[RussV]

If you can’t pay cash, you can’t afford it.

[harperium]

just get a NINJA loan...

[2011ninja]

Originally Posted by Gottagofast

Regular McDonald's salary should suffice.

their executive salary is $250,000.00+

Maybe enough overtime on fries you could pull off buying a used 318ti

[christianb5s4]

Originally Posted by RussV

If you can’t pay cash, you can’t afford it.

That's my mentality too. Income is secondary from saving, plenty of people make a lot and are cash poor.

[1bmwaddict]

NOT TRUE. STOP!

Why pay cash for a depreciating asset? Considering the current high inflation rate, investing in some assets can feel like doubling down on a depreciating asset.

Originally Posted by RussV

If you can’t pay cash, you can’t afford it.

[Lupeskew]

I would just call these guys. They always help me.

[Trevorr]

Originally Posted by 1bmwaddict

NOT TRUE. STOP!

Why pay cash for a depreciating asset? Considering the current high inflation rate, investing in some assets can feel like doubling down on a depreciating asset.

Yeah paying cash is stupid. And paying cash is code for "I don't know how to invest."

If I had $100k today and then blew it all on a car and my money market account went down to 0, I have to start over and miss out on the compounding interest.

Whereas if I financed the car completely and then just kept saving money along with that $100k, its just going to keep growing.

This is literally what wealthier people do. However, with interest rates like they are right now, this strategy isn't ideal until they come down.

[deanomytee]

Originally Posted by Trevorr

Yeah paying cash is stupid. And paying cash is code for "I don't know how to invest."

If I had $100k today and then blew it all on a car and my money market account went down to 0, I have to start over and miss out on the compounding interest.

Whereas if I financed the car completely and then just kept saving money along with that $100k, its just going to keep growing.

This is literally what wealthier people do. However, with interest rates like they are right now, this strategy isn't ideal until they come down.

Someone knows what they are talking about!!!! I have always been the of the mind frame that If you have the cash to pay for a car you should take that cash and invest it into something that produces more return than the interest rate being charged. At the end of the loan period you should be well ahead of the interest rate charged on the car, as long as you are paying attention to your investment.

[CMW33]

Originally Posted by Trevorr

Yeah paying cash is stupid. And paying cash is code for "I don't know how to invest."

If I had $100k today and then blew it all on a car and my money market account went down to 0, I have to start over and miss out on the compounding interest.

Whereas if I financed the car completely and then just kept saving money along with that $100k, its just going to keep growing.

This is literally what wealthier people do. However, with interest rates like they are right now, this strategy isn't ideal until they come down.

Yes, exactly right. Income, investments, debt, taxes... it's all holistic and it's about how to structure these things so that you come out ahead in the end.

That said, it's a complicated equation that doesn't boil down to a simple answer (and the answer changes over time) so maybe for most people, it's just easier to live by a basic axiom like "debt is bad".

[geko29]

Originally Posted by Trevorr

Yeah paying cash is stupid. And paying cash is code for "I don't know how to invest."

If I had $100k today and then blew it all on a car and my money market account went down to 0, I have to start over and miss out on the compounding interest.

Whereas if I financed the car completely and then just kept saving money along with that $100k, its just going to keep growing.

This is literally what wealthier people do. However, with interest rates like they are right now, this strategy isn't ideal until they come down.

Your first paragraph is completely undermined by your last one.

The reality is, there's no hard and fast rule. It's situational. Had my car come in December of 2022 when promotional rates were 1.9% and I was making 3.8% on cash (which went to 4.3% a month later), hell yeah finance the whole thing for as long as they'll give me. By delivery in June the promotional rates were 5.29% and I was making 4.55%, which is more like 3% after taxes. I paid cash, and we still have plenty.

Next time we buy a car (which honestly will be a while), I'll evaluate the situation, and choose whatever method of purchase is most financially advantageous at that time. Might be another cash purchase, might be a finance, might be a lease. It all depends.

There's a particular problem with this statement, which I've highlighted:

Originally Posted by Trevorr

Whereas if I financed the car completely and then just kept saving money along with that $100k, its just going to keep growing.

Taking the financing means reducing your monthly discretionary income by the amount of the payment. That is cashflow that is no longer available for saving or investment. So you start with a larger base, but the "build" is slower. Everything is a tradeoff, with both benefits and drawbacks. You make the best decision you can, with the information you have at the time.

