Finance vs. Cash?

[BroncoBass]

Everyone seems to forget the noose around their necks when beholden to a lender. Cash wins, every time.
Millionaires never say they became rich because they finances their vehicles.
Cash for me, thanks.

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[BAUS67]

Money is in the bank. Been there since before the reveal.

Just waitin' on Ford to deliver what was promised.

Just saying.

 

[Yukon65006]

So I’m thinking put half down on my $57k purchase (after TTL) to have swallowable $500 monthly payments for 5 years and invest the other $28k.

Go in preapproved with a low interest rate so you know exactly what your payment will be based off what you want to put down. If they can beat the interest rate great if not you are still set.

We recently built a new house and sold our paid off one. While I could have dumped all the proceeds of the sale into the new house we choose to pick our payment amount by putting down enough to get us to that point and adding the reminder of the proceeds to landscape, fully funded both our retirement accounts for two years, and have money set aside from the sale for the Bronco down payment. At 2.35% on the house and 2.19% (current rate at NFCU) on the Bronco there is no way I will sell off investments earning over 12% and pay taxes on that when we can easily afford our chosen payments.

While this works for us I know it won't work for everyone else. Some don't mind payment, some have to finance and some choose to pay in full. To each his own!

 

[Theherofails]

This question is crazy common in beginner investor circles. It’s always the same answer..


If you’re ultra conservative financially, you tend to follow the rules of Warren Buffett.. the only debt you should have is your mortgage. Pay cash for everything else.

If you’re a bit more modern, pay cash unless you can borrow money below the market return rate. In other words, if your expected investment return percentage is higher than the APR, invest the money instead.

With a 0-2% APR, I’m not paying cash. That money is way better off invested for the returns.

With that said, I’m a nobody on the internet and Doug is a YouTube personality. Clearly, follow his advice.

 

[BAUS67]

Everyone seems to forget the noose around their necks when beholden to a lender. Cash wins, every time.
Millionaires never say they became rich because they finances their vehicles.
Cash for me, thanks.

That's the way I see it. Have titles to everything I own. Deed to my house, in my hand.

If I get in trouble I can just start selling, it all goes in my pocket, not to pay off the note.

 

[Gamecock]

Everyone seems to forget the noose around their necks when beholden to a lender. Cash wins, every time.
Millionaires never say they became rich because they finances their vehicles.
Cash for me, thanks.

Rich people buy with OPM….not their own. You are way off base….

 

[GoTigersGoBronco]

I was going to pay cash. The credit union checked and offered 2.24%. Seemed awfully cheap money when inflation is over 4%.

 

[Theherofails]

I was going to pay cash. The credit union checked and offered 2.24%. Seemed awfully cheap money when inflation is over 4%.

The bank will lose money over the life of the loan for lending at that rate. You are right.

 

[PrepVet]

You are a peasant if you are not paying $100,000 for a $50,000 car with stacks of Benjamin’s in a steel briefcase. You shouldn’t even be allowed to wander the Earth.

/end of thread

 

[PartyMarty]

Go in preapproved with a low interest rate so you know exactly what your payment will be based off what you want to put down. If they can beat the interest rate great if not you are still set.

We recently built a new house and sold our paid off one. While I could have dumped all the proceeds of the sale into the new house we choose to pick our payment amount by putting down enough to get us to that point and adding the reminder of the proceeds to landscape, fully funded both our retirement accounts for two years, and have money set aside from the sale for the Bronco down payment. At 2.35% on the house and 2.19% (current rate at NFCU) on the Bronco there is no way I will sell off investments earning over 12% and pay taxes on that when we can easily afford our chosen payments.

While this works for us I know it won't work for everyone else. Some don't mind payment, some have to finance and some choose to pay in full. To each his own!

While I’m sure I can google this, do you know the earliest I can get preapproved with a set interest rate before I actually take delivery of the Bronco? I’m waiting on the MOD top, so interest rates could be very different in 2022. For example, when I refinanced my house in December for 2.5% on a 30yr, I only had a 30-day rate lock before signing with the lender.

 

[da_jokker]

I’m kind of a mix in this situation. By the time I get my Bronco, yeah I could afford to drop all cash (with not much left for a rainy day), but I also don’t have the monthly income for a $1000+/month payment for one car if I finance most of it. So I’m thinking put half down on my $57k purchase (after TTL) to have swallowable $500 monthly payments for 5 years and invest the other $28k.

