Doesn''t anyone pay cash anymore???

[perry]

Jake:

You pitch a concept that in general does not work out longterm - because of the real risk and failures related to most investments. Yes a few people do win with this system; but just as many or more loose with it. Funny that you don''t talk about all the people who have lost with that system.... (and their is nothing new about that system - I''ve watched people use it for 30 years - and most failed long term when things went south on it).

Are you familiar with Robert Kiyosaki - Author of "Rich Dad - Poor Dad" and many other books about how to make it financially (and you need to start with Rich Dad - Poor Dad before you read the other books to get the most from it).

The facts are that the rich get richer and the poor get poorer. The reason is not that the rich are taking advantage of the poor - its because the rich think differently about money than the poor do. The rich know how to create and use an asset to create more wealth and how to minimize liabilities.

Funny, everyone I personally know who is wealthy - and I actually know a half dozen or so - has their house paid off, pays cash for things, pays off credit card ballances every month, and yes has an investment portfolio - but would never put their principal residence at risk for an investment. A few have companies that own the properties they live in as the property is a "business investment" (but they always have a fallback place that is theirs independent of the investment company).

Do you know what an IRS "Qualified Investor" is? Would you ever even discuss your method with one if you had the opportunity to deal with one? OK, there are a few people who qualify who goof up and fall back - but the majority of these people are very smart and astute about how to create a wealthy lifestyle (far beyond money) - and they woundn''t think of doing what you are proposing...

Now that does not mean that credit is necessarly bad - but it does have to be carefully managed and only used for certain things.

Perry

 

[the other Jake]

Date: 12/5/2006 10:31:19
Author: perry


Jake:

You pitch a concept that in general does not work out longterm - because of the real risk and failures related to most investments. Yes a few people do win with this system; but just as many or more loose with it. Funny that you don''t talk about all the people who have lost with that system.... (and their is nothing new about that system - I''ve watched people use it for 30 years - and most failed long term when things went south on it).

Are you familiar with Robert Kiyosaki - Author of "Rich Dad - Poor Dad" and many other books about how to make it financially (and you need to start with Rich Dad - Poor Dad before you read the other books to get the most from it).

The facts are that the rich get richer and the poor get poorer. The reason is not that the rich are taking advantage of the poor - its because the rich think differently about money than the poor do. The rich know how to create and use an asset to create more wealth and how to minimize liabilities.

Funny, everyone I personally know who is wealthy - and I actually know a half dozen or so - has their house paid off, pays cash for things, pays off credit card ballances every month, and yes has an investment portfolio - but would never put their principal residence at risk for an investment. A few have companies that own the properties they live in as the property is a "business investment" (but they always have a fallback place that is theirs independent of the investment company).

Do you know what an IRS "Qualified Investor" is? Would you ever even discuss your method with one if you had the opportunity to deal with one? OK, there are a few people who qualify who goof up and fall back - but the majority of these people are very smart and astute about how to create a wealthy lifestyle (far beyond money) - and they woundn''t think of doing what you are proposing...

Now that does not mean that credit is necessarly bad - but it does have to be carefully managed and only used for certain things.

Perry

nejarb: thanks for clarifying for me

, you understand what I am saying

Perry: You are essentially agreeing with me. Never did I say that you should put you principle residence at risk for an investment and it is ignorant to carry a credit card balance. Hypothetical scenario: Say your monthly mortgage payment (this is you only expense) is 1,000 and you have income of $2000 a month. You have several options- Pay the maximum, Pay the minimum and save rest, or a combination... A loan is ammoritized such that the earlier payments are devoted almost entirely towards interest. In the beginning life of your loan it would be wise to pay almost the maximum amount to help build equity on your home and pay down the principle- this will take several years of your mortgage. At the same time some of that money should be placed in a safe investment such as a savings account or CD to build an emergency fund. At some point though during the life of the loan- once you have adequate safety net of savings, it would be a better strategy to shift a larger portion of your payments towards higher risk/ yet higher yeilding investments. Towards the end of the life of the loan, it would be the best strategy to pay the minimum (almost the entire payment is going towards the principle anyway), and invest the rest. The message I am trying to convey is that removing all debt as fast as you possibly can despite all circumstances is not the fastest way to aquire wealth... in some cases it is appropriate, but not in all.

