What is your percentage of debt to NW?

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checkyourmath
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What is your percentage of debt to NW?

Post by checkyourmath »

0%

I am a renter with no student loans or credit card debt. The only reason I ask the question is because all markets are headed towards all time highs. The debt machine provides a lot of opportunity. My guess is there is probably an ideal percentage somewhere between 5-25%.
Soon2BXProgrammer
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Re: What is your percentage of debt to NW?

Post by Soon2BXProgrammer »

0% and I own my home.
H-Town
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Re: What is your percentage of debt to NW?

Post by H-Town »

checkyourmath wrote: Fri Nov 20, 2020 11:18 am 0%

I am a renter with no student loans or credit card debt. The only reason I ask the question is because all markets are headed towards all time highs. The debt machine provides a lot of opportunity. My guess is there is probably an ideal percentage somewhere between 5-25%.
Can you elaborate on your only reason?

Majority of the time, markets are in all time highs.

What do you mean "debt machine provides a lot of opportunity"?

Why do you think an ideal percentage somewhere between 5-25%?
Broken Man 1999
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Re: What is your percentage of debt to NW?

Post by Broken Man 1999 »

checkyourmath wrote: Fri Nov 20, 2020 11:18 am 0%

I am a renter with no student loans or credit card debt. The only reason I ask the question is because all markets are headed towards all time highs. The debt machine provides a lot of opportunity. My guess is there is probably an ideal percentage somewhere between 5-25%.
I have no debt, I owe this months charges on my CCs, but they are always paid off each month, unless I have a 0% interest for X number of months offer.

How do you know markets are all headed towards all time highs? The markets can, and do decline from their ATHs, not a rare event at all.

How are you going to exploit the "debt machine?" Are you considering borrowing to invest? Buying on margin?

Why do you believe a debt percentage between 5%-25% to be ideal?

Flesh out you ideas, more posters will respond.

Broken Man 1999
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Stinky
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Re: What is your percentage of debt to NW?

Post by Stinky »

Personally, I wouldn’t take on leverage so that I could invest more. There’s enough risk in the equity markets without the risk of losses from leverage if/when equities go down.

I did go into mortgage debt to buy a house. And I had the occasional car loan when I was younger. But never debt just to generate more investable assets.

I have zero debt now.
Last edited by Stinky on Fri Nov 20, 2020 11:35 am, edited 1 time in total.
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Orbuculum Nongata
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Re: What is your percentage of debt to NW?

Post by Orbuculum Nongata »

0%. Have been for over a decade regardless of direction market appeared to be heading.
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Re: What is your percentage of debt to NW?

Post by ruralavalon »

checkyourmath wrote: Fri Nov 20, 2020 11:18 am 0%

I am a renter with no student loans or credit card debt. The only reason I ask the question is because all markets are headed towards all time highs. The debt machine provides a lot of opportunity. My guess is there is probably an ideal percentage somewhere between 5-25%.
Zero debt :)
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JoeRetire
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Re: What is your percentage of debt to NW?

Post by JoeRetire »

checkyourmath wrote: Fri Nov 20, 2020 11:18 am 0%

I am a renter with no student loans or credit card debt. The only reason I ask the question is because all markets are headed towards all time highs. The debt machine provides a lot of opportunity. My guess is there is probably an ideal percentage somewhere between 5-25%.
Today, it's a bit less than 8%. In the past it was a lot more. In the future it may be less as our mortgage (our only debt) is gradually paid off.

I could of course easily make it 0% tomorrow. And I could make it much higher.

I can't see how that percentage is of any use. My guess is that there is absolutely no ideal percentage that spans more than one family. And I don't see how that relates at all to market highs.
Last edited by JoeRetire on Fri Nov 20, 2020 11:41 am, edited 1 time in total.
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TomatoTomahto
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Re: What is your percentage of debt to NW?

Post by TomatoTomahto »

checkyourmath wrote: Fri Nov 20, 2020 11:18 am 0%

I am a renter with no student loans or credit card debt. The only reason I ask the question is because all markets are headed towards all time highs. The debt machine provides a lot of opportunity. My guess is there is probably an ideal percentage somewhere between 5-25%.
In response to highlighted text: Markets are always headed towards all time highs, but they may take detours or be slow in getting there.