As of right now, that is my plan as well. I will put enough down to get the car payment low (like below $300) and then leave the rest in investments. That way if the markets drop and I have to hold longer term I'll be fine, But if the markets go up significantly I can always sell and pay off the remaining balance easy enough.

 

[da_jokker]

Yeah I said all debts combined which normally includes housing. So servicing of all debts + housing is generally considered to be “acceptable” below 30ish% of gross income by the actuaries and creditworthiness mathematicians ;p

Ah gotcha. This got me thinking. In my early adult years is when I woke up about credit cards and not paying them off every month. Unfortunately it took me few years to many after that to realize I needed credit cards that paid me back in cash. But in those early adult years I found budgeting was the key to success.

So I just pulled out my current budget to convert the dollars to percentages it was a little surprised that what I found.

Of course this is just me, But it has served me extremely well for the last couple decades at least, never leaves me unable to pay for things that come up, and allows me to build up a significant savings every few years.

So based off of actual bring home per month (2 paychecks per month)

30% mortgage/impound

20% savings

20% allowance (covers food, gas, shopping, daily expenditures, etc) <- this is the key

10% "other expenses" these are things that unexpectedly come up like needing new tires, air conditioner, brakes, etc. In other words these are the things that people tend to have to charge on their credit card because they didn't plan for a significant surprise obligation. (That seemed to happen almost monthly)

10% car insurance and yearly registration

10% utilities. This includes your normal electric, water, etc, But also your streaming services, cable TV, cell phones, etc.

If one category starts to get too big, another category has to absorb the impact. Of course as you can see there are certain categories that you can dial back and others that you can't as easily.

In the end, the most important factor was to treat savings like a monthly bill obligation, and treat your "daily money" with a ceiling. Most people spend whatever they have and then when things come up they can't cover it. If you've reached your monthly "allowance" budget, you have to say no to Starbucks

 

[Bituman]

$50,000 at 2% APR, 60 months = $876/month car payment…gulp! Probably just me, but seems like a lot on a monthly payment for most. And, true, over a 5 year period, stock market will probably net more. But not always. What if you dumped that $50,000 in the market in late 1970s or 2007 or January 2020? Long term, equities or mix of equities and bonds is great to build wealth. But there is that short term risk which can blow up the assumptions in the video, and to be fair, he points that out.

Also, borrowing money for a depreciating asset seems backwards. Somebody above said something to the effect rich people get rich by borrowing. That’s most often true. But their hope is that they are investing that borrowed money in a (hopefully) appreciating asset like an office building or a manufacturing company that makes something, and not something that will lose value like a car.

My parents were children of the depression and they were cash only, debt is bad, live within your means type of folks. I think that philosophy kind transferred by osmosis over to me because I never remember them saying anything like that to me. I am at a point in life where I can pay cash and enjoy that paid up feeling. I’ll spend that $876/mo on a cabin in northern AZ where it’s cooler than the oven they currently call Phoenix! What’s more, it’ll be close to some off road opportunities for the Bronco. (See how I did that…brought the discussion back to Broncos.)

 

[frankk]

Money is in the bank.

That says it all. I'm in the same boat. Cash in the bank earning .5% while I wait for delivery. Shows how risk-averse some people are. Also agree with Cheshire on this one (https://www.bronco6g.com/forum/threads/finance-vs-cash.17795/post-644732).

I think the messaging in the video is aimed at people who already have the cash. You can roll the dice and put the cash in the S&P500. Small withdraws to make payments (or use other cash). History says you'll make out financially in the end. But you have to be able to deal with a situation where the market turns and you need to cover something like a $5K loss.

BTW - I don't agree with Doug's decision. I know he probably has enough money to buy both but I went to a Land Rover Dealer looking to pick up a Defender 90. I left happy that I reserved a Bronco. Bronco on order.

 

[Taco_Sexual]

I think the messaging in the video is aimed at people who already have the cash. You can roll the dice and put the cash in the S&P500. Small withdraws to make payments (or use other cash). History says you'll make out financially in the end. But you have to be able to deal with a situation where the market turns and you need to cover something like a $5K loss.

That's exactly right. This is strictly for folks that have the cash in the bank and could purchase the vehicle outright. Definitely a gamble so just something to consider. I plan on putting down 50% cash and throwing the rest in a fund to see how my money does and if my monthly interest accruals end up covering my monthly payments.

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