 

[Cehrabehra]

Date: 12/5/2006 10:31:19 AM
Author: perry
Jake:

You pitch a concept that in general does not work out longterm - because of the real risk and failures related to most investments. Yes a few people do win with this system; but just as many or more loose with it. Funny that you don''t talk about all the people who have lost with that system.... (and their is nothing new about that system - I''ve watched people use it for 30 years - and most failed long term when things went south on it).

Are you familiar with Robert Kiyosaki - Author of ''Rich Dad - Poor Dad'' and many other books about how to make it financially (and you need to start with Rich Dad - Poor Dad before you read the other books to get the most from it).

The facts are that the rich get richer and the poor get poorer. The reason is not that the rich are taking advantage of the poor - its because the rich think differently about money than the poor do. The rich know how to create and use an asset to create more wealth and how to minimize liabilities.

Remember when "the donald" lost it all? You think he got back all those millions/billions by paying cash and not using credit? No way! He got it by being ahead of the game balancing his loans and making investments. Sure, it''s much safer to KEEP it if you tuck it under your mattress, but it''s more likely to grow when there is some, yes, risk involved.

 

[winternight]

There is also a difference between using business vs. personal assets to leverage. I''m sure the donald has leveraged using other people''s money!

 

[partgypsy]

I am someone who argues about never having debt, but right now have a house payment, as of last March bought a Honda oddysey so now a car payment. It freaked me out having a car payment because I''ve never had one before. We have been putting down extra money to have it paid off sooner ($6800 to go). However I realized recently that the interest on the car payment is 2.9% while my money market account is 4.5%, so now I am putting the extra payments I was making in the money market instead. This way I''ll be earning some interest (albiet small), and when enough is accumulated pay it off all at once.
So while I am against debt, I can''t say never go debt, there are always exceptions.

 

[the other Jake]

Date: 12/5/2006 3:09:34 PM
Author: part gypsy
I am someone who argues about never having debt, but right now have a house payment, as of last March bought a Honda oddysey so now a car payment. It freaked me out having a car payment because I''ve never had one before. We have been putting down extra money to have it paid off sooner ($6800 to go). However I realized recently that the interest on the car payment is 2.9% while my money market account is 4.5%, so now I am putting the extra payments I was making in the money market instead. This way I''ll be earning some interest (albiet small), and when enough is accumulated pay it off all at once.
So while I am against debt, I can''t say never go debt, there are always exceptions.

You''re plan makes sense right up to the part that says pay it off... You realize you are making money all along when you put it into the money market rather than the car, so why change when you have the money to pay it off? Just because you have the cash doesn''t mean you should. Continue to keep making interest on your money market. If you can borrow at 2.9 and invest safely at 4.5 why wouldn''t you? Paying it off is actually going to decrease your return!

As a side note- I would just like to say that I did pay cash for my future fiance''s engagement ring...

 

[the other Jake]

I would just like to say that I respect everyone''s opinion and looking over a couple of past posts I made I can come off as arrogant or argumentative. I do not mean to have such a tone, but just thoroughly enjoy debating! (Especially when it comes to accounting)

 

[Christa]

Date: 12/5/2006 5:17:30 PM
Author: the other Jake

You're plan makes sense right up to the part that says pay it off... You realize you are making money all along when you put it into the money market rather than the car, so why change when you have the money to pay it off? Just because you have the cash doesn't mean you should. Continue to keep making interest on your money market. If you can borrow at 2.9 and invest safely at 4.5 why wouldn't you? Paying it off is actually going to decrease your return!

As a side note- I would just like to say that I did pay cash for my future fiance's engagement ring...

The part that's missing here is inflation--that 1.6% you are coming out ahead by investing borrowed money is less than the inflation rate, so you are actually losing money, in terms of buying power.