To answer your direct question: ZERO. Paid off house.
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JS-Elcano
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Re: What is your percentage of debt to NW?

Post by JS-Elcano »

just over 7% (that is what remains on my mortgage).
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MrBobcat
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Re: What is your percentage of debt to NW?

Post by MrBobcat »

Been zero for 3 years but took us 27 years to get there and we covered all the percentages over that time frame.
Candor
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Re: What is your percentage of debt to NW?

Post by Candor »

0%. There is an argument to be made that this is not ideal but it works for me and I intend to keep it that way.
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nisiprius
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Re: What is your percentage of debt to NW?

Post by nisiprius »

Essentially zero. Technically, at the moment I write this, our credit card balance is 0.05% of our net worth. Hang on, just a second. OK, as soon as the payment posts it will be zero.
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runner3081
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Re: What is your percentage of debt to NW?

Post by runner3081 »

0%.

House paid off (last October), same with cars (for the last 5+ years).

No plans to ever change this. Thing happen, yes, but we are staying in the house for 15+ years and will only buy cars we can pay for immediately.
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Re: What is your percentage of debt to NW?

Post by LuckyGuy »

I’ve been 0% since sometime in my 40’s. I am 54 now.
aristotelian
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Re: What is your percentage of debt to NW?

Post by aristotelian »

1.4%. I took a zero interest car loan.
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David Jay
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Re: What is your percentage of debt to NW?

Post by David Jay »

0% since the mortgage was paid off.
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Re: What is your percentage of debt to NW?

Post by mbasherp »

I’m not sure what insight might be derived from factoring debt back into a figure that already includes it, but I appear to be around 36%.

55% LTV mortgage plus investments.

A homeless person could easily be at 0%, or picture someone $100 million in debt, with a ratio of 500%. I would much prefer to be them, at a net worth of $20 million! Again, not sure there’s an ideal zone here.
wilked
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Re: What is your percentage of debt to NW?

Post by wilked »

To check my math on this

If you owed someone a dollar and only had a dollar to your name, you are at 100% debt to net worth
If instead you looked down and found a dollar on the ground, picked it up, and paid off your debt, you are now at 0% debt to net worth

Yes?
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Re: What is your percentage of debt to NW?

Post by goodenyou »

Zero. Sort of. I am temporarily renting a second home as I plan on building my new home in a different city. I guess a rental contract counts as debt. I guess the accrued taxes on my primary home (over-taxed) counts as debt as well. Credit card balance float is about .06% of NW.
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Re: What is your percentage of debt to NW?

Post by hightower »

Not sure that your question makes much sense because net worth means that you've already subtracted your debts from your assets??? So, to ask what your percentage of debt to NW means you're calculating your net worth, then adding your debt back to your calculation??

Your networth is really the key figure to keep in mind. NW = assets minus debts

My networth is somewhere in the 750k range. My assets are well above 1 million dollars, but I have a 380k mortgage. Hence how I get to a NW of 750k. I carry no debt currently other than our mortgage. I may have temporary debt on my name for convenience sake, such as a new furnace that I paid for with a 0% interest offer just so I didn't have to liquidate any investments. It will be paid off quickly (2 months) with my regular income.
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Orbuculum Nongata
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Re: What is your percentage of debt to NW?

Post by Orbuculum Nongata »

checkyourmath wrote: Fri Nov 20, 2020 11:18 am
...markets are headed towards all time highs. The debt machine provides a lot of opportunity.
Are you considering taking on debt to invest in markets near all time highs?
Potential - distraction = performance.
MarkRoulo
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Re: What is your percentage of debt to NW?

Post by MarkRoulo »

checkyourmath wrote: Fri Nov 20, 2020 11:18 am 0%

I am a renter with no student loans or credit card debt. The only reason I ask the question is because all markets are headed towards all time highs. The debt machine provides a lot of opportunity. My guess is there is probably an ideal percentage somewhere between 5-25%.
Right now my ratio is 0% ... the house is owned free and clear. Or a negative value if bonds count as negative debt.

25 years ago the ratio was about 450% ... my wife and I put 10% down on a house and had a bit of a cash cushion.

Why do you think 5% - 25% is ideal?
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wander
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Re: What is your percentage of debt to NW?

