different. Some people really gain a lot of happiness from the bigger house. For me, solid middle class is pretty much fungible with upper-upper middle class.

Debt free folks don’t consume as much and don’t pay as much as interest. Debt free folks don’t need to work as hard, make as much money, or pay as much in taxes.

That said, I’m in no hurry to pay off my mortgage. Why? Because my monthly mortgage debt and escrow payment is significantly below the imputed rent for my house; and my 5.125% fixed rate mortgage is a great way to short the US dollar. If I lose my job in a deflationary crisis, I’ll be able to rent the house out for a significant positive monthly cashflow. I’m not going to borrow against my house and risk that imputed rent income. Historically, most ordinary folks make money buying real estate by locking in monthly payments while rents rise over time; that difference is what they’re able to put in their pocket. In my opinion, capital appreciation of real estate is a recent and unsustainable phenomena.

For the past several years, I’ve taken the money I could have used to pay off my house and generated 20%+/yr in the foreign equities, precious metals, and energy sectors. That’s what works for me. If you’re not comfortable identifying primary economic trends and investing in them, you might be better off to lock in the guaranteed 5.125% (or whatever your mortgage rate is) of mortgage pre-payment.

I’m trying to increase my assets so that my standard of living is constantly increasing, rather than constantly decreasing (which is the case if I consume tomorrow’s income today through debt). We live in a time of unsustainable debt expansion. Those living beyond their net worth believe it that debt expansion can go on forever. I wish them the best of luck.

I focus on increasing my net worth and acquiring assets that are going to generate income and capital appreciation over the long term; decreasing my tax profile (taxes are my biggest expense) and sustainably increasing my standard of living.

Is the problem not so much that being debt-free is unattractive, but that it is less attractive than maintaining a state-of-the-art standard of living? My friend, Dave, likens this problem to a monkey who fits his hand into a jar to grab a fruit, but finds that his hand with the fruit no longer fits through the mouth of the jar. Standing outside the thought experiment, we know the solution: let go of the fruit. Sheesh! After all, we’re not monkeys! Doh! Therein lies the problem.

In psychology, there is a principle of social influence by reference to authority. People are more likely than not to follow directions of or to mimic the actions of those who are perceived to be intelligent professionals. Why? People baselessly assume that among the professionals, someone must have done the hard analysis and bought into a particular plan of action. In such a case, such late-comers need only take a cognitive shortcut based on the actions of the professionals.

In the real world, where are the intelligent professionals, whom we want to model after, saying, “Develop your personal freedom! Be debt-free! Grow income-generating and/or capital appreciating assets!”? Of course, you don’t hear that. Instead, you get former Dallas Fed Governor Robert McTeer who said, “If we all join hands together and buy a new SUV, everything will be OK.” Or, take former Fed Chairman Greenspan, who was asked during one of his Congressional testimonies, “Do American households have too much debt?” Mr. Greenspan replied that household debt service burden was within the historical range, and that it was manageable because of historically low interest rates.

The net effect is that the thought leaders in our society are encouraging us to be life-long employees. Thanks, but no thanks.

Now the question is can you do better in the meantime from being loaded with debt to debt free. Proponents and planners like myself see the necessary evil or mortgage debt to build wealth. Be it in insurance, real estate or securities, properly structured and managed, you will be leaps and bounds over the family that did things traditionally. The key is properly managed. We’ve done workshops for thousands of folks across the country and everyone agrees that seperation of equity is financially prudent thing to do. Even critics cannot dispute that fact. But the big question is where to put it. That’s what needs to be looked at very closely.

We need to acknowledge, there are no benefits given to us with having a ton of equity in a property other then feeling good about oneself(which is a great thing)
To get the money, you need to sell or finance the property…sell at a discount (& pay a 6% sales commission) in a family emergency or try to get a mortgage in a financial bind and see how fun that it.

If you have been responsible and saving and it seems like many folks here are, then you are the cream of the crop and may never have these worries. However, lets face it. 98% of the rest of Americans never save other then in their home equity. In a financial pinch or an emergency, go and see how liquid and safe their only savings is.

This plan is not for everyone, I’ll be the first on the financial planner side to say that. With discipline and time, it’s wonderful. With a lack of discipline or a shortsighted vision/game plan, it can be nightmare.

Let’s not fool ourselves. There is money to be made in this market, as there is in everything else out there, like 401K, investing, etc. There is always someone getting paid no matter what you do with your money. The key is to find something that you can look at objectively and find a planner that will do the same and you will find the guy that has your interests in mind. By keeping emotion out of the decision making process you can find the diamond in the rough for you and your family

The connection between debt and lack of personal freedom is a gem, Suresh.

DHM and Bellen, thinking of the younger generation and not being a burden on them is unusual. I’m thankful that my parents are in that situation, and I’m striving to do the same for my daughter. (Considering the head start I’ve gotten, something’s seriously wrong if I can’t!)

Break out the silver, the Carnival of Debt Reduction celebrates it’s twenty fifth edition this week and I’m proud to present fourteen fabulous articles for your viewing pleasure. Remember folks, if you’re a contributor, try to keep yo…