Why do so many of the 'Personal Finance' threads...

[sweeps]

Originally Posted by Fern

i know that many will respond, well, every dollar counts. Yet, we all have just so much free time in the day to devote to this stuff, so i just have never understood why so many people obssess about the small change when, if they just focused their attention on bigger payback issues like saving on car insurance, refinancing their mortgage, etc., they could reap much bigger dividends.

Well, actually, every dollar does count. Once you've refinanced your mortgage, switched your car insurance company, and set up your automatic Roth or 401K contribution, do you just quit? No, there are thousands of things that can be done that can save you more money.

I agree there are limits -- For me personally, spending 30 minutes to fill out a $1 online survey is not worth it, but for someone else who enjoys it and otherwise wouldn't be doing anything productive, why not. On the other hand, spending 30 minutes to juice the APY on my savings account or to maximize my credit card cash back is huge for me.

[cbmeeks]

Originally Posted by Ima saver

Believe it or not, my husband believes that his cars are an investment!! Since he works so hard, 7 days a week, I indulge his one vice, cars!! That said, we have a 1933 ford victoria that we paid $40,000 for, it is now worth $60,000. Our 1978 corvette is appraised at more than what we paid for it in 1978. (There were only 16 cars that came into the dealership in primer color and were painted non corvette colors and we have one) Now if we can just hang onto this vette for about 30 years, we may get our money back on that one too.

That is a rare exception. Those are vintage cars or sports cars and they are only worth that much to COLLECTORS. If the economy fails, those cars will be worth nothing (just like everything else). 99.99999% people drive normal, non-collectable cars that depreciate. Always.

Originally Posted by jmjj215

If I could borrow money at 1% and stick it in ING (now at 4.25%) I'd do it in a heartbeat. That 200k that ima has in savings is probably making her much more money than the 1% she's paying to borrow for the car.

That being said, I personally pay cash for cars.

To each his own. Both methods are perfectly fine in my opinion.

My point was, if you have that much money in CASH, WHY take out a loan to pay for something? If I went to Wal-Mart looking for a box of cereal and I had $50.00 in my pocket and a CC with 1% interest, why finance the cereal when I have cash? That makes no sense. And please people, no "but I get rewards, blah blah

Originally Posted by poundwise

Was one of the previous posters actually saying that he would be willing to LOSE money to avoid having a loan?

If you can get a car loan at, let's say, 2.5% you would pull money out of a 4.5% interest money market account just to be able to buy the car with cash? That doesn't make mathematical sense. You are 2% to the positive to take the loan and keep your cash earning the higher interest.

I appreciate the desire to avoid loans/debt, etc. but math is math.

I see what you are saying. Maybe I wasn't that clear. The person that had $200k and $100k probably has some decent cash in their checking account. That's where I would pull it. Besides, yes, math is math but reality is also reality.

A car financed at 2% will depreciate quickly. If they did a 2 year loan, not only will that car be over-paid (with interest) it will also be worth a LOT less because it is 2 years old because of depreciation.

If I were able to build $300k, I am going to have cash on the side. Cash always wins. Besides, sure, they may get a "great" rate of 2%, but cash has more buying power. They could get the care cheaper with cash because there are no banks involved (for the dealer)

cbmeeks

[poundwise]

Originally Posted by cbmeeks

I see what you are saying. Maybe I wasn't that clear. The person that had $200k and $100k probably has some decent cash in their checking account. That's where I would pull it. Besides, yes, math is math but reality is also reality. cbmeeks

I don't disagree with you that a car is not an investment. That is, it is a purchase, consumption, and yes, it depreciates. I also wouldnt disagree with a person who simply stated that they were not going to obtain a loan or use credit no matter what, if that's what they wanted to do, especially if they had the cash to clearly and easily avoid doing so.

However, in my opinion, 'reality is reality' doesn't trump 'math is math'. The vehicle depreciates whether is paid for with cash or obtained with a low-interest loan.

Let us assume a 2.5% loan could be had on a 4 year schedule. Lets also allow me to use simple math (very simplified, w/o taking into consideration compounding either way) for the purposes of this illustration.

Pay cash:
Car cost $10,000
You pull cash from a 4.5% interest earning account
You pay 0 interest on the car, but do not gain what you would otherwise ($450 per year) from not having those funds working in an account. So, after four years, paying cash for the car has cost you $1800 besides the cost of the car.