Post by wander »

zero and our home is paid for.
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Re: What is your percentage of debt to NW?

Post by chipperd »

checkyourmath wrote: Fri Nov 20, 2020 11:18 am 0%

I am a renter with no student loans or credit card debt. The only reason I ask the question is because all markets are headed towards all time highs. The debt machine provides a lot of opportunity. My guess is there is probably an ideal percentage somewhere between 5-25%.
I don't see the point to this question or post.
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Ferdinand2014
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Re: What is your percentage of debt to NW?

Post by Ferdinand2014 »

checkyourmath wrote: Fri Nov 20, 2020 11:18 am 0%

I am a renter with no student loans or credit card debt. The only reason I ask the question is because all markets are headed towards all time highs. The debt machine provides a lot of opportunity. My guess is there is probably an ideal percentage somewhere between 5-25%.
There have been 24 all time highs for the S&P 500 the last 12 months.

I have no debt.

Doesn’t net worth implicitly assume debt has been subtracted?
Last edited by Ferdinand2014 on Fri Nov 20, 2020 12:14 pm, edited 1 time in total.
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Re: What is your percentage of debt to NW?

Post by sailaway »

checkyourmath wrote: Fri Nov 20, 2020 11:18 am 0%

I am a renter with no student loans or credit card debt. The only reason I ask the question is because all markets are headed towards all time highs. The debt machine provides a lot of opportunity. My guess is there is probably an ideal percentage somewhere between 5-25%.
If you actually know where the markets are heading, you should take on lots of debt!

Since I do not know where the markets are heading, I choose to have no debt.
MarkRoulo
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Re: What is your percentage of debt to NW?

Post by MarkRoulo »

wilked wrote: Fri Nov 20, 2020 12:00 pm To check my math on this

If you owed someone a dollar and only had a dollar to your name, you are at 100% debt to net worth
If instead you looked down and found a dollar on the ground, picked it up, and paid off your debt, you are now at 0% debt to net worth

Yes?
No :-)

Net worth is assets - liabilities.

So net worth is $1 (your dollar) - $1 (what you owe) = $0

Your debt to net worth is $1/$0 = infinity.

After picking up the dollar your net worth is then $1 ($2 - $1), so the ratio is $1/$1 = 100%

After you pay off your debt, your net worth hasn’t changed, but your debt is now zero, so the ratio is $0/$1 = 0%
Wanderingwheelz
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Re: What is your percentage of debt to NW?

Post by Wanderingwheelz »

nisiprius wrote: Fri Nov 20, 2020 11:48 am Essentially zero. Technically, at the moment I write this, our credit card balance is 0.05% of our net worth. Hang on, just a second. OK, as soon as the payment posts it will be zero.
It’s not debt until interest is charged. But I get your point.

I’m the same. No debt, paid for home and credit card balance is paid each month.

I like it like this, but not all debt is bad and when used wisely it can definitely help you get further ahead in life. Not my wife and I borrowed money to start our businesses many years ago. We also had a home mortgage.
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Re: What is your percentage of debt to NW?

Post by carminered2019 »

Retired at 50 and got ZERO debt since age 32.
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Re: What is your percentage of debt to NW?

Post by tryingtogetahead »

37%. I have about 1.3mm of debt and a 3.5mm NW. I’m in my late 30s and my debt is mainly mortgages on investment properties I recently refied at 2.375% for 30 years. I wish I leveraged more earlier for more growth. Big mistake.
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Re: What is your percentage of debt to NW?

Post by lostdog »

0% debt.
Stoic9
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Re: What is your percentage of debt to NW?

Post by Stoic9 »

Great more math.... Spouseiod turned our retirement plan upside down this year when we bought a new house. Couldn't pass up using the banks money Current for under 3% for a while. This makes ours 14% debt to NW. I expect that number to drop soon as I picked up another (small) pension in Sep I did raise all the rents this past summer so not predicting much overall impact.
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Re: What is your percentage of debt to NW?

Post by RetiredAL »

Retired for 4 years ago. Debt is currently zero.

The only thing likely to move it off zero when we get a new car at some not near future date. We can easily pay cash, but I would likely finance part just to maintain on-going credit record.
cogito
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Re: What is your percentage of debt to NW?

