re: People who think they are smart because they pay cash for their cars

There is an assumption in your premise which I reject. That people will spend the same amount for a car if they pay cash.

The discipline of paying cash for your car encourages you to be frugal.

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This almost never happens unless

You get lucky with highly speculative investments or

You can take a business deduction for the interest paid.

Average baw is not likely to have either scenario in his fav

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Its not exactly hard to beat out 5-6% interest, and thats on the high end of interest offerings for people with decent credit scores.

Okay you me got me sold. I'm gonna finance $50K at 2.5% for 84 months on a f150. Should I finance the lift kit too?

1) I don't spend thousands a year on insurance period, even with collison and liability and a couple bells and whistles

But I'll grant you the overall point: IF you seriously drive with no collision coverage, then that needs to be factored in. Personally I wouldn't go without it however.

2)

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Oh, yeah. And I get a better deal by paying cash

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No.....no you don't. At best they con you well enough to make you think that you do. But why on earth would they give you a better deal on something that makes them less money?

Folks, the dealership doesn't give the slightest frick if you pay cash or finance. They get 100% of the value of the car in days, and you pay off the bank who gave them the money.

The only deviation to this rule is with in house financing, where the same thing applies but they offer kickbacks to push the consumer to finance through them.

It wouldn't be hard to list a few dozen "Finance 101" concepts that work well for some, not so well for others... Just like EVERY single principle of financial strategy. It's absurd to even think it's possible that "one size fits all".

"It just depends" on the individual situation....

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Depending on your bracket you're losing about a third of that interest income to taxes while not getting a break on the interest paid unless you're a business.

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What? Do you even tax, brah?

Its sitting in stock assets that are growing. I don't pay taxes year after year on that 8-10% average growth until I sell, which the GROWTH gets charged at a 15% rate for long term capital gains.

And to completely blow your mind, I can cherry pick which lots I sell. So even when the overall portfolio grew, not only can I get my capital out, I can do it without paying taxes by selling assets which took a loss compared to when I bought it.


Ditto if it shoots off a qualified dividend from a US company.

You don't pay your marginal rate on all gains.


So the argument is: If you have 30k in an index fund, do you let it stay and grow, or do you cash out to buy the car.


And the call is almost always to let it grow being the smarter move. The trick is to get yourself in the position where that 30k is already in the account to start with.

I qualified my OP as saying average baw. What you're talking about is beyond realm of most people. Fred the shift supervisor at the plant wont be doing a cost benefit analysis of his nonexistent investment portfolio.

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Why would you assume they'd invest the money? Do you invest all of the money you have? I don't.

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I do

What's your reason for not investing some?

I like the idea that I'm not enslaved to my job for more monthly bills when I pay cash for big-ticket items. I can walk away and be fine not worrying about making payments months or years down the road. Reducing stress in life is a big deal to me...much more valuable than the 5% talked about here.

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What you're talking about is beyond realm of most people.

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No it isn't, and I hate that kind of thinking.

Almost everyone spends more than they need to. You'd be amazed what just a year or two worth of knuckling down can do.

Its what I did....making below the average household salary BTW so its well in the reach of the average person. Now I can take vacations for the rest of my life for "free" off of just the dividends that collect in a cash money market account till I need it in an revenue stream separate from work.

And the OP was talking about paying cash.


If you have 20k in cash sitting around in an account in the current interest rate environment, you are one of three things: Rich, retired, or stupid.

Put that damn money to work baw.

Hell, set it up to direct deposit straight from your paycheck into a mutual fund. No reason to spend any time thinking about it. Just make the commentment to put money aside every check and don't touch it. You'd be amazed how fast it grows.

You don't have to be a stock broker constantly trying to find the next big deal to do this shite.