How in debt are you with your Tacoma?

I like to use this concept for most things, but as stated before my cash works harder for me on my investments coupled with super low interest.

 

We'll just have to agree to disagree on the value of "credit building" & using loans as investments. I can see already you're entrenched in this line of thinking. I was there once too & there's no way you could have convinced me otherwise. I look at how much money that decade or so cost me using the same ideas you're talking about here & to this day I still cringe at the total $ lost.

The problem with loans isn't that payments/interest rate are too high. The problem is when someone buys a brand new $40k car they can't afford at a "good interest rate" & then 3 years later they've lost $20k in depreciation. What makes it better is they've paid thousands in interest on that "good interest rate" to boot. All in the name of "building credit" so they can what? Get more loans & give the bank more money? Seems like sound investment advice.

Best advice I can give is to pay cash. Save your money & pay cash the next time for something a little nicer maybe. Despite what anyone tried to tell you vehicles are almost never investments & the idea of getting loans to acquire them serves only to compound the issue.

 

Assuming a $500/mo payment how long do you think that same $500 pumped into the same investments would take to surpass the few percentage points difference between loan cost & investment potential?

Spoiler alert: not very.

 

worked hard, saved up my money little by little and paid cash for mine.

 

I agree, living within your means is top financial priority. Also, I agree that vehicles are never an investment. However, if any loan has a low interest rate, you can profit more from investing rather than paying off that vehicle quicker. Say, you have a 3% loan vs. 8% investment. Of course the investment will outperform the interest rate. Going upside down is usually the result of buying an overvalued, high-depreciating vehicle, at a high interest rate. Which usually isn't the case with Tacoma's.

On the other hand, the psychological benefit of being debt-free has its own value. In my case, I do a mixture of both. I double my truck payment while investing in the stock market.

 

Can't walk to work pal.

 

It's not just psychological. It proves out mathematically. Nobody who is truly wealthy will tell you to finance a car to invest your cash in something paying a few points more. How much profit will you need to see to offset that $20k lost in depreciation? This is really two different topics (loans & new vehicle purchase) but saying "only buy what you can pay cash for" keeps most people from making the second mistake. Not many people have $40k saved to buy a brand new car & the ones who do realize how foolish it is to buy one when they have to lay down $40k in actual green backs when they factor in how much work each one took to get. That's the problem with loans: with the stroke of a pen it allows you to get WAY more car than you should w/o even considering the financial ramifications. Just sign here is much easier than counting out $40k in cash. That's the whole point.

A $2k car will get you to work. Something tells me we're not actually pals. ;-)

 

Ill choose reliability over cheap, thanks. I need to keep my job. At least I'm not spending my money on useless things like guns. Guns are for suckers

And you're probably right.

 

I agree, consumer goods and especially depreciating items that loans are to be avoided. However we took on our first car loan this year, we've always paid cash for our cars (I'm 46 years old even). Subaru offered 0% interest for 60 months. We had the cash but even if all we do is let the cash sit in a checking account for 5 years we'll come out $148 better off and there's no downside.

 

I think we are debating on two different things here. I agree with everything you are saying about buying a vehicle with high depreciation. I have way too much homework to do to prove my point mathematically, if I get a chance tonight I'll bust some numbers.

 

Not as much as my college debt that's for sure.

 

The two aren't mutually exclusive. You can get a car that's incredibly reliable & fuel efficient with a low cost of ownership for $2k. You can also get a Range Rover for $80k that will be in the shop monthly & chug the gas like a sorority sister on her first spring break out if the country. Do your homework & for a few grand you can get something both reliable & enjoyable. Take that $500/mo & put it in a sinking car fund. If you need to make repairs you simply take it out of that. Before you know it you'll have a nice chunk saved up & if/when your car gets to the point of expensive repairs you sell it & use some of your $20k to go pay cash for a nicer $5-$7k car. Do this long enough & you'll have saved tens of thousands & will have an easier path to your financial goals.

If you had the $30k (or whatever the cost of the Subaru) just sitting why in the hell would you park it in a savings account for 5 years? That makes no sense. Start dumping that into retirement accounts to the limits allowed annually by the IRS & your returns after the first 5 years will be nice. Much nicer than the $15k-$20k you'll lose on a new Subaru over the same time period. Let that keep rolling for 10-15yrs & it will be very nice.

You won't be able to produce math that tells me having debt (at any rate) is a better investment than not having debt & putting that same cash into investments & retirement.

 

Oh man, now you're just trying to get me riled up on anti-debt speak. ROFL!

 

I said that if I do nothing other than let that cash sit in a checking account at 0.62% rate instead of writing a check for the total sum as we've always done I would be ahead $148. That's not where our money sits, we actually keep money in savings, the market, all over. The amount in the checking at any given time is above the minimum for it to bear interest and nothing more. I'm not dumb.

Also the car we bought was $21,000 so the depreciation isn't as severe. It was actually barely more expensive to buy a brand new car than to find a decent used one. Here in Colorado there is a serious market tax on Toyotas and Subarus. I had to buy a 7 year old Tacoma when I went looking to meet my budget.

 

Oh don't even get me started on how much med school is going to cost. Might have to buy another taco just to make myself feel better.

 

Your justification for your purchase was $148 which is comparing apples to aardvarks since we both know your investment potential over 5 years in actuality would be much greater.

In fact, based on a round return of 10% we're talking $10k in profit on the same money over the same period in a mutual fund/retirement account. Not even factoring in compound interest & the fact that your investments will very likely exceed 10% avg over 5 years.

At most your Subaru will be worth $10k in 5 years & that's even factoring in Colorado (where I live so I fully understand the resale on Tacomas & Subarus) resale. So that's a depreciation hit of over $10k.

Add those up & we're talking a $20k minimum difference lost in 5 years. I don't care your net worth, that's no insignificant amount.

But hey... You got 0% so that washes that all away. ;-)

 

Zero debt, period. On anything. However, I don't own a home and for the people saying "save up and pay cash", as a 32 year old living in California it would be very time consuming to save up $500-900k cash to buy a home. I did have a loan on my truck but paid the balance (about half the value of the truck) in a lump sum once I had the money but I did in fact have to take a loan out to purchase it in the first place.

 

I had a $2k car before I bought the Tacoma. And every time I turned around to look at my 4 yo daughter in the back seat of this cheap vehicle, I thought "Is this the kind of car I want to take the chance of getting hit in and risking her safety"?

The answer was no, so I got a loan and purchased a much safer, reliable alternative..At $2000 total interest for the life of the loan, it was a no brainier. Sorry, buy Ill spend $2k extra for her.

 

In about 10 more days...NADA! ZIP! NOTHING!! Just like my mortgage and house payments.