Post by cogito »

NW = 560k
Total Liabilities = 848k

So, debt is 151% of net worth. Big SoCal mortage, portfolio leverage, and 0% credit card float. I'm in my early 30's, and plan to keep my mortgage as high as possible for as long as possible.
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Re: What is your percentage of debt to NW?

Post by PCPilot »

Wanderingwheelz wrote: Fri Nov 20, 2020 12:17 pm It’s not debt until interest is charged. But I get your point.
Not to be pedantic, but I don't think the interest rate matters for debt. If I owe $100k at 0%, it's still a debt. Same thing with assets, as bondholders are discovering. :)
Credit_Guy
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Re: What is your percentage of debt to NW?

Post by Credit_Guy »

Around 4%, but all at 0% interest split between an Affirm loan for my Peloton bike and some credit card purchases on an introductory 0% APR I could pay off any time but am letting sit out there and paying off more slowly, though definitely before any interest would be charged.
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Re: What is your percentage of debt to NW?

Post by Money_Badger »

About 28%. Car loan and mortgage, I have fairly recently said goodbye to credit card debt, hopefully for good!

I don't think this is the kind of debt the OP was envisioning as "ideal" though. Actually, I'm not sure what he was referring to.
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Re: What is your percentage of debt to NW?

Post by Nate79 »

PCPilot wrote: Fri Nov 20, 2020 2:05 pm
Wanderingwheelz wrote: Fri Nov 20, 2020 12:17 pm It’s not debt until interest is charged. But I get your point.
Not to be pedantic, but I don't think the interest rate matters for debt. If I owe $100k at 0%, it's still a debt. Same thing with assets, as bondholders are discovering. :)
Yes, debt is debt. Interest rate is irrelevant to whether it is classified as debt or not.
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Re: What is your percentage of debt to NW?

Post by grabiner »

My debt is zero now, but only because interest rates were so low in March that the debt was no longer worth carrying. In March, I had a mortgage which was 7% of my net worth, at 1.78% after federal and state tax. That used to be a good rate, but with munis yielding 1.14% after state tax in March, and no capital-gains tax to pay it off, it was worth paying off for a guaranteed return. (I didn't actually sell munis to pay the mortgage off, but I did sell bonds; I sold taxable stocks, and then sold bonds to buy an equal amount of stock in my employer plan, keeping the same stock allocation.)

I don't recommend going to zero automatically. If having a mortgage, or keeping your low-rate student loans, allows you to contribute more to your 401(k) and IRA for permanent tax benefits, that is usually a good deal.

But if you aren't 100% stock (and few investors are), then you don't change your risk level by selling bonds to pay down your loans, so you need to look at whether that makes sense, given the rate on your debt and bonds. (I have the risk of 100% stock, but I am only 88% stock; I choose to increase my risk and expected return by holding riskier stock rather than more stock.)
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Re: What is your percentage of debt to NW?

Post by Nate7out »

checkyourmath wrote: Fri Nov 20, 2020 11:18 am 0%

I am a renter with no student loans or credit card debt. The only reason I ask the question is because all markets are headed towards all time highs. The debt machine provides a lot of opportunity. My guess is there is probably an ideal percentage somewhere between 5-25%.
So how much is the correct amount of leverage? Well, if you ask the guy who wrote the book on it (The Value of Debt by Thomas Anderson), the proper amount is between 15% and 35% of your assets. So if you have $1 Million in assets, the amount of debt to maintain is $150-350K. So if you have a $5 Million portfolio, carrying around $1 Million in debt might boost your returns a bit. Less than 15%, you're not going to move the needle and you might as well pay it off. More than 35%, you're taking on too much risk. I almost never run into docs whose debt ratio is between those numbers. Usually, it is dramatically higher.
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MidwestMike
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Re: What is your percentage of debt to NW?

Post by MidwestMike »

Broken Man 1999 wrote: Fri Nov 20, 2020 11:27 am I have no debt, I owe this months charges on my CCs, but they are always paid off each month...
Me too.
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firedup
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Re: What is your percentage of debt to NW?

Post by firedup »

O%.

It seems to me that debt to income and monthly expenses would be a more important comparison.

