It's the "maybe the car" part that is ridiculous for me. I teach Personal Finance in high school and I preach very heavily about the follies of having a car loan.
With the exception of credit card debt and payday loans, car loans are the worst type of loan out there. Getting a loan on a depreciating asset is incredibly stupid.
I don't care how rich I get. I will always pay cash for a car.
Most relevant statement of the thread....I made the mistake of borrowing $ for my first vehicle in1991 and have paid cash for every one since. Never again!!Originally Posted by counter19
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"The men who succeed are the efficient few who have the ambition and willpower to develop themselves." ---Herbert Casson
Like I said, excluding the Rich, as that has very little to do with the true statement there, about only using credit on things (paraphrasing) that you cannot buy with cash directly. IE, use credit on a Car, House, Education, but don't use it on gas, food, whatever if you can afford to pay it with your debit card or cash.
And while that is true to someone bound to "become" an adult soon, if you are stuck between the option of No Car, No Job, and, Car Payment, with a Job; Most people will take the car payment. Now that doesn't assume its a new car or anything. Could be a 5k clunker off the lot, point here is that priorities often take precedence over credit concerns, and "sometimes" having a car is more important than maximizing your financial foothold with it.
Its literally like the stupid Maximization of EV while backcounting argument all over again. You can shop around for 0% interest when you're 18 years old, but its going to take a while before the right opportunity presents itself, and you're likely going to get stuck with something that doesn't entirely suit you. Or, you can find what suits you, then find the best deal on it, and work through the interest with your new fancy job.
"Maybe a car" is highly debatable for sole purpose of transportation, and 9 times out of 10 I'll win that argument despite your unhappiness with the point you failed to comprehend.
Instead of looking at it like "omg it has the highest interest and its a depreciating asset", you should probably look at it like "Oh wow, its the ONE thing most people will need to get around in their lives, no wonder interests rates are much higher, more volatile at times, and fluctuate so often".
And you "teach" kids about finance? Interesting.
I am not sure where you fall on this but i use credit for everything and pat it off every month unless it is 0% interest. I get 5% back on gas, and either 2 or 3 % back on groceries, and 2% back on restaurants and entertainment and 1.5% cash back on anything else. I usually spend about $2.5-3K every month using credit cards and get about $150 to $200 back each month.
I'm picking up on your sarcasm.
The point is, if you don't have to get a car loan, don't get one. Simple. My comment was referring to the current cultural paradigm of the bulk of the middle class in The United States in regards to an automobile purchase, not the poor young person just starting out in life. Did you really think that my comment was all-encompassing? Surely you must know that most when given the choice of buying a nicer car with a car loan or a not-so-nice car for cash, they will go for the car loan because they want to "feel" like they have money or think they "deserve" it or whatever. THIS mode of thinking is what I was addressing.
I'm a damn good finance teacher. It is my passion in fact. So if you wish to engage my credibility, i'm game.
It doesn't matter how much you owe. It all depends on whether you can pay it off or not. I remember when it was much harder for me to pay off a $500 loan than it is now for me to pay off a $500,000 loan.
You are much better off buying a clean, low mileage 2 year old car on credit than you are paying cash for a new one.
If you can make 12% on an investment and it costs you 6% to borrow the money, why would you not finance it if you can still make the payments if things go sour?
Many developers got rich borrowing money to develop property when it was booming and many learned a lesson the hard way when it all came to an instant halt.
There is a time and place for everything and common sense prevails.
“It seemed to me ... that any civilization that had so far lost its head as to need to include a set of detailed instructions for use in a package of toothpicks, was no longer a civilization in which I could live and stay sane.”
This attitude always amazed me. People would put themselves in huge debt to buy a car that made them feel rich because others would perceive them as rich. One guy told me he never felt so rich after signing any hope of having money in the future away to buy a BMW. I am simply thinking, "You moron. You have never been so poor." In poorer areas they live in a house with no furniture only boxes and crates or whatever else they could get for free but drive a really nice car. This need to see self worth as as how others see you causes a total disconnect from reality. Why would you want to impress people that judge peoples value that way? They tend to be the biggest A-holes in life anyway. All that should matter is how you feel about yourself. That should be determined by how well you are prepared for any financial crisis and how you feel about the decisions you make in terms of right and wrong. And how well you look after your friends and family as well as your fellow man. If you drove a more sensible car don't you think every aspect of what is important would be enhanced?
Car insurance: $200/month
Health insurance: $450/month
Doctors bills: $200/month
Gas for cars: $800/month
Heating oil: $120/month
Cable,telephone and internet: $150/month
Groceries; $200/month
Supplies for my business $300/month (highly variable)
Restaurants: $60/month
Electric: $120/month
There are some other stuff but this is the real meat of the monthlies.
