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Cash or Debt

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Old 01-06-2009, 11:32 PM
  #21
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Default Interesting question-

I'm a bit different than most.

I buy almost everything outright (quads,bikes- trucks, cars) & I have no debt aside from my house- and my new boat, I own the old boat outright and all other toys outright. Im a buy good stuff and hold it guy.

I have a "rule"when it comes to financing large non-deductible toys.

I can only buy them when I develop a NEW sustainable income stream double the amount of the liability- i.e. I use assets to pay for liabilities not "my own finances".

I could have written a check for the new ride -but why when the money is so cheap?

The amount of money I can make with the actual cash I have makes the interest part of the note a paltry if nonexistant sum.
Even if I let the money sit, I'm still making interest on the money.

This way when more investment opportunities arise I have the money to make the money.

No one "saves their way out of trouble" you earn your way out, and people just digging further into debt reaching into their savings are fools.

When it makes sense I ALWAYS use other peoples money.

As a previous poster says- the 300K in the bank looks pretty good now.


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Old 01-07-2009, 08:22 AM
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I don't have the cash to buy so I speak in the hypothetical, but if I was sitting here with 100k in my pocket and faced with the decision on whether to invest it and leverage the boat, or just pay cash with the boat I think that my decision would remain to invest the money and use someone else's money for the boat. My equity Line is UNDER 4% right now and you get a third of that back at Tax Time. As far as I am concerned that is REAL cheap money, hence the reason my boat and all 4 cars are on it.

I sleep great at night - but since I'm young I would like to reserve the right to revisit this post in 10 years when my situation has changed and be able to pull the "I was young and stupid" card!!!

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Old 01-07-2009, 08:34 AM
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Cash for toys, cars, trucks, loans on home/rental property, that's how we roll in the Ferry household. I really don't like financing something that depreciates and has no tax write off on.
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Old 01-07-2009, 08:38 AM
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Originally Posted by seafordguy View Post
I don't have the cash to buy so I speak in the hypothetical, but if I was sitting here with 100k in my pocket and faced with the decision on whether to invest it and leverage the boat, or just pay cash with the boat I think that my decision would remain to invest the money and use someone else's money for the boat. My equity Line is UNDER 4% right now and you get a third of that back at Tax Time. As far as I am concerned that is REAL cheap money, hence the reason my boat and all 4 cars are on it.

I sleep great at night - but since I'm young I would like to reserve the right to revisit this post in 10 years when my situation has changed and be able to pull the "I was young and stupid" card!!!
Interesting thoughts. Rates are very cheap on mortgages and HELOCs right now. But we could go back to the days of late 70's/early 80's when rates soared in short time. That saw huge jumps in interest charges for existing debts. Be careful, but have fun.

I like many of the posts about financing, but doing it well within your means. When i bought this Scarab in March '08 ( I stole it), I placed the money in a CD at the bank as collateral and used a loan. Then, when the economy really soured, I didn't want the payment anymore so I released the CD and paid off the loan. So I guess I dipped my toe in the finance water, but was glad I simply bought a CD and didn't have it in the market.

BTW< my speculative investment money was invested in a position offering 2x the opposite direction of oil.
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Old 01-07-2009, 08:55 AM
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I pay cash for toys. My toys are not on the level of alot of you guys, and I could afford alot more if I financed, but I don't have to worry near as much as my friends with payments on everything. My old lady lost her job and although the loss of income sucks, with everything paid for but the house, it doesen't greatly affect our lifestyle.
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Old 01-07-2009, 08:55 AM
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Interesting thoughts. Rates are very cheap on mortgages and HELOCs right now. But we could go back to the days of late 70's/early 80's when rates soared in short time. That saw huge jumps in interest charges for existing debts. Be careful, but have fun.

.

Mine is tied to Prime as most are, and realistically I don't think that the Fed is going to make money more expensive anytime soon. We know too much about monetary policy now. After the crash in 29 the Fed (ignorantly) raised rates, and lowered the money supply causing a further depression. We are smarter now knowing that in order to drive the economy into an expansionary period money has to be available, and that will keep rates low for the forseeable future. Another driver will be the scare of deflation, which will also keep the rate tempered for years to come.