 

[Christa]

Date: 12/5/2006 5:50:22 AM
Author: ladykemma
jake - have you ever been fired? laid off? stood there on a friday afternoon with a pink slip in your hand? I have.

my hubby is a cancer and pancreatits survivor. have you ever spent two months sitting in intensive care by someone''s side? and neither of you has gone to work? living on the our Mormon food/cash storage (such a wise program!) and the long term disability provided by his employer? well I have.

if i lived my life your way the house of cards would have fallen in.

i suspect nothing ''bad'' has happened to you yet. you might change your tune.

i live my life debt free becuase I got the pants scared off me during several extreme health/family /employment emergencies.

that was when i started to really listen to depression era elders, either thier written stories or people still alive. use it up, wear it out, make it do, or do without! i personally believe we are headed for another depression.

ok argue back!

I''m with Lady Kemma on this one--I''d much rather have the security of owning my house, car, etc, than be on a (somewhat risky) fast-track to wealth. Here''s one from Jake''s buddy Dave Ramsey

: choosing to invest rather than pay off your home has basically the same effect as owning your home outright and then taking out a mortgage on it in order to invest the money. Very few people would think that''s a good idea, because it puts your home at some level of risk

 

[partgypsy]

other jake, you are perfectly fiscally correct in a sense to continue keeping it money market, but psychologically it just feels "different." I can''t really justify it other than one less bill out there to worry about each month.

 

[the other Jake]

Date: 12/5/2006 5:49:39 PM
Author: part gypsy
other jake, you are perfectly fiscally correct in a sense to continue keeping it money market, but psychologically it just feels ''different.'' I can''t really justify it other than one less bill out there to worry about each month.

Completely understood... I was just pointing it out

 

[the other Jake]

Date: 12/5/2006 5:22:16 PM
Author: Christa

The part that''s missing here is inflation--that 1.6% you are coming out ahead by investing borrowed money is less than the inflation rate, so you are actually losing money, in terms of buying power.

Touche

... but its still more than the average savings account

 

[the other Jake]

Date: 12/5/2006 5:29:08 PM
Author: Christa

I''m with Lady Kemma on this one--I''d much rather have the security of owning my house, car, etc, than be on a (somewhat risky) fast-track to wealth. Here''s one from Jake''s buddy Dave Ramsey

: choosing to invest rather than pay off your home has basically the same effect as owning your home outright and then taking out a mortgage on it in order to invest the money. Very few people would think that''s a good idea, because it puts your home at some level of risk

This is not true. Buy choosing to save/invest rather than paying off your home you are giving your money more time to compound and earn money on its own. This has the effect of increasing your net worth. To take out a mortgage on your home and invest is not increasing your net worth at all. You are merely increasing your assets and liabilites... that is something completely different altogether - stupid. All I am saying is that saving for retirement should be a priority. Someone who invests $4,000 from the ages 16-24 AND THEN STOPS INVESTING at 10% interest will have $2,277,323 dollars by the time they are 65. Someone who starts saving when they are 24 will have to invest $4,668 dollars EVERY YEAR just to have the same net worth when they are 65. Like I said... it is smarter to invest rather then spend all your money paying off your house. I just sat down and did the calculations to prove it. You can work for your money or have your money work for you!

In the scenario: The 1st individual saved: $32,000 The 2nd individual saved: $191,390 ---->

 

[the other Jake]

I noticed a flaw in my argument and may not have gotten my point across

... The individual stops investing. New scenario: First individual invests while paying off house so they can only save $2,000 a year. The 2nd individual pays off house first then chooses to invest everything once it is paid off. We''ll say they''re both 25 and they''ll go until their 65 meaning a 40 year investment period.

10% interest

1st individual- $2,000 a year starting at 25: $885,185
2nd individual- $4,000 a year starting at 35: $657,976

Neither have a house payment in the end, yet who has more money?

 

[the other Jake]

Okay i''m done arguing with myself- I swear! Any questions class? j/k...Time to get some work done. Have a great night

 

[ladykemma]

Date: 12/5/2006 5:29:08 PM
Author: Christa

Date: 12/5/2006 5:50:22 AM
Author: ladykemma
jake - have you ever been fired? laid off? stood there on a friday afternoon with a pink slip in your hand? I have.

my hubby is a cancer and pancreatits survivor. have you ever spent two months sitting in intensive care by someone''s side? and neither of you has gone to work? living on the our Mormon food/cash storage (such a wise program!) and the long term disability provided by his employer? well I have.

if i lived my life your way the house of cards would have fallen in.

i suspect nothing ''bad'' has happened to you yet. you might change your tune.

i live my life debt free becuase I got the pants scared off me during several extreme health/family /employment emergencies.

that was when i started to really listen to depression era elders, either thier written stories or people still alive. use it up, wear it out, make it do, or do without! i personally believe we are headed for another depression.

ok argue back!

