Buy now and finance or wait and pay cash

Barbaraok · March 10, 2019

But it did. So either we are extremely lucky beyond belief, or have learned that when interest rates were so low, it made sense NOT to move money out of money generating funds. By not paying all cash, we STILL have all of that money left, still working and generating income for us. And had a dire emergency come up, we would have had the funds to see us through. And if we had pulled out all of that cash out, not only would it have cost us in future income, but we would have had to pull out another 25% or so because it would have been taxed on top of all of our other income. And not only do you have to pay income taxes on money coming out of tax deferred accounts, but the amount of withdrawal also affect how much tax you have to pay on your social security payments. I spend time each year running 'what ifs' to see how much we can pull (beyond our RMDs) and still keep our income taxes at a reasonable level. There are no pat answers as everyone's finances are different and each of us as a different level of risk that we can handle, different feelings about money, different goals and aspirations.

mptjelgin · March 10, 2019

Oh, I'm not saying that it can't work out, especially with the bull market that we've been enjoying the past ten years. And with tax implications it can get complicated. And remember, you've still got taxes to pay on those gains that you're enjoying.

But to make a blanket statement that paying case for an asset is "not financially a sound thing to do" is absurd. Let's face it, if the markets always outperformed the interest rates charged on consumer goods, the banks would be better off just parking all of their money in the market. But they don't, for good reason...

mptjelgin · March 10, 2019

To take this a little further, I'll ask a question that Dave Ramsey often asks. Would you borrow money against a paid off asset to invest into the stock market? After all, you are confident that the market will generate gains at a higher rate (even with taxes) than the interest you're paying on the loan, right??

Barbaraok · March 10, 2019

2 minutes ago, mptjelgin said:

To take this a little further, I'll ask a question that Dave Ramsey often asks. Would you borrow money against a paid off asset to invest into the stock market? After all, you are confident that the market will generate gains at a higher rate (even with taxes) than the interest you're paying on the loan, right??

Yes. Been there, done that. Of course timing and knowing what you are buying are everything (like Apple at $12.50/share)

mptjelgin · March 10, 2019

2 minutes ago, Barbaraok said:

Yes. Been there, done that. Of course timing and knowing what you are buying are everything (like Apple at $12.50/share)

Clearly you have a special gift. Congratulations!!

Barbaraok · March 10, 2019

Not really. First rule of investing is to start with something you know, use, and like. Missed Southwest Air when it started because with a new baby and new house we were not in a position to invest. And if I had a real gift, I wouldn't have sold a large share to reap rewards, but kept it through retirement.

RV_ · March 11, 2019

I agree on both fronts to pay cash. I live on a military retirement which is not much for some, but combined with our two Social security checks and our medical/drug coverage funds a nice lifestyle only because we have 0 debt. We buy our houses cash, we buy our cars two years used cash, we pay off our credit cards monthly and do not use them for loans. No car, house, or credit card notes. We pay as we go. We do keep at least one year of living expenses in a money market account and switch it to a savings account when times get uncertain. Both are with a bank that did not need a government bailout in 2008.

Now for the investment gurus, I now have all of my left over monies from no car note, no credit card payments, and no mortgage payment funds monthly to invest. It keeps building up after paying for Gas, food, clothes, Internet, electric water and gas. I just cashed in enough to buy another house before I sell this one. My point is that this is not a hypothetical example. Suffice it to say I have been all cash since age 12 (1964) when I went to work full time to buy my KLH Model 24 stereo system, and a Sony TC630 reel to reel, and my first guitar. This was 1964 when kids could work despite laws to the contrary.

Having my whole paycheck free is amazing to our friends who know that. Rent and house notes went away when I discovered sweat equity and buying/renovating and then selling since I was military and going to have to buy and sell houses every three to five years anyway. (Except for the 7 years of 27 spent in base housing in Germany) Some of us became multi unit landlords, but a few like me bought right, fixed up the eyesore of a good neighborhood, and not only made money but used most of it on the next house. We became licensed contractors after doing it for ourselves for 20 years and flipping our houses for great profit too. Our last one flipped was sold the week before the bank bust in 2008. We haven't done one since.

