Wife kitteh shocked me this weekend. Talking about how inflation is kicking up and how government debt is out of control, she told me that she's changed her mind and now thinks she'd like us to pay off the house. I shocked her by saying that I've changed my mind and I don't. Pondering it further this morning, I think she's right.
We're going to remodel our place and turn it into a bistro for our friends. We'll have a serious kitchen and a single great room where we could fit 30 or more guests. It's not a business venture, just a place to indulge our hobby of hosting parties.
To prepare for it, we refinanced the place. I think our interest rate is slightly north of 0. Rates these days are crazy low, like getting money for free. The new interest rate is what changed my mind. Our future income at risk from a debt-induced crash is what changed hers.
It's Not About Investments
I've spent some time researching various crashes throughout history, looking for a theme in profitable investments. If there is one, I can't find it. The problem is that society becomes unstable. Markets and exchanges cease to function in an orderly manner. While you can own stock and property and wait out the mayhem, it's getting through the mayhem that is the real problem. Thus, the best course of action is one that helps you ride out the storm.
Defensive Crouch
Given our age, our opportunities for employment are rapidly vanishing. After I retire for good, it will be very hard for me to come back. Wife kitteh could go back to her job, but that won't last much longer.
How do you prepare for a possible crash when your income is fixed and likely to be withered by inflation?
The goal would be to reduce your expenses to as small a number as you can. Here are just a couple of thoughts along those lines.
- Pay off your mortgage.
- Pay off all loans.
- Learn how to fix your cars.
- Learn how to make repairs on your house.
- Learn how to cook.
- Learn how to grow and preserve your own produce.
If all you had to pay for were utilities and the least expensive foods like beans, rice, you ought to be able to live on almost nothing.
Advice For The Kids
Since our kids aren't in positions to pay off their mortgages or buy houses with cash, my advice to them would be steps 2-5 above. I wouldn't expect a young man to learn how to can anything. The others are not only doable, but done for most of them. They're in good shape.
So that's about it. If I could summarize the concept in a single sentence it would be to live like a pre-1960s farmer. Yes, I know most of them had mortgages, but I think the imagery conjured up succinctly describes the safest way of life for a period of financial upheaval.
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| Plus, that rugged, competent look is a real turn-on for the ladies. In fact, wife kitteh recently told me that she thinks pickup trucks are sexy. Sort of like this. :-) |
I agree! Mrs Ohioan and I had agreed long ago that we’d only retire after we’d paid the house off (if you want to get a blank stare of stunned disbelief, go into your credit union and tell the teller ‘we are here to pay off our house’). I do all the house repair I can (and since I get to buy whatever tools might be the best ones for the job it also feeds my tool addiction).
ReplyDeleteOne approach I thought of, and tried to talk to Mrs Ohioan into, is selling our house (which is in San Diego). Take the amount we’d clear (a ridiculous amount) and use the cash to buy two places in a cheaper (red) state. Then live in one and rent the other. While that makes financial sense, the grandkids are here. That means the odds of selling and moving are only slightly worse than the odds that Nancy Pelosi will suddenly insist on a balanced budget.
These are crazy times, but I'm more afraid of a dollar crash than a market crash. So I'm keeping a big, fixed, 30-year mortgage. I figure by the end of the mortgage the payments will be pocket change.
ReplyDeleteWe paid off our house last year, we were only a couple years away anyway. What prompted it was a separation check when I got laid off from my old job, and then got a new job in less than 2 weeks. My only debt is a small car loan, and a couple credit cards paid off every month.
ReplyDeleteWe are working with our financial advisor, and getting things in order. We aren't looking too bad.
Both of our sons are buying their houses (one condo, one house). One closed last week, the other in a couple weeks. I'm a co-signer on one of them. My credit check dinged me for having a majority of my debt in short term revolving accounts. Ha. We pay no interest.
Anyway, their mortgage payments are about the same as the rent.
I have shared with everyone all the wonderful ways Minneapolis is throwing away money and generally destroyed the city, and by extension the state.
Now, we have a report on St Paul's genius plan. The major started a program to create a low-interest savings account for new borns in the city. They stock it with $50. Last year, they put gave out $364,000. Apparently, about 6% have contributed more to the account. And about 7% have logged into the website to look at the account.
All this ONLY cost the city $500k in salaries and administrative costs.
WC - And that’s the other bet. Too bad we can’t see the future...
ReplyDeleteWC - the dollar crash leads to all kinds of unpredictable things. That's where the wrecked markets come into play. Will you have an income? Maybe not. Will you have accessible resources like equities and rentable real estate? Maybe not. Go back and read The Grapes of Wrath and look for people who can pay rent.
ReplyDeleteOhioan, good friend BDaddy bought property in Idaho, or at least I think it was Idaho, as a bolt hole. Me, I'd go for Alabama somewhere around Huxford. Close to the Gulf for oysters, but super cheap. Whether or not you rent it out is another thing. When things get dicey, your investments might not be able to buy property or the property market might be in ruins.
Something to consider.
Here you go. $15,000 gets you an acre.
ReplyDeleteOhioan,
ReplyDeleteI'm partially going off the post-WWII era which was the last time debt/GDP levels were near what they are now. The government devalued the debt with inflation, and stocks and real estate did great. Of course we have very different demographics and a worse fiscal picture now, but I figure that argues even more in favor of devaluation.
KT,
ReplyDeleteYes, my base case is that we stop somewhere short of the French Revolution, or Cambodia. But I admit the possibility. But at that point I think I'm getting out of the country.
KT - My ‘bolt hole’ is in AZ. If we were to sell our San Diego home, the AZ place would go on the market. The plan I described is less ‘bolt hole’ and more ‘let CA fall into the ocean’.
ReplyDeleteI took the 'let CA fall into the ocean' tact back in 1988.
ReplyDeleteThe problem with rental property, here in MN, is that the goberment has been forbidding evictions since the pandemic started. So people aren't working, taking the government checks, and not paying their rent.
Property owners have complained, and the response has been something similar to 'let them eat cake'.