Monday, March 25, 2019

Getting Personal, It’s Your Debt (with a factor of luck) …



So, who owes? According to the Federal Reserve, three quarters of all households carry some debt. The average mortgage debt is $182,421. The highest mortgage debt is held by those between the ages of 45 and 54. The highest student loan debt is held by those under 35 years of age. The average balance for student loans is $50,626. The highest debt for auto loans is held by those 35 to 54 years of age. The average amount owed for auto loans is $29,539. For those with credit card debt the average balance is $16,883. Credit card debt is highest for those 45 to 54 years of age. (Erin El Issa, 2016 American Household Credit Card Debt Study, Deloitte University Press.)

Why do people go into debt? Well, the short answer is that at a very basic level we want to improve our standard of living. Perhaps we invest in ourselves with ongoing education. However, many times we just want more stuff. Unless we’re born into wealth or have success with winning a large sum of money in a lottery, we do need some amount of debt to live the dream. Debt has upsides and, of course, downsides.

Going into debt for investing purposes requires careful vetting of all “opportunities.” The equation of reward and risk must always be carefully considered.

Consider investment debt with a disruptive mix of luck as expressed in the letter written by Unlucky Eddy.



Dear Drs.,

What’s luck got to do with it? Maybe a lot. The cloud of doom seems to follow me.

I’ve invested in the stock market and lost; I bought real estate that I can’t sell, because two years after the purchase it was designated a wetland; I loaned money to a friend to start a “can’t lose” business, and it did. What the heck! I went into debt with all of this.

So how do I pick up the pieces, regroup, and change my luck? I have a six-figure income, and I feel like I’m bleeding money from a thousand cuts.

Please help!

Unlucky Eddy



Dear Eddy,

Indeed, the cloud of doom. Who knows about luck? Good, bad, or indifferent, it happens.

Calculated risk is key. Unfortunately, no infallible crystal ball exists. Many people have lost money in the stock market, and yet many people have made money too. Obviously, the market can be a wild roller coaster ride given uncertain economic conditions. Real estate has, in general, been an asset that appreciates in value over time. But, as you point out, unforeseen things happen. A failed business always causes collateral damage. Not sure to what extent you went into debt for your investments? Hopefully, it is not so extreme that it prevents recovery.

Careful research is a prudent course of action. In order to regroup, you need to assess where you stand financially after your run of bad luck. Prepare your current balance sheet. Assuming you have liquid assets (cash), where will you invest? Always be on guard when you hear the words “can’t lose.” Do you use a competent financial advisor? Did you purchase your real estate through a licensed agent/broker? Did you research zoning, pending legislation, etc.?

Clearly, you can regroup since you have a six-figure income (assuming your living costs are reasonable), but as you move forward, vigilantly research your investment choices and carefully vet your advisors. Remember, due diligence tends to enhance luck.

New York Times bestselling author William D. Danko and Richard J. Van Ness, wrote the research-based book, “Richer Than A Millionaire ~ A Pathway to True Prosperity,” which shows the way to wealth and happiness through embracing traditional values. Washington Post’s Michelle Singletary selected this book as, The Color of Money Book of the Month.

Content appearing in this article is based on excerpts from the authors’ book. The book is available at Amazon.com and bookstores. Visit the authors’ website, RicherThanAMillionaire.com.

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