I have a family and live a fairly frugal life. My electric and heating oil usage are a fraction of others in my neighborhood. I drive a ton (both for work and AP) and get crappy gas mileage also my wife has a car, so my next purchase will be an economy car. I have all sorts of high maintenance health issues. Many years I reach my out of pocket maximum for my share of doctor's bills. I am in the deductible plan that makes the most sense given my situation. My food bill is also a fraction of what most spend. Due to my health I can't eat the thriftiest options but i probably still spend half or less of what most families of 2 spend in my area. Perhaps you haven't experienced enough in young life to know how much you will be spending later in your years or perhaps you live in an area with a much lower cost of living. I don't want to pick on you so I will put it this way, when your living situation changes you may have a better understanding of what the cost of living is.
Perhaps you didn't read that I pay all my credit cards off every month so don't get charged a penny for charging with cards. Rather they pay me 1.5%, 2%, 3% or 5% for every purchase I make. I am going to spend every penny anyway so why not get over hundred dollars cash back a month for my spending I must do no matter what. I should look at adding my car payment and mortgage to this but I think they will not take such a form of payment. That would add another $2K to my charges but would only get me another $30 cash back but every little bit helps.
As a by product I have the highest credit score in terms of tier so I can get great deals on credit. Credit is only bad if it costs you money. It is all about self control. I am no more likely to spend a penny if it is charged than if I have to pull the money out of my wallet. To me it is all the same with absolutely no difference. I make money off of the credit card companies. The credit card companies make money from the places I make purchases not from me.
Credit/Charge cards are a convenience (set up auto pay on everything), and provide additional protection against invalid charges/fraud, etc. Haven't paid a penny of interest in years, although admittedly I do cough up the $450/year Amex Plat annual fee(get $200/year in airline fees reimbursed, so $250 net. Save more than that using their car rental codes; frequently the Amex Plat code is 20% cheaper than AAA's and also includes a 4 hour grace period with Hertz. I travel and rent enough cars to make the fee worthwhile).
It's possible to get loans for rates that are lower than inflation. In those cases, why not just get the loan?
Money has utility and flexibility and at times is worth keeping around.
If buying a 500k house, does it make more financial sense to pay cash to finance 400k of it? Well, that depends on a variety of factors.
From an AP's perspective, would you rather buy a car/house/widget on credit with a sub 5% rate or would you rather spend cash on the same if it meant dipping into your bankroll? Again, it probably depends. If dipping into your bankroll meant going from 1/10 Kelly to 1/5 Kelly because you're already constrained by other factors, then it's probably no big deal. Going from 1/2 to full Kelly is another story.
I also don't get the push towards buying a house. Home ownership has benefits, but it isn't the no brainier that financial advisers make it out to be. In many cases and many markets, renting makes far more financial sense.
Finance, like most modern complex systems, is nuanced. It's not that most of the suggestions in the article were bad, it's just that it's not as black and white.
There are a number of private equity billionaires running around NYC who got rich because they were willing to borrow billions.
And that's fine as long as you stick to it like white on rice, but the second you deviate from that or begin to habitually deviate from it, is when you start putting the cart well before the horse. There are small things in life, however, that require attention like that. Find me a 0% interest, cash back card, and I'll show you very solid detail over every penny and getting it paid ASAP. Give me an offer from a bank to match X months with a deposit over Y and get Z up to A in matched savings, sure, I'm on that.
I'm all about making money at every little turn in life. Be it short term stock investments, APBJ, Buying/Selling Cars, Buying/Selling Houses, Buying/Selling Storage auctions, etc. You name it, I've probably done it, probably still do it to a degree, and credit cards are no different. However, they require discipline if you are going to use them frequently. As long as you have it, no worries.
I agree with what you're saying, for the most part, except for the part in the comparison about paying cash for a new one. If you can pay cash for a new car, or buy a 2 year older car on credit, the likelihood is that you can buy the 2 year old car with cash, too. And you should, because a two year old car has a much bigger room for price negotiation than a new car does, and you'll likely save more than the 6% difference of Debit/Credit in your scenario, just by talking down the price. And if you can't talk someone down on the price of a used car, you have no business buying a used car lol.
Precisely how I view money, investing, and finances as a whole. Something we can always agree on, and it drives me nuts anytime one of my friends decides to go and try to buy a new car. Now, I've got a nose for financials, so I can have a conversation with you and somehow gauge your DTI, size of your savings, and how much you can truly afford, and every time like clockwork, the winner of the "should I buy or listen to him" argument is "But I want a new car". It just befuddles me, how base an impulse can win over the threat of emotions like despair when you're barely making ends meet to pay off your new car.
I'm the type of guy where I found a tiny little rust spot on my dream car, and had it sold 5 weeks later because I didn't want to deal with a severely depreciated value had I held onto it for another 6-9 months. Keep in mind, this was my dream car. My childhood "i want this" car. I was in "LOVE" with it, and was the best purchase of my life. I sold it without hesitation. As it turns out, it was also the best sale of my life, and I've since decided to buy something much more practical, comfortable, and economical as I now play 40+hours a week at Blackjack and find myself driving quite a bit.
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