If you lose income (say for a job loss) and you can't meet your expenses, debt can be a huge burden.
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Re: What is your percentage of debt to NW?

Post by 123 »

0% - Zero debt
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checkyourmath
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Re: What is your percentage of debt to NW?

Post by checkyourmath »

hightower wrote: Fri Nov 20, 2020 12:05 pm Not sure that your question makes much sense because net worth means that you've already subtracted your debts from your assets??? So, to ask what your percentage of debt to NW means you're calculating your net worth, then adding your debt back to your calculation??

Your networth is really the key figure to keep in mind. NW = assets minus debts

My networth is somewhere in the 750k range. My assets are well above 1 million dollars, but I have a 380k mortgage. Hence how I get to a NW of 750k. I carry no debt currently other than our mortgage. I may have temporary debt on my name for convenience sake, such as a new furnace that I paid for with a 0% interest offer just so I didn't have to liquidate any investments. It will be paid off quickly (2 months) with my regular income.
I am just trying to get a better understanding of what people use as a ratio. NW worth can be deceptive because housing has appreciated so much over the last couple years. I actually expected the ratio to be higher but it seems like most people that responded to this post have already paid off their mortgage.
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Re: What is your percentage of debt to NW?

Post by Wanderingwheelz »

Nate79 wrote: Fri Nov 20, 2020 2:28 pm
PCPilot wrote: Fri Nov 20, 2020 2:05 pm
Wanderingwheelz wrote: Fri Nov 20, 2020 12:17 pm It’s not debt until interest is charged. But I get your point.
Not to be pedantic, but I don't think the interest rate matters for debt. If I owe $100k at 0%, it's still a debt. Same thing with assets, as bondholders are discovering. :)
Yes, debt is debt. Interest rate is irrelevant to whether it is classified as debt or not.
All these years I’ve been carrying credit card debt and I didn’t even know it!

Thanks for allowing me to see it more clearly. :)
Marseille07
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Re: What is your percentage of debt to NW?

Post by Marseille07 »

0%, unless I include my CC which I pay the entire balance of month in and month out.
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checkyourmath
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Re: What is your percentage of debt to NW?

Post by checkyourmath »

Broken Man 1999 wrote: Fri Nov 20, 2020 11:27 am
checkyourmath wrote: Fri Nov 20, 2020 11:18 am 0%

I am a renter with no student loans or credit card debt. The only reason I ask the question is because all markets are headed towards all time highs. The debt machine provides a lot of opportunity. My guess is there is probably an ideal percentage somewhere between 5-25%.
I have no debt, I owe this months charges on my CCs, but they are always paid off each month, unless I have a 0% interest for X number of months offer.

How do you know markets are all headed towards all time highs? The markets can, and do decline from their ATHs, not a rare event at all.

How are you going to exploit the "debt machine?" Are you considering borrowing to invest? Buying on margin?

Why do you believe a debt percentage between 5%-25% to be ideal?

Flesh out you ideas, more posters will respond.

Broken Man 1999

Softball type question here.

How do you know markets are all headed towards all time highs?
The Fed and Congress will make sure to keep juicing the machine. There is no such thing as inflation.

How are you going to exploit the "debt machine?" Are you considering borrowing to invest? Buying on margin?
Home prices have appreciated more than incomes. Buy the biggest home with the smallest salary. Anyone that doesn't have a mortgage is actually taking on massive risk. No plans to buy on margin or go to jail anytime soon.

Why do you believe a debt percentage between 5%-25% to be ideal?
Anything higher than 25% percent is starting to get into the mortgage forbearance for life territory. I used 5% as a base number.

There's no way I can come back here three years from now and tell you that I hold a million dollars or so in cash or more, and I think I am doing something brilliant by doing it.

Kind of robbed that last response.
LFKB
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Re: What is your percentage of debt to NW?

Post by LFKB »

~30% - $3M of mortgage debt at 2.375%
hudson
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Re: What is your percentage of debt to NW?

Post by hudson »

No debt.
I don't think that net worth has much value to me except to know it. The Veterans Administration and the FAFSA people want to know it.
When filling out the FAFSA for student college aid, they ask net worth type questions.
When filing for (VA) Veterans Medical Benefits, they ask net worth type questions.
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