What is your percentage of debt to NW?

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

Post by geerhardusvos »

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%.
No debt here.
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Trader Joe
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Re: What is your percentage of debt to NW?

Post by Trader Joe »

Zero debt here.
quantAndHold
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Re: What is your percentage of debt to NW?

Post by quantAndHold »

zarci wrote: Sat Nov 21, 2020 12:20 pm Age: 28
NW: 200K
Debt: 170K

85%

I'm surprised by the low number of people that report a significant debt burden.

Is this due to the older population of this board? Do people here simply pay of their home first? What's going on here?

In my mind most people were paying down the mortage until their early fifties.
It's bogleheads. Because of the nature of what we discuss here, the debt to *anything* ratio is much lower here than the general population. And also, there's a subset of Bogleheads who need to brag about their lack of debt as often and as loudly as possible.

I don't have debt because I'm retired, and not having debt is part of my retirement plan. I am not the only one in that situation. I had plenty of debt back when I had an income, though.
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Re: What is your percentage of debt to NW?

Post by bltn »

Interesting how many posters in this thread have zero debt. Is there something to Dave Ramsey s advice to retire debt as a component for many people to become financially secure?

No debt for us. It s a good feeling.
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zarci
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Re: What is your percentage of debt to NW?

Post by zarci »

H-Town wrote: Sat Nov 21, 2020 1:27 pm
The key thing about building wealth: have zero debt (or as little as possible).

I'm in early 30 and I already paid off my mortgage. Why? I buy much less house than I can afford. I make good money and I didn't buy the house that my colleagues would go for at my current comp. It allows me to supercharge my portfolio. I can actually hit my FI goal in a few years.
I'm curious. What made you decide to knock out the mortage first instead of splitting savings between your home and your investment portfolio?
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zarci
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Re: What is your percentage of debt to NW?

Post by zarci »

hudson wrote: Sat Nov 21, 2020 1:20 pm
Good question zarci,
I carried a lot of debt for many years...credit cards, mortgage, vehicle loans, a home equity loan, and college loans for my children. Around age 50, I said, "No more!" My wife and I focused on clearing all debt. When that was done, we agreed that if we wanted something, we would save up for it first....so it's been years since we had any debt. I'm now 73 and retired. Cash and Carry! :)

Bottom Line: Older....yes. When I was younger, I had to borrow to get by.
That's a kind reply. Congratulations on being free of debt! :D
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Re: What is your percentage of debt to NW?

Post by H-Town »

zarci wrote: Sat Nov 21, 2020 8:18 pm
H-Town wrote: Sat Nov 21, 2020 1:27 pm
The key thing about building wealth: have zero debt (or as little as possible).

I'm in early 30 and I already paid off my mortgage. Why? I buy much less house than I can afford. I make good money and I didn't buy the house that my colleagues would go for at my current comp. It allows me to supercharge my portfolio. I can actually hit my FI goal in a few years.
I'm curious. What made you decide to knock out the mortage first instead of splitting savings between your home and your investment portfolio?
I started out by splitting between investing and paying off mortgage. Just 50/50 between investing and paying off mortgage. Then I was blessed with a couple of timely promotions and generous pay raises. That’s when we have cash surplus to pay off the mortgage early.

Looking back, the one thing we did right is that we keep our lifestyle the same as we graduated from grad school. Any raises will just go to our wealth.
chw
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Re: What is your percentage of debt to NW?

Post by chw »

Under 1%. Only debt is interest free loan with 5 years left on home improvement loan.
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White Coat Investor
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Re: What is your percentage of debt to NW?

Post by White Coat Investor »

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%.
0.

The ideal is reportedly 15-35%.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
austin757
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Re: What is your percentage of debt to NW?

Post by austin757 »

Right now, zero debt and no mortgage. I’m considering to buy some property and I think a mortgage would be better than paying cash. My inner Dave Ramsey likes the idea of no debt, but I think it can be justified with a good investment.
Spin
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Re: What is your percentage of debt to NW?

Post by Spin »

White Coat Investor wrote: Sun Nov 22, 2020 9:36 am 0.