[Trevorr]

Originally Posted by geko29

Your first paragraph is completely undermined by your last one.

The reality is, there's no hard and fast rule. It's situational. Had my car come in December of 2022 when promotional rates were 1.9% and I was making 3.8% on cash (which went to 4.3% a month later), hell yeah finance the whole thing for as long as they'll give me. By delivery in June the promotional rates were 5.29% and I was making 4.55%, which is more like 3% after taxes. I paid cash, and we still have plenty.

Next time we buy a car (which honestly will be a while), I'll evaluate the situation, and choose whatever method of purchase is most financially advantageous at that time. Might be another cash purchase, might be a finance, might be a lease. It all depends.

There's a particular problem with this statement, which I've highlighted:



Taking the financing means reducing your monthly discretionary income by the amount of the payment. That is cashflow that is no longer available for saving or investment. So you start with a larger base, but the "build" is slower. Everything is a tradeoff, with both benefits and drawbacks. You make the best decision you can, with the information you have at the time.

Build is "slower" but compounding interest is still a thing.

Right now, interest rates are pretty high so market isn't great to finance a car but I still would not pay cash or put a large downpayment on a car as even though interest rates are high, interest on money market accounts and even high yield savings accounts are high as well.

[geko29]

Originally Posted by Trevorr

Build is "slower" but compounding interest is still a thing.

Correct. But paying interest is also still a thing. And in the current state, after taxes it will significantly outpace your compound interest.

To use $100,000 as an example. The monthly payment on a 5-year loan at 5.29% is $1900.44. In the first month, $440.83 of that is interest. By contrast, the first month's interest on an equivalent HYSA earning 5% is $416.67. Not a huge difference, right? But that's before taxes. I just looked, and my overall effective tax rate for 2023 was 23.4%. So that $416.67 is now effectively $319.13 (Would actually be even less, as incremental dollars are taxed at the marginal rate and not the effective rate, but let's stay conservative). A $24 difference became a $120 difference. And you have $1900.44 to sock away.

Take both out 60 months, and in either scenario you now own the car. Assuming the rate on the HYSA stayed at 5% the entire time (highly unlikely, as we'll get to in a moment), the balance in your account is:

Finance: $127,803.40, less the $6,508.77 paid in taxes. Effectively $121,294.60
Cash purchase: $129,241.37, less $3,561.85 paid in taxes. Effectively $125,679.52

Now four and a half grand isn't life changing money for most of us on this board. But it's not nothing either--I expect most of us would be happy to accept a 4.5% rebate on our purchase, even if we didn't get it until 5 years after purchase. And key to all of this is the likely faulty assumption that interest rates are not going to fall in the next 5 years, which is directly opposite what the Fed has been indicating. The more rates fall, the larger the gap between the two options becomes.

Originally Posted by Trevorr

Right now, interest rates are pretty high so market isn't great to finance a car but I still would not pay cash or put a large downpayment on a car as even though interest rates are high, interest on money market accounts and even high yield savings accounts are high as well.

They are indeed high as well. But importantly, not as high as finance rates, and even more importantly, expected to fall as many as seven times (probably fewer) between now and the end of 2024. So the inverse arbitrage you sign up for on day one is likely to only grow.

Now, there is an upside, as having the loan in that situation gives you optionality. If rates do fall dramatically and you reconsider your choice, you still have the cash, and you can choose to pay off the loan at any time. As I said above, benefits and downsides to every strategy.

[CDunster]

Depends on so many circumstances. For example, I took delivery of my 2022 M3CX in September 2022 and am in a fortunate position where I could have paid cash...but I didn't.

At that time, I could still get a 1.9% loan from my local bank. That's nearly free money, so I tossed the money into an ETF (QQQ) and now that money is up nearly 60% from that date.
If rates weren't that low, or the markets were not performing, then I may have played my hand differently.

[Burrcold]

I use a combo of high interest payday loans and home equity to pay my monthly $2k payment.

[RussV]

Originally Posted by 1bmwaddict

NOT TRUE. STOP!

Why pay cash for a depreciating asset? Considering the current high inflation rate, investing in some assets can feel like doubling down on a depreciating asset.

Because I can. Stop!

[RussV]

Originally Posted by Trevorr

Yeah paying cash is stupid. And paying cash is code for "I don't know how to invest."

If I had $100k today and then blew it all on a car and my money market account went down to 0, I have to start over and miss out on the compounding interest.

