Quote:
Originally Posted by ProfessorP
Who invests in CDs anymore?!?! CD only makes sense sometimes if you're near retirement and can't afford to take financial risks.
Paying off super low interest debt (practically free money) early for peace of mind is foolish if that $30K can return substantially more than you're paying out.
We only finance one car at a time (wife's Pilot is paid off), We have more than enough cash in rainy day savings to pay our '19 4Runner off. We financed at 2.5% then invest our money elsewhere at Waaaaaay higher than 2.5% return. Some years we do 6-8%, but some years we manage 30% + returns. Some years our investments yield higher returns than our annual salaries. Can't do that if our cash is tied up in a car. I honestly don't understand putting money into depreciating assets, when it can work for us earning much higher returns.
Having a loan is a negative for me because of these points:
-Having a loan means you owe someone money - This is an emotional reaction to the situation not one based in logic.
-It takes away financial independence - Investing money in appreciating assets to offset low interest debt can increase financial independence.
-If you lose your job or something happens, you are in a very bad spot - If I lose my job we have a one year rainy day fund plus investments that way outperform the low interest we're paying out. We save 27% of our gross household annual income in retirement investments on top of the rainy day fund.
- Your job can take advantage of you because you need to make a payment and would be unable to leave - Not necessarily the case if you live below your means and have backups in place. I can afford a $60K+ car, but I drive a $37K car.
All of that being said, I agree that having a weekend play car financed is not a sound financial decision unless... - You and your spouse are already investing at least 20%+ of your household income into retirement investments.
- You have 8 to 12 months worth of expenses in a savings account/rainy day fund (not a CD or investment where the money isn't readily accessible).
- Pay off all credit cards every month and have no other revolving credit balances.
- You make A VERY high salary.
Credit card balances MUST be paid off in full every month. |
I believe both your and my points are subjective. I would not say right or wrong. Everyone has their own opinions on it and it also depends on your situation.
My point on the CD is because it is the only short term sure thing that won't lose money. There are no high yield savings accounts anymore or high interest bonds. Stock market is not safe IMO. But if you are good at playing the market, more power to you. Long term, 401k/IRA is a great investment.
-You can say its emotional but a loan is a loan, and until that car is paid off, you owe someone money and you don't own that car.
-Investing money in a depreciating asset as you said is never smart. Though it does not mean it should not be paid off. Also, it depends on your situation. We keep our cars till they die - literally, so I am not concerned about resale/tradein value so much as a smart initial investment that will last long. We also drive our cars <7k miles each per year so it should last almost forever.
-owing on any loan is not good and does take away from some financial independence. It is just always good to have the upper advantage in life and be able to have control over your job situation. Some just play it more safe than others.
Investments do not seem to work in my favor anyway is most interest gained just goes to taxes unless it is untaxable retirement income.
We live very very practically and like to be over prepared though so everyone just thinks differently. It does not mean be miserable and squeeze every penny. We definitely try live good lives, but within our means. Everyone's extra is what lies within their budget though of course. Some may have 0. some may be able to buy a lambo every year.
I don't think any of it is set in stone for anyone. They are recommendations and opinions, not rules and I would not try to force it on anyone. People also have to tailor these things to their specific life situation.