I''m with Lady Kemma on this one--I''d much rather have the security of owning my house, car, etc, than be on a (somewhat risky) fast-track to wealth. Here''s one from Jake''s buddy Dave Ramsey

: choosing to invest rather than pay off your home has basically the same effect as owning your home outright and then taking out a mortgage on it in order to invest the money. Very few people would think that''s a good idea, because it puts your home at some level of risk

i witnessed firsthand the enron collapse. americans i went to church with in london came in one sunday and said, "enron said we have to find our own way home...."

poof there go these theoretical savings. at least you would have these savings to live on unitl you get righted again.

me, i''d rather own my property outright, because halliburton could go poof too. and a great deal of our retirement is tied up in halliburton.

 

[the other Jake]

These are extremely sad and unfortunate situations. I completely feel for the familes that were devastated and could not imagine what they must have gone through. This is why diversification is extremely important. Also, as you get closer to retirement you should be shifting your investments to lower risk investments and assets. To be argumentative- what about families who are victims of floods? Insurance does not cover this loss and now they have no home. No investment is 100% safe...

 

[Cehrabehra]

Date: 12/5/2006 7:06:21 PM
Author: the other Jake
I noticed a flaw in my argument and may not have gotten my point across

... The individual stops investing. New scenario: First individual invests while paying off house so they can only save $2,000 a year. The 2nd individual pays off house first then chooses to invest everything once it is paid off. We''ll say they''re both 25 and they''ll go until their 65 meaning a 40 year investment period.

10% interest

1st individual- $2,000 a year starting at 25: $885,185
2nd individual- $4,000 a year starting at 35: $657,976

Neither have a house payment in the end, yet who has more money?

did you factor in additional interest on the house loan for holding it the aditional 10 years?

 

[the other Jake]

Date: 12/5/2006 8:07:10 PM
Author: Cehrabehra

did you factor in additional interest on the house loan for holding it the aditional 10 years?

Yes, and as you can see they are still better off. Actually, it was an additional 30 yrs (it had to be a 40yr loan because with a 2,000 payment it would take the entire time for them to pay off the principal).

 

[nejarb]

Date: 12/5/2006 5:22:16 PM
Author: Christa

Date: 12/5/2006 5:17:30 PM

Author: the other Jake


You''re plan makes sense right up to the part that says pay it off... You realize you are making money all along when you put it into the money market rather than the car, so why change when you have the money to pay it off? Just because you have the cash doesn''t mean you should. Continue to keep making interest on your money market. If you can borrow at 2.9 and invest safely at 4.5 why wouldn''t you? Paying it off is actually going to decrease your return!


As a side note- I would just like to say that I did pay cash for my future fiance''s engagement ring...

The part that''s missing here is inflation--that 1.6% you are coming out ahead by investing borrowed money is less than the inflation rate, so you are actually losing money, in terms of buying power.

But when you borrow money inflation works for you instead of against you. So just as there''s a nominal return (in above example 4.5%) and a real return (nominal rate - inflation rate), the same concept applies on the other side. But then it gets too complicated for me, b/c I think you need to compare how much you''re borrowing to how much you''re investing to see if it evens out or something. If I can''t figure it out then I''m sure most average Americans can''t, so that''s a good reason why MOST people shouldn''t bother with this stuff unless there''s enough money involved to make it worth the effort to either figure it out yourself or hire a financial advisor or some other type of charlatan.

 

[diamondsRforever]

Winternight...does it make you feel superior that your FI was able to pay for the full price of the ring while others couldn''t? I just don''t understand why you have to put people down. I''m sure all of them had valid reasons to finance the ring. Are you the kind of person that worry about what other people perceive you as? I mean I read most of your threads and from what i can gather it seems that you''re competing with everyone and you just want to beat everyone and be the best at everything.

