Remaction,
I am aligned with Hobo and I think he raises one of the most important points in financial freedom and that is calculating the cost of risk. With all due respect perhaps I can use the example you provided..... If you get a car loan that is at 2.5% and you are getting 10% average annual rate of return then you will still be making 7.5% on your money. No disagreement there however what rate do you calculate risk at? Hobo shares his open heart surgery, which ended about as well as one could wish for, however, his income dropped by 75% very quickly. Lets say Hobo was making $10k/month, his income went to $2500/month and out of that he had a $650 car payment. He will owe taxes, for at least part of the year, at the $120,000 annual salary, he may have some copay on his medical bills, he is going to owe income taxes on his new $30,000 annual income and so lets say he takes out $500/month of the new $2500/month salary for taxes. That leaves him $2000/month. Then $650 for the car payment so he is at $1350/month. There will be other expenses beyond those listed above that likely need to be covered. so now he is living on $1000/ month rather than the previous $5-6k/month take home. Thats a lot of ouch all at once.
Stuff like this happens all the time and we think it wont likely ever happen to us. But it does and the best way around it is to save up a healthy emergency fund and dont take on any debt.
Dont mean to be preachy here. I lost a little over a million in the early 2000's because I was absolutely sure I knew all the risks. But I didnt and it sort of hurt to see that money go away. If I had been more careful(risk aware) back then, and had not lost that money, I would have $4,000,000 now rather than the zero amount it went to. Just hoping my mistakes dont become yours.
finance.yahoo.com
I’m right behind ya!)