The ideal is reportedly 15-35%.
Can I ask: reported by whom? General consensus or are there articles out there?
gonefishing01
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Re: What is your percentage of debt to NW?

Post by gonefishing01 »

About 10% from remaining mortgage. We have around 70% equity in the home and I haven’t been motivated to pay it off until closer to retirement.
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White Coat Investor
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Re: What is your percentage of debt to NW?

Post by White Coat Investor »

Spin wrote: Sun Nov 22, 2020 9:44 am
White Coat Investor wrote: Sun Nov 22, 2020 9:36 am 0.

The ideal is reportedly 15-35%.
Can I ask: reported by whom? General consensus or are there articles out there?
Check out the book series "The Value of Debt". Best treatment I've seen of this subject. Obviously I didn't listen, but I also don't need to use leverage to reach my goals.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
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Re: What is your percentage of debt to NW?

Post by czeckers »

This is a weird question to me since debt is already included in the net worth calculation.

For many people, a home mortgage is their largest debt, but it is attached to an asset. A net worth calculation rightfully looks at how much equity you have in that home. As long as you have positive equity, and your cash flow is ok while still maintaining a healthy savings rate, then the percentage of debt relative to total net worth is probably irrelevant. Someone starting out in their 20s will have a different net worth than someone in their 50s.
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Re: What is your percentage of debt to NW?

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

Post by SmileyFace »

0% - and homeowner (no rent).
I see no reason to ever leverage debt again at this point in my life. Some fancy paper may tell me 15% or higher is "ideal" but having no one I owe is ideal to me ;)
Only exception: I will take a 0% car loan when offered (especially if it reduces the price - if it reduces the price I will take a loan up to the going HY-Savings-Account rate).
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Re: What is your percentage of debt to NW?

Post by Portfolio7 »

zarci wrote: Sat Nov 21, 2020 12:20 pm Age: 28
NW: 200K
Debt: 170K

85%

I'm surprised by the low number of people that report a significant debt burden.

Is this due to the older population of this board? Do people here simply pay of their home first? What's going on here?

In my mind most people were paying down the mortage until their early fifties.
I think the two key variables are age and mindset. Age definitely will sway these numbers a lot, and I think you have a separate discussion with some younger Bogleheads regarding mindset. Also, your specific situation is a huge factor. The way DW and I reached the two comma club is not an optimal path - but we assessed our priorities, figured out how to build wealth as one of a couple goals, and made it work.

I will share that we had a debt to NW ratio of 0% before we bought our first house, but from that point on we were up around 100%, worked that down to about 40% before we moved in our early 30's, but then the move itself and some help to family pushed us back into the 70-80% range well into our late 30's.

We have contributed ~ 15% of our income to our 401Ks our entire professional lives. Our debt was primarily mortgage, education, and business debt, debt that hopefully builds wealth (with some luck.) We also had modest car debt in the mix too, and medical debt at times for our oldest, who has special needs.

Fast forward 15 years and our debt to NW ratio is 20-25% depending on how you value various assets. Total debt is actually about the same as 15 years ago, but NW is many times greater. Our cash flow ran in the red for most of that 15 years, some of which we paid using cash on hand we'd saved beforehand for that purpose, and some of which we borrowed along the way (representing mostly mortgage, business and medical debt.) At this point I'd say 75% of our debt is primary mortgage on two homes, 15% business debt, 5% medical, 5% for cars/vacations/travel/misc. The family member we helped, helped us in turn this past year, and we paid off the personal loan we had to take out to buy into the business.

This year our income is up 45%, which feels a little insane. That is the direct result of earlier investment in education, and in our business. We've been waiting a good decade for this to happen, it's sometimes super frustrating waiting to turn all the corners, but it feels like we finally did.
"An investment in knowledge pays the best interest" - Benjamin Franklin
Flashes1
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Re: What is your percentage of debt to NW?

Post by Flashes1 »

4%.

