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Well according to the bean counting people at my insurance company, they are betting I'm dead before 65.
I think they're wrong but who knows? I've promised them I'll live to collect the last payments they owe me but they don't seem to believe that...
On another note, I just happened to be listening to his show today as I was driving somewhere. A lady called in and she said she just got a $200k settlement check for an accident. She said she'd be out of work for another six months, her husband makes $110k yr and they have $30k in medical debt and I believe she said about $20k in credit debt. He immediately told her to pay off all of the debt and take 6 out six months of emergency fund cash.
Now in my mind, money like that is very,very,very hard to come by in one lump sum so I'd do everything to hang on to as much as possible. Given she'll be back at work in 6 months or so they'd most likely be making more than enough to pay off the $50k in debt and still retain the $200k, maybe to pay off their house down the road to get the most bang for the buck interest wise and so they'd always have a roof over their heads no matter what.
If you hold on to the money while you are paying interest you are losing money unless you're holding it in something which is making higher returns than the interest rate on your debt. Not likely.
IE, if your medical and credit card debt of 50K have an average interest rate of 7%, and you hold you 200K settlement in a savings account that gets 1%, you're losing 6% of your money every year for no reason other than it seems nice to have that big number in your savings account. Your debtors own $50K of the money (and rising) every month you don't pay it off.
As long as you have a sufficient emergency fund, there is no reason to hold debt while you hold the cash to pay it off.
This is an Accounting principle. If you got a below market loan (0% financing, for the example when the market rate is known to be 5%-the cost of borrowing), you determine the difference between the net present value of the loan at the market interest rate (5%) and what you got. The result is that the value of the car is actually less and the interest expense is recognized to exists at the market rate. The entity financing must recognize the market rate for interest income earned and for tax purposes (because the IRS says the interest income does exists).
The dealers can tell you it is 0% to make you feel good and entice customers to purchase the car, but the interest income earned is at the market rate. The customer feels good about it. You pay the same, but the true purchase price of the car is less because there is imputed interest expense covered within the purchase price.
Here's the way I try to look at this whole thing. There's no guarantee that you'll live to use your retirement savings.
All it takes is a serious look at your mortality, like a heart attack or severe disease like cancer to remind you that you could be permanently moving on today or tomorrow.
What good does all that sacrifice do you then?
I say it's all about balance, there "may" be a retirement, it "may" be a long one but it "may" not be.
Having been in the position of lying in that hospital bed realizing how close I came to checking out all the money in the world wouldn't have mattered or made any difference had I actually not made it to see the next day.
All it would've done is buy me a nicer box to take the eternal dirt nap in.
That's the point. I haven't seen 1 person advocate irresponsible debt or spending. But on the absolutist side it's, anyone who takes a loan out is stupid, or it's never justified. You can balance your life and live and retire very comfortably. Maybe these posters can't, that's there problem. There the same one's who's wife left them because they would sit around all day and pout. There children probably hate them because they couldn't have a toboggan. Me, I'll be out on my boat that I pull with my truck and retire early and comfortable. Many people die before retirement. You can live a little without being stupid. Or I can anyway.
If you hold on to the money while you are paying interest you are losing money unless you're holding it in something which is making higher returns than the interest rate on your debt. Not likely.
IE, if your medical and credit card debt of 50K have an average interest rate of 7%, and you hold you 200K settlement in a savings account that gets 1%, you're losing 6% of your money every year for no reason other than it seems nice to have that big number in your savings account. Your debtors own $50K of the money (and rising) every month you don't pay it off.
As long as you have a sufficient emergency fund, there is no reason to hold debt while you hold the cash to pay it off.
Not a single person on this long repetitive thread has said anything differently than that. If you have zero to 2.8% loan you should easily earn more investing it though.
Some do, or at least used to. The lamborghini countach did, at least back in the early 80's from what friends in the business told me...
A mortgage is a loan backed by real estate. So someone would have to have taken out a mortgage on real estate, and used the proceeds for the car. It would be a real estate mortgage, not a car mortgage.
A lot of people use home equity loans to do similarly stupid things today.
Mortgage:
"the charging of real (or personal) property by a debtor to a creditor as security for a debt (especially one incurred by the purchase of the property), on the condition that it shall be returned on payment of the debt within a certain period."
A mortgage is a loan backed by real estate. So someone would have to have taken out a mortgage on real estate, and used the proceeds for the car. It would be a real estate mortgage, not a car mortgage.
A lot of people use home equity loans to do similarly stupid things today.
I know a woman who refied her home that her parents left her,then bought a Mercedes with the money. so 30years at 4.9%. I tried to explain it.
Why do I need to factor that time in? It has nothing to do with anything. That was money saved while I already had a vehicle and when I didn't need one. Time in that essence has no value. I didn't "need" a truck to the point that I had to sacrifice anything in the short term to get it. I simply set a budget that didn't take away from anything else and bought the truck when I had enough to get what I wanted.
My true cost of ownership was broken down for you.
Purchased Price: $14,000 cash
Maintenance and repairs: $1,200
Time owned: 2 years (24 months)
PP+M&R = $15,200
Sale Price = $14,700
Delta: $500 <-- This is how much I "lost" on the truck after using it daily for two years.
You can't factor in insurance or fuel, because those are givens on every vehicle and irrelevant considering my mpg didn't change nor did my insurance costs (I went from an F150 to a newer lesser mileage F150). All things considered, the actual cost of ownership after recouping my money was $21 per month because I recouped all my money less $500. $500 / 24 mos = $20.83/mo.
You can't lease a vehicle, or buy one brand new and when turned in, sold, or traded-in come out of pocket only $500. That's my point.
I don't let having the latest and greatest of anything to define me. This all goes back to what DR was saying about not spending more than you can afford. I saved up an additional $9,300 over the course of time I owned the F150 to put with the $14,700 I sold the F150 for and bought a newer F250 outright for $24,000. I have been doing this for years to get to what I want. It isn't instant gratification, but I'm working towards a goal that will not put my finances in jeopardy to do so. A lot more people should do this. It's really not that difficult. I still get the things I want, but not today.
Your "Delta" isn't $500. Do a NPV calculation. Even at a relatively small discount factor of 3%, you are looking at a "Delta" of nearly three times what you figured.
It doesn't change the fact that you probably made a good decision.
Every single Friday for the last 5yrs I get $100 in dollar coins and put them away. I purposely get it in coins so that it's harder to just grab and go spend like physical dollars. I will continue to do so until I retire in about 15yrs. That is in addition to a max contribution to my 401k retirement plan that my company matches btw. If all goes according to plan I will be more than well off come retirement time. In the meantime I enjoy spending my excess cash on things I enjoy. Vacations, new car every 3yrs, fine dining, latest tech toys, etc. if I kick the bucket next will I will have no regrets as I've enjoyed my time thus far. If I live to be 90 I have prepared to have that covered.
How much better off would you be if you put $5,200 a year in a good index fund, vs. squirreling away cash?
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I've promised them I'll live to collect the last payments they owe me but they don't seem to believe that...