2.5% loan for 4 years:
Car cost $10,000
You make payments for 4 years
The total interest paid per year is $250. Over 4 years, $1000.
The interest earned on the $10,000 that you did not take from the 4.5% account over that same period of time is $1800.
In four year's time, you will own the car, the financing having cost $1000 and your interest bearning account having earned $1800.

At the end of four years, in each case, the car will have depreciated to the same level. It will, in fact, be worth considerably less than you purchased it. However, this is true for both methods of purchase. In the latter version, however, you profited by earning greater interest on your money that you spent on the purchase.

I don't see why, expect for just being determined not to use loans/credit at all, one would not accept such a low rate and obtain an auto loan under these circumstances.

Am I missing something? I am perfectly willing to be educated.

Let me also add, that I believe purchasing a new car is one of the worst things a person can do. Purchasing a pre-owned car, even with very low mileage and significant warranty, will save you lots of money in purchase price and let someone bear the brunt of the initial depreciation.

[cbmeeks]

Why not take the money you would be using for a car payment (at your 2.5% rate) and put it into a checking account and in four years, pay cash for a used car?

That way, you didn't touch savings (at 4.25%), you didn't pay any interest (2.5% OUT) and you get a better value to your car? You win that way.

[jmjj215]

Why not take the money you would be using for a car payment (at your 2.5% rate) and put it into a checking account and in four years, pay cash for a used car?

That's the same thing. Why not take the money you would be using for a car payment and put it in a savings account making 4.25% interest, then in four years borrow at 2.5% and still be making the spread Poundwise explained above.

They could get the care cheaper with cash because there are no banks involved (for the dealer)

That doesn't really hold water. The dealership gets cash either way. Whether you borrow from the bank and give them borrowed money, or pay them outright with your own, they're still getting cash. You can get pre-approved for a car loan and have the 'cash' right there in front of the dealer to psychologically have the upper hand, or you can have pulled it out of your car fund at ING. It's still just cash to the dealer.

[jmjj215]

That being said, I personally don't like the idea of borrowing money to purchase depreciating assets.

[poundwise]

Originally Posted by jmjj215

That being said, I personally don't like the idea of borrowing money to purchase depreciating assets.

For the record, I don't either. Having a paid-for car is one of the best things in my book! I can't imagine having a paid-for home, as some of the folks here have. What a tremendous achievement.

[cbmeeks]

Originally Posted by jmjj215

That doesn't really hold water. The dealership gets cash either way. Whether you borrow from the bank and give them borrowed money, or pay them outright with your own, they're still getting cash. You can get pre-approved for a car loan and have the 'cash' right there in front of the dealer to psychologically have the upper hand, or you can have pulled it out of your car fund at ING. It's still just cash to the dealer.

What I meant by that is I know car dealers. I should, my brother owns a dealership. Basically, I can take a check for $10,000 and get more car than if I ask them to finance the $10,000 for me. If you finance a car (especially through them), then they know you don't have a whole lot of money...so why cut you a break? (words from my brother).

Granted, I see what you are saying and I guess you could make a little more money that way but I am getting older. Debt is the last thing I want. What if die tomorrow? Sure, life insurance will pay the debt. But that's one more thing my wife has to deal with. Plus, like I said. Me, personally, choose no debt and paying cash for everything. I don't buy new cars anymore. Used cars with cash.

In fact, the BEST way to get a car at the lowest rate (from a dealer, anyway) is to call up 2-4 of them and say I have $XX in cash. I want XYZ car with XYZ options. I have called three other dealers. Lowest bid wins.

Plus, another thing. I live in a small city. Almost all of the car dealers use the same finance company in town! So, IF I were to use on-site financing, they all know I am getting from the same place. So they know I can't bluff them. Granted, I could borrow the cash and show them the cash.

But lets look at reality again. Honestly, how many people get a 2.5% rate for the entire length of the car loan? Maybe you do but keep in mind, the car dealers have to make something. So they jack those cars way up and then offer 0% or 2.5% to make you think you are getting a deal.

Give me a $4,000 car from the newspaper that I pay from checking over a $18,000 car costing 2.5% anyday.

