What's a normal personal debt / equity ratio for a highly educated person?
"Average person's life I'm going to say there is no normal debt level. Here's the standard life pattern: So it really depends on your situation, it's way too spread out to quote a ""normal"" figure. Cost of debt vs Gain from assets and Risk of income You need to strike a sweet spot based on: Someone who is more educated in finance will probably be able to run a tighter and more aggressive financial strategy, whereas someone who is educated in, say, creative media may not be able to do as good of a job. Running your life as a business Someone here mentioned this, I think it's very true. Unless you intend on living day to day, with no financial strategies, much of our lives parallel businesses. Both need to pay tax, both look for low risk high growth strategies, and both will (hopefully) have a purpose that goes beyond bringing in $$$." "Curious, are you asking about average, or the good numbers? The median family doesn't have $2500 to address an emergency. We are a nation of debtors, and spenders. A young couple at .8 is doing well. It means they saved 20% for a down payment, and just bought a house. Not too tough to buy with 5% down, have no other savings, and a student loan to put the debt to equity over 100%.  Older people should be shooting for zero. I semi-retired at 50, and my mortgage is at about 8% of my net worth. 50% would be too high. Others 50+ should have at least 50% equity in their home and nearly half their ""number,"" the amount needed to retire. So, a target is 25% maximum.  These numbers shouldn't impact you at all. You should plan wisely, spend frugally, and prioritize your goals. There are 'zero debt' people out there who make me look reckless, and others who invest in rentals with a goal of keeping them highly leveraged.  Neither group is wrong, what's right for you is what lets you sleep at night." "What is your biggest wealth building tool?  Income.  If you ""nerf"" your income with payments to banks, cable, credit card debt, car payments, and lattes then you are naturally handicapping your wealth building.  It is sort of like trying to drive home a nail holding a hammer right underneath the head.   Normal is broke, don't be normal. Normal obtains student loans while getting an education.  You don't have to.  You can work part time, or even full time and get a degree. As an example, here is one way to do it in Florida.  Get a job working fast food and get your associates degree using a community college that are cheap.  Then apply for the state troopers.  Go away for about 5 months, earning an income the whole time.  You automatically graduate with a job that pays for state schools.  Take the next three years (or more if you want an advanced degree) to get your bachelors.  Then start your desirable career. What is better to have ""wasted"" approx 1.5 years being a state trooper, or to have a student loan payment for 20 years?  There is not even pressure to obtain employment right after graduation.  BTW, I know someone who is doing exactly what I outlined. Every commercial you watch is geared toward getting you to sign on the line that is dotted, often going into debt to do so.  Car commercials will tell you that you are a bad mom or not a real man if you don't drive the 2015 whatever.   Think differently, throw out your numbers and shoot for zero debt. EDIT:  OP, I have a MS in Comp Sci, and started one in finance.  My wife also has a masters.  We had debt.  We paid that crap off.  Work like a fiend and do the same.  My wife's was significant.  She planned on having her employer pay it off for each year she worked there.  (Like 20% each year or something.)  Guess what, that did not work out!  She went to work somewhere else!  Live like you are still in college and use all that extra money to get rid of your debt.  Student loans are consumer debt." The problem with having no debt at all and relying totally on your income from working is that if you lose your job you'll have no income. Now there are 2 types of debt: good debt and bad debt. You should stay away from bad debt. But good debt is good — it should produce an income higher than the interest payments on the debt. Good debt will help you supplement your income from work and eventually replace your income from work. I have over $2M in good debt, have been semi-retired since 42, and sleep very well at night. By the way I also have zero bad debt. As Joe says, you have to be at a level you are comfortable with, can sleep at night, and try to limit your bad debt by showing some delayed gratification when you are starting off.
