Debt Is an Expression of Optimism
Things are going well, so you decide you are going to buy a big ass house. Lets say, for the sake of argument, that this is a $5 million house. You are going to put down $1 million, and finance the rest. The payments are going to come out to $30,000 a month, give or take. You have the income to support it—for now. This is an explicit bet that your income is going to remain the same, or go higher. If you thought your income was going lower, you wouldn’t do it.
As we know, shit happens. Sometimes you lose your job. Sometimes your business declines. Sometimes some exogenous event rolls through, like a crippling recession, and everyone gets sconed. People are caught out with too much leverage, and there are consequences.
I grew up in the state of Connecticut. I’m not sure what you know about Connecticut, but ex-that panhandle down in the southwest corner of the state, everyone in Connecticut is a cheap fuck. They’re called Nutmeggers. Connecticut is filled with 59-year-old women in L.L. Bean sweaters in comfortable shoes with their little dog haircuts who will spend 5 minutes in the local Italian place calculating out an 18% tip to the exact penny. It’s in the culture; it’s in the water. I haven’t checked in a while, but Connecticut once had close to the highest median credit score in the country. Spend some time driving around Eastern Connecticut—a BMW or a Mercedes is as rare as an arctic fox. That part of the state has some of the worst shopping in the country, and this is coming from a guy who currently lives in South Carolina. There is no conspicuous consumption. You have to drive three hours to New York or Boston for that. You might as well live in Homer, Alaska.
But yes, people in Connecticut are generally considered to be good with money. There are no big ass houses. There are no fancy cars. People pay cash for stuff.
--which is an expression of pessimism.
It fits with the zeitgeist. If you live in that part of the state, there is literally nothing to be optimistic about. There is no growth. There is no dynamism. Nothing has been built in 30 years, not a house, an office building, or a distribution center. Everything needs a good powerwashing. It’s old. Nobody is moving there. So yes, if you lived in a part of the world that was as economically depressed as Connecticut, you would not be putting any Brioni suits on your credit card. Aversion to debt is an expression of pessimism—it’s a statement that things will never get any better, only worse. I will say that Connecticut is a very good place to be a landlord—people send those rent checks in on time, without fail.
So I grew up around this aversion to debt. Growing up, we owned the house free and clear. I have no memory of my mother making payments on a car. I don’t remember any agita around credit card bills. All I heard growing up was about how my father was in debt up to his eyeballs, and had to get bailed out (my parents are divorced). Debt was the worst thing in the world. I had such an aversion to debt that I chose to go to a service academy rather than take on what would have been $28,000 in student loans—that was too scary. It was also the worst decision of my life. This is a normal thing that kids do, or at least did, in the 90s—take out student loans, graduate, earn more money, and pay them off. There was nothing scary about it at all.
The first loan I ever took out was as a first class cadet at the Academy—as seniors, we all got somewhat-subsidized car loans. It was a four-year loan for $15,000. We were all good credits—the monthly payments were being noiselessly whisked out of our LES statements and it was close to impossible to fuck it up. I didn’t spend one second thinking about the risk, because there was none. It didn’t feel like getting a loan. I didn’t go to a bank and sit in an office across a desk from a guy wearing a teal shirt and a black tie. If you go to a bank to take out a loan, it feels very much like taking out a loan, and you think about the risk. I got a $750,000 mortgage in 2015 and I thought about the risk, and then I paid it off in three-and-a-half years. In that case, debt was an expression of optimism. I had a pretty good idea that my business would continue to do well, and I was right. If I were a pessimist—I never would have bought the house, and I would have been less happy.
The short version of this story is that if you dwell on the myriad ways in which things will go wrong, you will miss out on a lot of life. You will live in crappy houses and buy crappy cars. Not to say that creature comforts are the raison d’etre of your existence, but material things do bring us happiness. It is to the point in my life where I consider it a sin to be living far below your means. Most people consider it a sin to be living above your means. At least the people living above their means are optimists. Maybe it is best to be living at your means, with a house, a car, and a lifestyle that is commensurate with your income. When I was working at Lehman Brothers, I was living in a $430,000 house with an $850,000 income. And the sub-$2,000 mortgage payments used to stress me out. Just a rule of thumb, here: if your income is more than 2x the value of your house, you are doing it wrong.
The funny story about that house is that something did go wrong. Lehman went tits up. But guess what? I scrambled and started a business and started making money again, and everything worked out. Also, I had enough in savings to pay for the house four times over. There was really nothing to worry about. And that story is played out many times across America each year—bad shit happens, people scramble, and it ends up working out all right in the end.
There are, of course, people who use too much leverage, by way of living far above their means. Those people exist. There were a lot of them in 2006, and they all got wiped out like some financial smallpox swept through the nation. Even in good times, bankruptcy lawyers do a brisk business. But my experience is that there are far more people who live far below their means (pessimists) than people who live far above their means. The consequences of living above your means, if something goes wrong, are financial hardship. No fun. But people operate under the assumption that there are no consequences to living below your means—but there are—you miss out on all the good things that life has to offer, which is pretty fucking sad.
What follows here should be a discussion on the philosophy of money in general. What is it for? To make you happy, numbnuts. It’s not making you happy sitting in the bank. I mean, maybe you get a boner every time you log into your bank account, but I assure you that you would get a bigger boner riding shotgun in a private jet to Vegas. And if you can afford it, you should do it. It is a sin not to. Also, if you wouldn’t get a boner by flying in a private jet to Vegas, or buying a Patek Philippe, or a Maclaren, or any of these things, how about…donating it? You will be pitching a tent for years. It doesn’t take much to do a lot of good.
People are funny. Bezos is buying houses and yachts and taking HGH and dipping his wick. Elon vaporized $40 billion on Twitter, and sees it as philanthropy. Warren Buffet has no use for houses or yachts or philanthropy, and gets psychic benefits out of being the smartest investor in history. He’s not even giving it to his kids. Look—no matter how much money you have, you can run out of it. This is true. And I have heard some stories of billionaires who are downright terrified of running out of money. That is not what I would call having a healthy relationship with money. Paraphrasing John Goodman in The Gambler, take risks, but do it from a position of fuck you. Emphasis on take risks. A life without risk, and without optimism, would be very depressing indeed.
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