The MISTAKE of being underwater???? Really?? Did you predict the housing market would crash say in 1997?
No, and I even downplayed the doom-and-gloom here at FR, mostly because I thought banks were too smart to actually lend money they would never get back.
On the other hand, I owned a home throughout this period, and unlike some of my more adventerous neighbors and others here and elsewhere, I didn’t re-mortgage my house every time it went up in value, just to take out the money and buy stuff I couldn’t afford.
So when my house went from being “worth” $500,000, to being “worth” $200,000, I was still well above water, because I never owed more than $120,000 on the house.
There are some people who actually had to buy their first homes into the height of the market. They are the ones I actually feel sorry for. But anybody who already owned a home — they could sell their home and buy a new home and not incur more debt, and keep well below the outrageous price peaks in their mortgage, and not get burned.
On the other hand, many of those underwater did get to spend hundreds of thousands of dollars on cool stuff, while I did not.
The point is that people who follow Dave’s advice (I’m not one of those, although I largely live my life in the manner he suggests, just because that was how I was raised — I simply don’t share his aversion to credit, since I don’t find it a temptation and therefore can use it for my advantage) — those people won’t likely be underwater, because they will have limited their borrowing and will be able to follow this advice.
More broadly, I’ll say that having money makes it much easier to handle money issues. People with money can borrow money more cheaply, can buy things when they are on sale, can replace instead of fixing when it makes economic sense, and in general can make better and therefore more frugal choices in their lives. So I think Dave is correct in fact — save up money, and it will make your life better.