Whereas if I financed the car completely and then just kept saving money along with that $100k, its just going to keep growing.

This is literally what wealthier people do. However, with interest rates like they are right now, this strategy isn't ideal until they come down.

Paying cash is knowing HOW to invest, hence having the ability to pay cash. Paying interest is stupid and not knowing how to invest.

[2011ninja]

.

[G MONEY]

Originally Posted by RussV

Paying cash is knowing HOW to invest, hence having the ability to pay cash. Paying interest is stupid and not knowing how to invest.

It all depends on what you do with the cash. If it sits in your savings account, then by all means pay cash. If you going to invest the money, then by all means finance away. Me personally, I’m buying 2 duplex’s or 2 single family homes. Pretty them up and rent away. Or buy a shore house, fix and flip. Lots of different ways to go in these situations. Just need to be smart about it. Just tried for a flip in Margate and lost the place. Piss me off:-)

[Aalfred]

Originally Posted by geko29

Assuming the rate on the HYSA stayed at 5% the entire time (highly unlikely, as we'll get to in a moment)

Valid points but only if you want to be ultra conservative and put your 100K on a HYSA. If you just do a index fund with no active management an average rate of return is about 8-10%. And you drop in 100K all at once your compounding interest is also higher than dollar cost averaging depending on where the market is. So in the end, you will still end up coming out on top with holding on to your cash AND invest it rather than putting in in a HYSA which will go down once interest rates do down and unless you are in your twilight years, if you have 100K expendable income, most of us would be ok investing than just sitting in a SA or CD.

So could work well based on your risk aversion and aggressiveness even with high interest rates like now

[Trevorr]

Originally Posted by RussV

Paying cash is knowing HOW to invest, hence having the ability to pay cash. Paying interest is stupid and not knowing how to invest.

lol what?

What about when interest rates were 2-3% about 3 years ago? Why were huge firms/ individuals buying up homes using loans instead of paying cash for them?

[geko29]

Originally Posted by Aalfred

Valid points but only if you want to be ultra conservative and put your 100K on a HYSA. If you just do a index fund with no active management an average rate of return is about 8-10%. And you drop in 100K all at once your compounding interest is also higher than dollar cost averaging depending on where the market is. So in the end, you will still end up coming out on top with holding on to your cash AND invest it rather than putting in in a HYSA which will go down once interest rates do down and unless you are in your twilight years, if you have 100K expendable income, most of us would be ok investing than just sitting in a SA or CD.

So could work well based on your risk aversion and aggressiveness even with high interest rates like now

Agreed completely. As I said, there are a lot of factors. Generally when making investment choices, one wants to compare the returns over a similar timeframe and on a risk-adjusted basis. The long-term trend of the market is invariably up, as you've stated. But that 8-10% includes some pretty horrific downturns, as well as milder ones like the -19.44% we saw in 2022, so sequence of returns risk is absolutely a thing especially in the short term.

Your overall investment strategy should be based on a definition of your risk tolerance. And assuming your current asset mix matches that risk tolerance, increasing your exposure to equities while adding mandatory cash outflows by definition increases your risk level beyond your tolerance. If your risk level was below your tolerance and investing more instead of paying cash brings you to your goal, why were you short previously? It's like a whole separate other conversation.

[Trevorr]

Originally Posted by Aalfred

Valid points but only if you want to be ultra conservative and put your 100K on a HYSA. If you just do a index fund with no active management an average rate of return is about 8-10%. And you drop in 100K all at once your compounding interest is also higher than dollar cost averaging depending on where the market is. So in the end, you will still end up coming out on top with holding on to your cash AND invest it rather than putting in in a HYSA which will go down once interest rates do down and unless you are in your twilight years, if you have 100K expendable income, most of us would be ok investing than just sitting in a SA or CD.

So could work well based on your risk aversion and aggressiveness even with high interest rates like now

Pretty much what I’m doing. I have a managed index fund, much higher than a HYSA. It really just depends on what you do with the funds.

I’m a quantitative data scientist here in DC and “manage” a 2 billion dollar budget. I’m a glorified statistician/mathematician so I look at numbers differently than the average person. I regularly project 10+ years out as part of my job. There are too many variables to account for but it *almost* always makes sense not to buy a car cash as you come out way ahead in 20+ years.

There’s a reason why most wealthy do not buy cars, they actually lease believe it or not. However, wealthier individuals are not leasing or even buying cars in todays market, they are holding out.