Besides, why stop at a car? Why not get a CC and pay for all of your food too. That way, you can put your grocery money in savings at 4.25% and pay off your CC each month. Let your grocery money sit for 28 days drawing interest....lol

People do it...and maybe make a little. But the earnings don't justify the risk and work for me personally.

[jmjj215]

But lets look at reality again. Honestly, how many people get a 2.5% rate for the entire length of the car loan? Maybe you do but keep in mind, the car dealers have to make something. So they jack those cars way up and then offer 0% or 2.5% to make you think you are getting a deal.

Well, we were talking about Ima's situation specifically

Give me a $4,000 car from the newspaper that I pay from checking over a $18,000 car costing 2.5% anyday.

Of course! But you're changing assumptions on us. We were saying all else equal.

Besides, why stop at a car? Why not get a CC and pay for all of your food too. That way, you can put your grocery money in savings at 4.25% and pay off your CC each month. Let your grocery money sit for 28 days drawing interest....lol

I actually just started doing that this month. I purchase 98% of everything on our one credit card. I take our avg monthly expenses on the first of the month and it's automatically withdrawn from checking into ING. A few days before the checking account automatically pays the CC balance in full, ING automatically puts the same amount back (it's a subaccount in ING I call float).

It took me 10 minutes to setup and makes us $60 per year in interest. And that's a low amount only because our monthly expenses are rock-bottom low so the float amount is low (And of course I'm not considering the % cashback reward that I was told not to mention earlier!)

10 minutes, $60. That's $360 per hour.

To each his own.

Every person's situation needs to be evaluated as its own situation!

[cbmeeks]

Originally Posted by jmjj215

It took me 10 minutes to setup and makes us $60 per year in interest......10 minutes, $60. That's $360 per hour.

To each his own.

Every person's situation needs to be evaluated as its own situation!

$60/year = $5/month = (4 weeks at 40 hours) = $0.03 / hour.

Isnt' it funny how both of our calculations are correct yet they have radically different results?

Yeah, I see what you are saying. I tried doing that with my AMEX hoping to rack up miles. Didn't work for me. Mainly because even though I am frugal and controlling (now at least) I still managed to rack up debt. Hope you have better luck.

But, you hit the nail on the head "To each his own"

I follow DR the best I can. Sure, there are better ways to gain a little money (sorry, but $60/year is little money) but the way I see it is that I've tried it my way and I've been un-educated. I am educating myself and following a proven plan (DR). I think it will work. i will try it this way for a while and see what happens because my way hadn't been working.

But, DR's way (no debt at all) has really worked this month. I increased the amount of money in may 3900%. Same paychecks. Just no wasteful spending.

[jmjj215]

$60/year = $5/month = (4 weeks at 40 hours) = $0.03 / hour.

Isnt' it funny how both of our calculations are correct yet they have radically different results?

I wouldn't say your calculation is correct at all. It implies I spent 40 hours per week, 48 weeks of the year, to earn $60 and I did nothing of the sort. I spent 10 minutes.

However, as far perspectives go? Yes - yours and mine are radically different

[jmjj215]

I should also add that the 10 minutes I spent one time and the results can continue indefinitely - so really it's much more

[lrjohnson]

Jesse:

What I'm starting to realize is that a lot of people really do spend more when they have a cc.

I know you don't spend more, and you have done the number crunching to prove it.

I know I don't-I was actually flabbergasted to find out that others spend more with cards, because my experience is that cash runs though me but I pinch like a demon with a credit or debit card.

I am not totally credit card averse-though I am pretty debt averse-but it's starting to sink in for me that some people-I guess they've proven it's most people-spend more when they spend plastic.

If I was in that boat, I'd be wary of rewards and miles, etc. It makes me more understanding of the wariness of cards.

It reminds me of the "pay smallest debt" versus "pay largest interest debt" argument; some people who can see the raw pure numbers think highest interest is uber-obvious, but others know from their own experience that the psycological aspect of knocking off a debt is significant in the process of paying down debt.

(I have to say that $60 isn't little money to me. It's more than two weeks of groceries. It's a month and a half of health insurance premiums. It's more than two tanks of gas. It's a major thrift store spending spree. It's 25 pounds of cheese.)

[sweeps]

lr: You're right, for a lot of people psychological factors dominate over logic and mathematics. But we can try to change people's psyche about these things; we can't change the latter (even though some people try).