Early 50's and have been aggressively paying off the mortgage.....full disclosure: debt was approximately 28% of TNW 8 years ago when we built our dream home. All mortgage debt.
Last edited by Flashes1 on Sun Nov 22, 2020 8:25 pm, edited 1 time in total.
pasadena
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Re: What is your percentage of debt to NW?

Post by pasadena »

Just under 2.5%. Mid-40's and the debt is a car loan, which I plan on paying off over the next year. I'm a renter, so I don't own a home.
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Re: What is your percentage of debt to NW?

Post by stoptothink »

$0 in debt, ~$1.1M NW, own home, 39yrs of age.
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Re: What is your percentage of debt to NW?

Post by BernardShakey »

I'm at 5.5%. I think for a lot of folks in their late 50's, that mortgage is just about gone and retirement savings accounts have grown some.
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Re: What is your percentage of debt to NW?

Post by keepontruckin »

Zero debt.
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zarci
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Re: What is your percentage of debt to NW?

Post by zarci »

Portfolio7 wrote: Sun Nov 22, 2020 6:46 pm
I think the two key variables are age and mindset. Age definitely will sway these numbers a lot, and I think you have a separate discussion with some younger Bogleheads regarding mindset. Also, your specific situation is a huge factor. The way DW and I reached the two comma club is not an optimal path - but we assessed our priorities, figured out how to build wealth as one of a couple goals, and made it work.

I will share that we had a debt to NW ratio of 0% before we bought our first house, but from that point on we were up around 100%, worked that down to about 40% before we moved in our early 30's, but then the move itself and some help to family pushed us back into the 70-80% range well into our late 30's.

We have contributed ~ 15% of our income to our 401Ks our entire professional lives. Our debt was primarily mortgage, education, and business debt, debt that hopefully builds wealth (with some luck.) We also had modest car debt in the mix too, and medical debt at times for our oldest, who has special needs.

Fast forward 15 years and our debt to NW ratio is 20-25% depending on how you value various assets. Total debt is actually about the same as 15 years ago, but NW is many times greater. Our cash flow ran in the red for most of that 15 years, some of which we paid using cash on hand we'd saved beforehand for that purpose, and some of which we borrowed along the way (representing mostly mortgage, business and medical debt.) At this point I'd say 75% of our debt is primary mortgage on two homes, 15% business debt, 5% medical, 5% for cars/vacations/travel/misc. The family member we helped, helped us in turn this past year, and we paid off the personal loan we had to take out to buy into the business.

This year our income is up 45%, which feels a little insane. That is the direct result of earlier investment in education, and in our business. We've been waiting a good decade for this to happen, it's sometimes super frustrating waiting to turn all the corners, but it feels like we finally did.
Thank you for the detailed response. It's really useful to have some perspective on the "how you got there" versus the "where you're at now". Since this year I've made a point of saving at least 15% of my income. Have been contemplating how to split savings between paying down the home loan and investment funds. I think we'll just end up going 50/50.

I'm curious though, what kind of business do you run? If you don't mind me asking ofc. :sharebeer
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Portfolio7
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Re: What is your percentage of debt to NW?

Post by Portfolio7 »

zarci wrote: Mon Nov 23, 2020 5:54 am
Portfolio7 wrote: Sun Nov 22, 2020 6:46 pm
I think the two key variables are age and mindset. Age definitely will sway these numbers a lot, and I think you have a separate discussion with some younger Bogleheads regarding mindset. Also, your specific situation is a huge factor. The way DW and I reached the two comma club is not an optimal path - but we assessed our priorities, figured out how to build wealth as one of a couple goals, and made it work.

I will share that we had a debt to NW ratio of 0% before we bought our first house, but from that point on we were up around 100%, worked that down to about 40% before we moved in our early 30's, but then the move itself and some help to family pushed us back into the 70-80% range well into our late 30's.

We have contributed ~ 15% of our income to our 401Ks our entire professional lives. Our debt was primarily mortgage, education, and business debt, debt that hopefully builds wealth (with some luck.) We also had modest car debt in the mix too, and medical debt at times for our oldest, who has special needs.