Today keeping money in a savings account is not going to make you much money and a portion of my 0 debt goes to investments be they pot stocks, real property, cars, or just spending my kid's inheritance. Since we are moving to Colorado I will be buying all wheel drive Subarus cash and selling my 2004.5 Ram diesel long bed, 2015 Hyundai Elantra, 2009 Chevy HHR, and the 2013 Scamp 19' 5th wheel. I already bought a like new 2006 Subaru Baja from here with no rust from salted roads, and we are getting a Forester possibly new, and another used Forester or Outback. The Baja will be our pickup/beater vehicle for foul weather and stay under a carport. Our other two will be in the garage, as hail is an issue in our new home area.

I know that if one did not make the same choices I did 48 years ago to current, it may be too late. We always lived within our means and love buying used lightly if we can. All but clothes and underwear/shoes. When I bought a house or car I had the monies to repair/renovate in hand or I would not buy it. Do the repair restoration renovation immediately, then enjoy it until it is time to get another, and while it is at peak value. I even enjoyed keeping pics of each "project."

My house and five acres was paid for in 2003 when we came off the road cash for 1/5th of what it will sell for now. When the housing market crashed in 2008 I did not care. I was not only not upside down financed, NO banks had any say over my properties, real or otherwise. If my house loses value and if I need to sell it, I can sell it for less. I don't lose it all as so many did in the last big recession.

We don't do junk. We had nicer stuff than many without the stress of ever having to borrow from Peter to pay Paul. But yes I had to know how to choose/inspect/and repair all the stuff I wanted, none of it was luck. Even finding the deals took shopping the ads daily especially when I never needed to buy. No rush, no emotion. I bought cash and used and renovated our first seven year old HitchHiker 36 foot fiver in 1997, and then moved up to the newer fiberglass rig in 2000. Then we came off the road or we would be in a paid for like new top line RV.

We are getting a lot of younger RVrs now and they need to think debt free and have an exit strategy. Always pay cash until you owe zero, and cannot be stressed in a downturn of the economy. Remember it is never a loss or profit until you sell. Imagine how the folks who liquidated in 2008 and lost their butts felt in 2009 when their stocks came back and the companies we would expect to survive a recession did? The market goes up and down. It never disappears altogether. Then when they tank you can join me in buying cheap, only to sell high at a future date.

If you want to finance everything, have at it! If it works for you, great! One size fits all, of only that one size.

RV_ · March 11, 2019

7 hours ago, mptjelgin said:

And remember, you've still got taxes to pay on those gains that you're enjoying.

I just sold my Tesla shares and OUCH! my capital gains tax is twice my original investment! On the other hand, I keep the other 85%

And move out of the Hot and humid Southeast!

nwtraveler · March 11, 2019

You are looking at 6 years. I would wait. We were looking at 1 to 1 1/2 years and the rv we

wanted was only built twice each year. We opted to get a home equity loan, which had better

interest rates, because we planned to sell our home AFTER we got our new rig. We then ordered

a new 5th wheel and a new truck. Once the house sold (3 months later) we paid off the equity loan

and are debt free.

sandsys · March 11, 2019

5 hours ago, nwtraveler said:

We opted to get a home equity loan, which had better interest rates, because we planned to sell our home AFTER we got our new rig. Once the house sold (3 months later) we paid off the equity loan

and are debt free.

We went that route also. It worked well for us.

Roadtrek 1 · March 11, 2019

22 minutes ago, sandsys said:

We went that route also. It worked well for us.

Glad you were able to do that...sell the house and pay off the loan on the rig and house.

As you know now you can't use a HELOC and write off the interest unless it's used to improve your residence. SO....in your case it didn't matter, but, if someone else is thinking of getting a less expensive interest rate..that plan won't work with the new tax laws.