Hi guys, I have a difficult university finance question that’s really been stressing me out....  “The amount borrowed is $300 million and the term of the debt credit facility is six years from today  The facility requires minimum loan repayments of $9 million in each financial year except for the first year.  The nominal rate for this form of debt is 5%. This intestest rate is compounded monthly and is fixed from the date the facility was initiated.  Assume that a debt repayment of $10 million is payed on 31 August 2018 and $9million on April 30 2019. Following on monthly repayments of $9 million at the end of each month from May 31 2019 to June 30 2021.  Given this information determine the outstanding value of the debt credit facility on the maturity date.”  Can anyone help me out with the answer? I’ve been wracking my brain trying to decide if I treat it as a bond or a bill.  Thanks in advance, "First, I'd like to congratulate you on your financial discipline in paying off your loans and living well within your means.  I have friends who make more than twice your salary with similar debt obligations, and they barely scrape by month to month. If we combine your student loan debt and unallocated income each month, we get about $1,350.  You say that $378 per month is the minimum payment for your loans, which have an average interest rate of about 3.5%.  Thus, you have about $1,350 a month to ""invest."" Making your loan payments is basically the same as investing with the same return as the loan interest rate, when it comes down to it.  An interest rate of 3.5% is...not great, all things considered, and barely above inflation.    However, that's a guaranteed return of 3.5%, more or less like a bond.  As noted previously, the stock market historically averages 10% before inflation over the long run. The US stock market is right around its historic high at this point (DJIA is at 20,700 today, April 6th, 2017 - historic high hit just over 21,000 on March 1, 2017).  Obviously, no one can predict the future, but I get the feeling that a market correction may be in order, especially depending on how things go in Washington in the next weeks or months.  If that's the case (again, we have no way of knowing if it is), you'd be foolish to invest heavily in any stocks at this point. What I would do, given your situation, is invest the $1,350/month in a ""portfolio"" that's 50/50 stocks and ""bonds,"" where the bonds here are your student loans.  Here, you have a guaranteed return of ~3.5% on the bond portion, and you can still hedge the other 50% on stocks continuing their run (and also benefiting from dividends, capital gains, etc. over time).  I would apply the extra loan payments to the highest-interest loan first, paying only the minimum to the others.  Once the highest-interest loan is paid off, move onto the next one. Once you have all your loans paid off, your portfolio will be pretty much 100% stocks, at which point you may want to add in some actual bonds (say a 90/10 or 80/20 split, depending on what you want).  I'm assuming you're pretty young, so you still have plenty of time to let the magic of compounding interest do its work, even if you happen to get into the market right before it drops (well, that, and the fact that you won't really have much invested anyway). Again, let me stress that neither I nor anyone else has any way of knowing what will happen with the market - I'm just stating my opinion and what my course of action would be if I were in your shoes." "&gt; sofi  This is most definitely not what we're (I'm) talking about; to wit:       The loans tend to be debt for law school, business school and      medical school. And while these grad students carry a median      $77,000 in debt, they are also bringing in an average of $140,000      in salary a year. (*See correction below.) Their average FICO credit      score? 776. It's another sign of how the credit market is only open      to a select few.   This is ""privatizing the gains"".  The sub-prime student loan losses will be ""socialized""." Nah, you're thinking top 0.1% - they are very different than the top 1%.  Top 1% tends to be salaried professionals who work hard every day - doctors, lawyers, accountants, etc.  Top 0.1% makes their $$ off interest, dividends, etc., and these people own more wealth than the bottom 90%.  I'm on vacation, so all you're gonna get is a google link, but here's lots of sources of info on it: https://www.google.com.mx/search?q=top+1%25+vs+top+0.1%25&amp;ie=UTF-8&amp;oe=UTF-8&amp;hl=en-us&amp;client=safari&amp;gfe_rd=cr&amp;ei=daSDWb7dEZL08Aeg55bQDw "I'd like to see a credible source for ""the highest"", but it's certainly fairly high. Household debt could be broadly categorized as debt for housing and debt for consumption. Housing prices seem very high compared to equivalent rental income.  This is generating a great deal of debt.  Keynes(?) said that ""if something cannot go on forever, it will stop.""  Just when it will stop, and whether it will stop suddenly or gradually is a matter of great interest.  Obviously there are huge vested interests, including the large fraction of the population who already own property and do not wish to see it fall.  Nobody really knows; my guess would be on a very-long-term plateau in nominal prices and decline in real prices. The Australian stock market is unlike the US: since it's a small country, a lot of the big companies are export-driven, either by directly exporting physical goods (miners, agriculture) or by FDI (property trusts, banks).  So a local recession will hurt the stock market, but not across the board.  A decline in the value of the Australian dollar would be very good news for some of these companies. Debt for consumption I think is the smaller fraction.  Arguably it's driven by a wealth effect of Australia having had a reasonably good crisis with low unemployment and increasing international purchasing power.  If this tops out, you'd expect to see reduced earnings for consumer discretionary companies." What are your goals in life?   If one of them is to appear wealthy then buying a high price import is a great place to start.  You certainly have the salary for it (congratulations BTW). If one of your goals is to build wealth, then why not buy a ~5000 to ~6000 car and have a goal to zero out that student loan by the end of the year?  