Yeah, not many are born wealthy, The difference is building cash reserves, this is done by better money management practices. A large part of building cash reserves, as you call it, is knowing the time value of money. From what the previous gentleman said, and my agreement, and your interjection I can gather you do not grasp these concepts.

Blaming what you do not understand for what you do not know is a common reaction. Can you really blame a person for not knowing what they do not know? I do not think so, but it all comes out in the wash.

 

hey we all die equally in the end and thats all that will matter when the time comes.

 

Meh, this is a fundamental misunderstanding of how the economy works. We need national debt.

This is the American condition. We don't need $70k trucks. Travel trailers. Motorcycles. 4,000 sqft houses. New clothes and eating out all week. We don't need to keep up with the Joneses. It takes very little money to survive. Everything else is wants, and those wants are what drive people to be eyeball deep in debt.

 

you know we all need a 1500 sq foot $60,000 kitchen so we can go out to eat all week!

 

Yeah, we all suffer from 1st world problems on this board. Will it be steak or seafood tonight my dear?

 

You know it! America! F YEAH!

 

While I haven't read all the comments in this thread, I did read a lot of them, & found it to be interesting reading. Lots of interesting ideas.

But, no way to tell whose way is best, as no one has posted their net worth (assets - liabilities), age & annual income. If folks were to post that, I think it would give a pretty good indication of what works best for people who want to accumulate wealth.

So, who is willing to post that information to prove their way is the best?? We are all pretty much anonymous on here, so I doubt you will be giving away anything too sensitive.

Or even if you posted your age & how many times your yearly income = net worth. For instance, 11 times my yearly income = my net worth, I'm 52. Do you think I am in the borrow money camp, or the pay cash camp?

 

If you make $35,000 per year or more, you are in the top 1% of income bracket worldwide.

 

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Well, you could be retired and have extremely low income. $1,500 per month = $18,000 x 11 = $198,000. Barely enough to eat rice and beans on the rest of your life.

Any who, the point that the smart ones made is you borrow cheap money and invest in higher return investments. Currently an 84 month loan at 10% is not cheap money; an 84 month loan at 1% is, just saying. Why tie-up all of your money unless it will save you money. Have you ever heard the term "opportunity costs"? You "invest" in a new truck when you could have taken the same money and made money with it?? You have just decreased your money/value from the loss of an opportunity.

It only matters what economy you actually life in. If you are in the top what-ever percent in some third world ****hole and move to the USA or Switzerland, you be poor.

 

[QUOTE=toymaster;17976575]Well, you could be retired and have extremely low income. $1,500 per month = $18,000 x 11 = $198,000. Barely enough to eat rice and beans on the rest of your life.

Any who, the point that the smart ones made is you borrow cheap money and invest in higher return investments. Currently an 84 month loan at 10% is not cheap money; an 84 month loan at 1% is, just saying. Why tie-up all of your money unless it will save you money. Have you ever heard the term "opportunity costs"? You "invest" in a new truck when you could have taken the same money and made money with it?? You have just decreased your money/value from the loss of an opportunity. end QUOTE)


Well, it should be easy enough to prove that you are correct, by having folks that agree with you posting their age, yearly income & net worth (assets - liabilities). I'm trying to figure what is best, debt or paying cash, & comparing hard numbers is the only way I can see to do it.

 

[QUOTE=scottscott;17976601]I mean...this isn't really debatable on which one is financially smarter. Its a mathematical equation, lets just look at the hypothetical extremes.

Option 1: Pay cash. Pay $70K today. It depreciates over time, in about 5 years its maybe 65% of its value. During that time you have more cash flow, less cash reserves gaining interest. You can use that cash flow to bolster investments, but it starts at $0 and builds exponentially slower thanks to compound interest.

Option 2: Finance the whole thing at less than inflation and dump $70k into the S&P500. Adjusted for inflation and with NO dividends reinvested the return for the last 5 years would mean that $70k is now $122,441.37. On TOP of that, your payments made on your truck get cheaper every month since you are financing at below inflation. So the financed dollars get cheaper to pay off with every month that passes. (S&P 500 Investment Calcs)

In what world would Option 2 not make more sense? Now, with all that said, we aren't robots. Emotions will always come into play when it comes to money. Some people like the warm fuzzy feeling of having a paid off truck/house/whatever. I on the other hand get the warm fuzzy from employing my money to make money for me. Passive income is the best income. Everyone has the way that they are comfortable with. But objectively, I don't see how option 2 would be worse. You end up with a lot more money on the outset...unless the market crashes and the zombie apocalypse comes about...but then you'll be happy you have a 4x4 that can smash zombie heads anyways.

 

Tricon, in your option 2 it looks like you left out that the truck is still depreciating. If that needs to be mentioned in option 1 shouldn't it be mentioned in option 2?
And, in option 2 you forgot to deduct the total of the monthly payments that you are going to be making from your $122,441.37. And, those monthly payments would be deducted right from the start, so each month you will have less $$$ in your investment, especially at the start before the investment has years to grow.
Is my thinking correct on those points?

In your option 1 what would the monthly payment invested for 5 years total at the end of the time period?? Using the same calculation you used in your option 2. This stuff is new to me so I don't know how to calculate it like you did. I'm guessing the monthly payment on a $70,000 loan over 5 years would be between $1200 to $1400???

Trying to understand everyone's side in this.

 

There have been several good points made in this thread (I read a lot of it, not all). Certainly whether or not a long-term loan is a good idea is 100% dependent on the individual and the circumstances. An individual with cash-in-hand has to choose, and when the interest rate is very low it makes good sense to take the loan and invest the cash. This is especially true when the individual has safe assets well in excess of the loan amount that can be used to service the loan if the "alternate investment" loses value.

For folks who have no choice but to take a loan, whether it is a good idea or not is very difficult to answer without all the details. Kids grow fast and you only live once, so there is an argument for modest borrowing to finance experiences that would otherwise be missed. The trick is not taking this logic too far (e.g., you don't need a 2019 Platinum to take the kids camping, you'd probably do fine with a 2004 Tacoma and a tent-trailer).

 

Yes, I left a few things out for brevity and just assumed the reader would make those same assumptions. You can pull dividends/growth from that investment to make the truck payment. There's plenty of ways to do it.

Ultimately, if you can get financing that is lower than inflation....there's very little financial reasoning to not go the option 2 route. Would love to hear if anyone can think one up?

If you throw emotions into the math, then all bets are off. The best path forward will be whatever suits you. But financially, borrowing cheap money and investing your own money is pretty much the best way to go. Yes, the market can crash. The world can end. Satan in a Toyota Tercel can rear end you and total your truck. You can't plan for exceptional situations, you can be ready for disaster, but you can't plan for everything. But you can stay the course. The market has never been down for extended periods. So keep a large emergency fund to cover your variance and never sell when its down. Easy enough huh? Housing market crashed in 2008, only people that lost out are those that were forced to sell because they purchased too much house, with crap loans and variable interest rates. If you didnt sell after 2008 then you didnt lose anything in the crash other than a number on your computer screen went down for a couple years.

Vehicles depreciate pretty quickly. There's not a lot of sound financial sense in sinking a bunch of your money in a deprecciating asset when that money could be out there MAKING you money. One shrinks, the other grows. Put your money in the one that grows and try to pay as little as you can for the one that shrinks. Clear as mud?