Fast forward 15 years and our debt to NW ratio is 20-25% depending on how you value various assets. Total debt is actually about the same as 15 years ago, but NW is many times greater. Our cash flow ran in the red for most of that 15 years, some of which we paid using cash on hand we'd saved beforehand for that purpose, and some of which we borrowed along the way (representing mostly mortgage, business and medical debt.) At this point I'd say 75% of our debt is primary mortgage on two homes, 15% business debt, 5% medical, 5% for cars/vacations/travel/misc. The family member we helped, helped us in turn this past year, and we paid off the personal loan we had to take out to buy into the business.

This year our income is up 45%, which feels a little insane. That is the direct result of earlier investment in education, and in our business. We've been waiting a good decade for this to happen, it's sometimes super frustrating waiting to turn all the corners, but it feels like we finally did.
Thank you for the detailed response. It's really useful to have some perspective on the "how you got there" versus the "where you're at now". Since this year I've made a point of saving at least 15% of my income. Have been contemplating how to split savings between paying down the home loan and investment funds. I think we'll just end up going 50/50.

I'm curious though, what kind of business do you run? If you don't mind me asking ofc. :sharebeer
np. It's a small financial services company. I admit to providing vague and inconsistent info on the details to avoid being recognizable. We are co-owners with some like-minded people, and happily enough we've all been on roughly the same page as to how to run the firm.
"An investment in knowledge pays the best interest" - Benjamin Franklin
retire57
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Re: What is your percentage of debt to NW?

Post by retire57 »

Zero for 25 years. The strategy has served us well.
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Ramjet
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Re: What is your percentage of debt to NW?

Post by Ramjet »

Mine is about 15%, all from mortgage.
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Re: What is your percentage of debt to NW?

Post by PaulF »

On a different note, here was some guidance I read a LONG time ago in an article in the Journal of Financial Planning. (https://www.coloradolinux.com/~sjg/FPA- ... Ratios.pdf) The authors devised a set of rules of thumb for where you were in your investment/savings career, and posited what ratios of debt-to-income and savings-to-income were healthy (or at least tolerable) at different ages:

Code: Select all

age	savings       debt
       to income   to income
30	0.1	         1.7
35	1.2	         1.5
40	2.5	         1.25
45	4.1	         1
50	6.1	         0.75
55	8.5	         0.5
60	11.4	         0.2
65	15	         0
Personal Financial Ratios: An Elegant Road Map to Financial Health
and Retirement
by Charles J. Farrell, J.D., LL.M.
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AerialWombat
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Re: What is your percentage of debt to NW?

Post by AerialWombat »

About 70%. Real estate investor.
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Ralph Furley
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Re: What is your percentage of debt to NW?

Post by Ralph Furley »

Personal debt is 0% of net worth
Business debt is about 12% (promissory note to business partner with 0% interest)

I am under contract to purchase an income property and will have debt on that. Once I close on that purchase, debt will be about 20% of net worth.
grettman
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Re: What is your percentage of debt to NW?

Post by grettman »

Zero percent.
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TomatoTomahto
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Re: What is your percentage of debt to NW?

Post by TomatoTomahto »

stereotaxis wrote: Fri Nov 20, 2020 8:48 pm 1% of net worth. no mortgage but it is all inexplicably in car loans. it is a behavioral anomaly. my lizard brain thinks as long as I have a car payment, I can't buy any more cars.
Hmmm. I might have to try the lizard brain technique next time. My wife likes cars, and I’m not immune either. Thanks for the tip.
I get the FI part but not the RE part of FIRE.
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JoeRetire
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Re: What is your percentage of debt to NW?

Post by JoeRetire »

SmileyFace wrote: Sun Nov 22, 2020 1:02 pm I see no reason to ever leverage debt again at this point in my life.

Only exception: I will take a 0% car loan when offered
Okay. So you will leverage debt when the rate is right. That's the same choice everyone makes in reality.
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SmileyFace
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Re: What is your percentage of debt to NW?

Post by SmileyFace »

JoeRetire wrote: Tue Nov 24, 2020 7:20 am
SmileyFace wrote: Sun Nov 22, 2020 1:02 pm I see no reason to ever leverage debt again at this point in my life.