Sure if it doubles to 8% in the next 5 years you are paying more money, but again, after taxes it is still just over 5%, and if they do raise the rate it will be during a time of inflation further dampening the "real" interest rate.

My HELOC has a minimum monthly payment of interest only, which is nice in case you had something catastrophic happen where you needed money and couldn't pay anything to principal. I think it is a great arrangement and having the toys makes the small amount of interest a non-issue to me especially when I'm ON the boat!!!!

Again - this is easily said by someone without the cash
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Old 01-07-2009, 09:08 AM
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Being comfortable with the method is the most important. I financed more than half of my little dinghy at 6.5%, but I have no car payments, and don't buy all the toys I want. Paying out 3500 smackers a month so the ex can live in a house I bough, but don't live in, plus child support, puts an automatic damper on my spending sprees. But that's for another 2 plus years, not forever.

My feeling is this, housing comes first, having no debt is golden. If you can afford a $200,000 boat, find one for half that, and sit on the rest. In this economy, it should wake people up to the fact that not getting sick when the mailman comes by is priceless. If you can't set aside $500 or $1,000 a month in a savings account now, IMO, you have no business buying a boat. And for all those twenty and thirty somethings out there, I know all too well how great it is to be able to get that shiny new toy. But a far greater feeling is to have a shiny new toy that you can afford, and not be sweating about bills when you're a fifty-something. Remember, we old guys boat too
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Old 01-07-2009, 09:48 AM
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There is some very good advice in this thread and being as I am finishing up my thirty somethings, have four kids with one a couple of years away from college it is very important for me to control my finances. We have no dept other then our home and the a loan on the boat. Cars are paid for, no CC's other then what we use for the business and pay off monthly, and college funds are in place.

It's my philosophy to make your money work for you. If it makes sense to pay cash, pay cash.. it makes sense to invest the cash and finance a portion, then go that route. Lets face it, especially in an economy like the one we have today its critical to get the best bang for you buck. That requires discipline, focus and long term goals.

I don't think there is a clear winner in either scenario, because arguments can be made for both paying cash and financing. It comes down to what makes your money work best for you without over extending yourself.
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Old 01-07-2009, 11:27 AM
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Borrow the money at 6% and send the principle to Bernie Madoff to get 15% guaranteed, that way you will make 9% on your money! What are you people stupid or something?

Buy it right, yes that means lowball/ tire kicking/ whatever...
Paying MSRP for anything combined with 0% financing will still make you upside down for life.........

Don't get into variable rate financing/ intro rates like Formula offered for years (0% rate for 2 years then 8% or whatever so your payment goes from $599 to $1599), that is the equivalent of negative amortization financing on houses....

Buy what you like (like Reggie Jackson says, don't ever buy a car you don't love so if you have to keep it atleast you love it).
Buying a cruiser to make a spouse happy will make you miserable everytime you use it, spend money on it, etc....

Buy something you can afford to insure/maintain.....yeah a 40 Skater is awesome if you can afford the refreshes/ insurance whatever. The mechanics don't feel bad for you if you are broke trying to get your boat fixed.

Don't buy weird stuff...... Fountain with ice cream cones all over it, probably won't be hot on resale.....killer cat with weird italian engines and two speed trannies won't appeal to buyers.....

Cash vs. credit argument....... go 50/50 most can't get hurt, will have low rate due to high downpayment, will be right side up on loan and still have 50% left in cash to help in bad times.
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Old 01-07-2009, 01:55 PM
  #30
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I'm liking the 50/50 idea. Or maybe 65% cash/35% financed.

If I buy something like this, I want to keep it for many years. Not interested in flipping in and out (seriosuly, no pun intended).

Refreshes and such are fine. But I'd look for a time tested design, paint scheme and power set-up. I want it to be faster than I am comfortable with. To me, nothingis worse than something that goes slower and slower each time you use it.
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