Finance vs. Cash?

[LarryZiegler]

30% of income for a car payment seems high to me, but maybe not. I just can't imagine spending $800+ car payment monthly no matter how much I make. But then I'm a saver not a borrower so thats just my mentality.

I guess the norm today is to basically spend what you make.

NotApplicable made the point that all debt incl a Bronco payment should not exceed 30-35% which is a reasonable calculation. Many lenders will go to 40-42% in their qualification process for a car loan & FHA Home Financing or 35% on a conventional mortgage.

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[Mr. Nice]

I know this is always a "fun" topic on this message board but I came upon this video from Doug DeMuro that he posted two days ago and thought it holds a lot of water. In case you don't follow Doug, his focus is on car reviews where he evaluates new cars as well as older, unique cars. I've always found his reviews pragmatic and interesting. Anyways, here's some solid advice for why you should finance your car vs. pay in cash (for most scenarios). *I have zero affiliation with Doug and am not trying to drive traffic to his channel.

*You can fast-forward to 4:50 in the video which is when he goes into specifics.

If anyone has to watch a video to help them make the right decision on how to pay for their Bronco or anything for that matter they probably should not buy. Most folks with money already know what to do. The people without need to focus on saving money not spending...

 

[David Gilmour]

By the time I receive mine I may be paying in Krugerrands, Mercury Dimes, MRE and ammo.

 

[da_jokker]

NotApplicable made the point that all debt incl a Bronco payment should not exceed 30-35% which is a reasonable calculation. Many lenders will go to 40-42% in their qualification process for a car loan & FHA Home Financing or 35% on a conventional mortgage.

Yeah but that an arbitrary number used to calculate loan eligibility. I would dare to bet there is nobody who only has 35% of their income commited to their monthly liabilities. Think about it...that would mean you could literally blow 65% of your paycheck and still be able to cover all your bills... No way in hell.

The more money we make the more money we spend. We go from $100 car payments to $900 car payments, or $800 rents to $3,000 house payments, etc.

It's a known statistic that most Americans have very little to no savings.

 

[frankk]

Yeah but that an arbitrary number used to calculate loan eligibility. I would dare to bet there is nobody who only has 35% of their income commited to their monthly liabilities. Think about it...that would mean you could literally blow 65% of your paycheck and still be able to cover all your bills... No way in hell.

The more money we make the more money we spend. We go from $100 car payments to $900 car payments, or $800 rents to $3,000 house payments, etc.

It's a known statistic that most Americans have very little to no savings.

I thought the debt ratio was 35% of your gross income (pre-tax), which would be almost half of your paycheck.

 

[da_jokker]

I thought the debt ratio was 35% of your gross income (pre-tax), which would be almost half of your paycheck.

Could be, but that would vary so greatly depending on what's taken out of your check. Hell I get a couple grand taken out to cover taxes, healthcare, 401, etc.

But even then... How many normal folks could even blow half their paycheck and still be fiscally responsible and cover all their bills.

I donlnow if my wife worked and pulled down anything close to me, I wouldn't have to even be in this thread

 

[Tdifonzo]

I agree with Doug. This is the same reason I haven't paid off my student loans in full. I realize last year was an outlier but I made some good money in the stock market with money that would have otherwise gone to student loans. Can't beat a low interest rate.

 

[MorgansRun]

If anyone has to watch a video to help them make the right decision on how to pay for their Bronco or anything for that matter they probably should not buy. Most folks with money already know what to do. The people without need to focus on saving money not spending...

But some people learn by watching videos. This one isn’t like that, but how-to videos can be helpful. Doug’s is more of a personal experience type thing.

 

[1975U15]

This. I would have no idea where to even begin

Happy to help out. It’s about five to ten minutes on your phone or computer.

Fidelity/Schwab/Vanguard.com(No acct set up or maint fees)
Personal/Banking info
Buy S&P Index mutual fund(Fidelity’s have a 0bps expense ratio)

Your invested that day(during normal business hours)

 

[MorgansRun]

Happy to help out. It’s about five to ten minutes on your phone or computer.

Fidelity/Schwab/Vanguard.com(No acct set up or maint fees)
Personal/Banking info
Buy S&P Index mutual fund(Fidelity’s have a 0bps expense ratio)

Your invested that day.

Yes, but first transfer funds to the brokerage and then in another transaction, but the index fun. I’ve heard stories about people who just transferred cash and thought it was invested.

Your steps are clear to me, but might not be to someone who is new to investing.

 

[Yukon65006]

Happy to help out. It’s about five to ten minutes on your phone or computer.

Fidelity/Schwab/Vanguard.com(No acct set up or maint fees)
Personal/Banking info
Buy S&P Index mutual fund(Fidelity’s have a 0bps expense ratio)

Your invested that day.

Only thing I would add is to spend a little time on the Bogleheads forum and their WIKI or some other equivalent one. Lots of info out there and no one is going to work harder for your money than you will.

 

[1975U15]

Yes, but first transfer funds to the brokerage and then in another transaction, but the index fun. I’ve heard stories about people who just transferred cash and thought it was invested.

Your steps are clear to me, but might not be to someone who is new to investing.

Sure. The interface now with the discount brokerages make it incredibly obvious how to fund the account in the set up process. Suppose it’s possible to miss it, but that’s a step the investment companies want to make sure you complete(they want the account funded).

Even when I worked at Fido forever ago it was hard to miss. Today, if Fido(Schwab likely does same) deems you credit worthy, they’ll fund your account before your initial deposit posts. Allowing you to trade with that credit until your bank sends funds.

Missing the actual BUY in S&P shares(this example)and not leave in cash, was more likely to happen. And naming beneficiaries

 

[Taco_Sexual]

If anyone has to watch a video to help them make the right decision on how to pay for their Bronco or anything for that matter they probably should not buy. Most folks with money already know what to do. The people without need to focus on saving money not spending...

i don't think there's anything wrong with someone trying to educate themselves. Especially when these concepts aren't taught in most high-school or non-finance major college courses. If there's one thing our education system fails at is financial competency. My parents were terrible at money so I had to painfully learn my own lessons through my teens and 20's. Now, at 37, I'm in a great position and still have a ton more to learn about investing.

Also, don't forget that not everyone has to spend ~$55-$60k on a Badlands/Wildtrak model. Plenty of people are getting the lower models that are under $40k.

 

[gentlemanbronco]

Even the wealthiest of the wealthiest utilize credit. Why risk your cash when you can use someone else's, ESPECIALLY if you have the cash to buy it out right.
People have an irrational fear of credit, which is strange as its just a financial tool that you can benefit from using.

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