You can still contribute to your 401k, and have a nice life style living on ~60K (sending 30 to the student loan). Edit: I graduated with a CS degree in '96 and have been working in the industry since '93.  When I started, demand was like it is now, rather insane.  It probably won't always be like that and I would prepare for some ups and downs in the industry. One of the things that encouraged me to lead a debt free lifestyle happened in 2008.  My employer cut salaries by 5%...no big deal they said.  Except they also cut support pay, bonuses, and 401K matching.  When the dust cleared my salary was cut 22%, and I was lucky as others were laid off.  If you are in debt a 22% pay cut hurts bad. I don't have a reference, but I think it depends on when you entered the workforce: If you finished school at age 24, your primary goals are to pay down expensive debt and to save up enough for a down payment.  So essentially not much.  Maybe $5k to $10k at the most. On the other hand if you entered the workforce at age 20, with no debts and no significant expenses, it should have been easy to sock away 20% of your income for 6 years, so $40k to $50k would be reasonable. The difference is that the first person's income earning potential should be higher, so eventually they'd be able to make up the difference and pass them. Pro tip (I'm a financial advisor): some people aren't lucky enough to have rich parents or relatives who will pay for their education. Those who aren't poor or wealthy are caught in the middle, unable to pay their way and unable to get enough grants to pay their way. Scholarships are never a given. Using debt to increase your intrinsic value is a wise investment. "I kind of understand the ""basics"", and have done a couple (with the assistance of pre-made excel sheets haha), I just don't feel that I'm creating an actual valuable valuation when I do one. While on the topic though, do you know where an individual investor can calculate the cost of debt for the WACC? I've been looking on morningstar and search up that public company and take the average of the coupon on all outstanding bonds. I don't feel like that's very correct though :(" "This is an example from another field, real estate. Suppose you buy a $100,000 house with a 20 percent down payment, or $20,000, and borrow the other $80,000. In this example, your ""equity"" or ""market cap"" is $20,000. But the total value, or ""enterprise value"" of the house, is actually $100,000, counting the $80,000 mortgage.  ""Enterprise value"" is what a buyer would have to pay to own the company or the house ""free and clear,"" counting the debt." What's your opinion of the rising student loan debt?  It keeps going up, is that realistic and sustainable?  It looks like it could be a possible bubble to me, especially considering private investors take on little risk because the loans cannot be discharged in bankruptcy. I'm no financial advisor, but I do have student loans and I do choose to pay them off as slowly as I can. I will explain my reasoning for doing so. (FWIW, these are all things that pertain to government student loans in the US, not necessarily private student loans, and not necessarily student loans from other countries) So that's my reasoning. $55 per month for the rest of my life adds up to a large amount of money over the course of my life, but the impact month-to-month is essentially nonexistent. That combined with the low interest and the super-low-pressure-sales-tactics means I just literally don't have any incentive to ever pay it all off. Like I said before, I'm just a guy who has student loans, and not even one who is particularly good with money, but as someone who does choose not to pay off my student loans any faster than I have to, this is why. "This is the best tl;dr I could make, [original](http://www.reuters.com/article/us-usa-fed-debt-idUSKCN1AV1PY) reduced by 62%. (I'm a bot) ***** &gt; NEW YORK - Americans&amp;#039; debt level notched another record high in the second quarter, after having earlier in the year surpassed its pre-crisis peak, on the back of modest rises in mortgage, auto and credit card debt, where delinquencies jumped.  &gt; Total U.S. household debt was $12.84 trillion in the three months to June, up $552 billion from a year ago, according to a Federal Reserve Bank of New York report published on Tuesday.  &gt; Student loan debt was $1.34 trillion, up $85 billion, while auto loan debt came in at $1.19 trillion, up $55 billion.   ***** [**Extended Summary**](http://np.reddit.com/r/autotldr/comments/6tvdvk/americans_debt_level_notches_a_new_record_high/) | [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ ""Version 1.65, ~191392 tl;drs so far."") | [Feedback](http://np.reddit.com/message/compose?to=%23autotldr ""PM's and comments are monitored, constructive feedback is welcome."") | *Top* *keywords*: **debt**^#1 **credit**^#2 **trillion**^#3 **billion**^#4 **card**^#5" &gt; If your studies are, say, 150K  Why?  You could spend that much but you could spend a lot less. [Room and board plus tuition and fees averages 21.5K / year at a state university](http://youngadults.about.com/od/finances/qt/publicschcosts.htm)  So 90K would be a much better estimate.   &gt; and you forego another 60K/y during 4 years of university,  Why that number?  [Median annual earnings for someone with a high school diploma was 25K.](http://money.cnn.com/2011/10/26/pf/college/college_tuition_cost/index.htm)  Your estimate is almost 2 1/2 times the median.  Also, many college students work while going to college, reducing that differential further.  But even if we take your numbers, they add up to a differential of 390K  (150 + 4 * 60), although 185 (85 + 4 * 25) would be closer to the median.  &gt; you will need to make roughly 39K more per year until you retire than you otherwise would have,   39K * 40+ years is roughly 390K?  I don't know where the 39K per year comes from. There's still a paper trail for every transaction. There's gotta be a debit and credit in there somewhere. Plus these companies are supposed to be audited by an *independent* auditor who, if they're worth their salt, should be able to track down every penny.