Only exception: I will take a 0% car loan when offered
Okay. So you will leverage debt when the rate is right. That's the same choice everyone makes in reality.
I see your point - for me the right rate is 0% and perhaps most bogleheads make the "I will leverage debt when the rate is right" choice. But for many Americans this is NOT true. Many folks run up credit card debt and don't even know what rate they are paying. Others buy a new car and only consider if they can afford "the monthly payment" the dealer offers them - they don't even know their rate - or at least not whether or not it is a good one for them or their circumstance.
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Re: What is your percentage of debt to NW?

Post by hudson »

SmileyFace wrote: Tue Nov 24, 2020 7:34 am
JoeRetire wrote: Tue Nov 24, 2020 7:20 am
SmileyFace wrote: Sun Nov 22, 2020 1:02 pm I see no reason to ever leverage debt again at this point in my life.

Only exception: I will take a 0% car loan when offered
Okay. So you will leverage debt when the rate is right. That's the same choice everyone makes in reality.
I see your point - for me the right rate is 0% and perhaps most bogleheads make the "I will leverage debt when the rate is right" choice. But for many Americans this is NOT true. Many folks run up credit card debt and don't even know what rate they are paying. Others buy a new car and only consider if they can afford "the monthly payment" the dealer offers them - they don't even know their rate - or at least not whether or not it is a good one for them or their circumstance.
Toyota has offered me zero percent OR a price discount. For me, the price discount was the best deal. I agree that it's a personal choice. For most of my life, I had car loans. I thought that was how you bought a car. Now, if I can swing the cash, I'll pass on borrowing, even at 0%.
Last edited by hudson on Tue Nov 24, 2020 8:25 am, edited 1 time in total.
honestreader
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Re: What is your percentage of debt to NW?

Post by honestreader »

~30%, all from my mortgage, which we're about to refinance to a 2.75% interest rate. I don't plan to pay it off anytime soon; I'd rather throw excess cash to the market instead.
sschoe2
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Re: What is your percentage of debt to NW?

Post by sschoe2 »

15%

$120k left on mortgage (10 years 2.625%)
$880k net worth
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Re: What is your percentage of debt to NW?

Post by grabiner »

PaulF wrote: Mon Nov 23, 2020 11:17 pm On a different note, here was some guidance I read a LONG time ago in an article in the Journal of Financial Planning. (https://www.coloradolinux.com/~sjg/FPA- ... Ratios.pdf) The authors devised a set of rules of thumb for where you were in your investment/savings career, and posited what ratios of debt-to-income and savings-to-income were healthy (or at least tolerable) at different ages:

Code: Select all

age	savings       debt
       to income   to income
30	0.1	         1.7
35	1.2	         1.5
40	2.5	         1.25
45	4.1	         1
50	6.1	         0.75
55	8.5	         0.5
60	11.4	         0.2
65	15	         0
Personal Financial Ratios: An Elegant Road Map to Financial Health
and Retirement
by Charles J. Farrell, J.D., LL.M.
The problem with this type of recommendation is that the two columns are dependent. If both numbers are high, you probably cannot save as much as the model suggests because much of your income will go to debt payments, but you don't need to save as much because you already have extra savings. Therefore, it may not be a good deal to withdraw savings, or save less now, to pay down the debt aggressively; you could lose a benefit such as tax deferral in a 401(k) or IRA.
Wiki David Grabiner
flyingaway
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Re: What is your percentage of debt to NW?

Post by flyingaway »

$0.0 debt which is also 0% debt to NW.

Some people brag to have debts and invest the difference. I hate any debts and still reached my goal. No debt, no stress. I don't even bother to have 0% finance to buy a car.

Get a job that pays you good money, that is much easier than making money from your debts.
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colodane
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Re: What is your percentage of debt to NW?

Post by colodane »

0.0 % - and sleeping well.
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Makaveli
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Re: What is your percentage of debt to NW?

Post by Makaveli »

Zero.
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