But besides that, since you and your FI makes very good money...do you mind sharing the wealth

 

[winternight]

Date: 12/9/2006 1:44:04 PM
Author: diamondsRforever
Winternight...does it make you feel superior that your FI was able to pay for the full price of the ring while others couldn''t? I just don''t understand why you have to put people down. I''m sure all of them had valid reasons to finance the ring. Are you the kind of person that worry about what other people perceive you as? I mean I read most of your threads and from what i can gather it seems that you''re competing with everyone and you just want to beat everyone and be the best at everything.

But besides that, since you and your FI makes very good money...do you mind sharing the wealth

I didn''t "put people down" I just said that I''m perplexed. The way I was raised you have no business financing a luxury item that costs thousands of dollars. I also couldn''t understand fiancing the ring when there was still the wedding and the honeymoon to think of. I''m also surprised at the average amounts people spend, its their business but I''m surprised. Then again look at the savings rate in America - its negative.

Why did you finance in order to get your girlfriend the over 1 ct. ring that she wanted?

Sure I''ll share the wealth - after you go through 3 years of law school and clerking for very little $.

 

[the other Jake]

Did I miss something? Can''t we all just get along...

 

[diamondsRforever]

Why did you finance in order to get your girlfriend the over 1 ct. ring that she wanted?


Sure I''ll share the wealth - after you go through 3 years of law school and clerking for very little $.

Of course not, I''m with you on that one. I''m not a big fan of financing, I just don''t like knowing I owe money.

Do I really have to go to law school?!?!? hehehe

 

[diamondsRforever]

I just also wanted to add that the rich people think differently from the not so rich people. While a rich person might be thinking how to get more rich by investing his/her money into different markets, a not so rich person might be worried about putting food on the table, paying bills etc. etc. And even if he could invest his money on something, first off, it wouldn''t be a lot of money, second it would be in a conservative or moderate market which in return less profit. Unlike a rich person that has a lot of money he does need to worry about it that much and can invest in a high risk market and could return a higher profit. The rich gets richer and the poor gets poorer.

Another thing is that a rich person has unlimited access to resources that he/she might need while a not so rich person is limited to the availability of resources that he/she might need.

 

[ljmorgan]

I think that this is not a great topic. It''s no one business how someone choose to pay for something, or how much someone pays for something. It''s rude to critique the financial situation of others, and it''s not really necessary. If you have the means to pay for large items in cash, be proud (but modest.) If you don''t, let it be a goal to work towards. We pay for our things outright, but I would not dream of preaching about it to someone else. Also, whether someone choose to invest their money, pay off their home... that''s a very personal decision, and there''s no one right answer.

 

[indecisive]

Date: 12/10/2006 9:28:08 AM
Author: *Lindsey*
I think that this is not a great topic. It''s no one business how someone choose to pay for something, or how much someone pays for something. It''s rude to critique the financial situation of others, and it''s not really necessary. If you have the means to pay for large items in cash, be proud (but modest.) If you don''t, let it be a goal to work towards. We pay for our things outright, but I would not dream of preaching about it to someone else. Also, whether someone choose to invest their money, pay off their home... that''s a very personal decision, and there''s no one right answer.

Modest is the key word! I guess I don''t see why someone cares enough about how other people pay for things to start a whole thread on it. I can see giving advice if someone ask if they should finance a ring but I don''t see why you need to make a whole topic of it... although I think the investment talk is interesting. Just above my head

!

 

[ladykemma]

Date: 12/10/2006 9:28:08 AM
Author: *Lindsey*
I think that this is not a great topic. It's no one business how someone choose to pay for something, or how much someone pays for something. It's rude to critique the financial situation of others, and it's not really necessary. If you have the means to pay for large items in cash, be proud (but modest.) If you don't, let it be a goal to work towards. We pay for our things outright, but I would not dream of preaching about it to someone else. Also, whether someone choose to invest their money, pay off their home... that's a very personal decision, and there's no one right answer.

i think it's a great topic. if we can talk someone into living within their means (and this includes engagement ring buying), great!

my thoughts are if you are financing a luxury item you are living beyond your means. Basically can't afford it.

 

[the other Jake]

Date: 12/10/2006 9:28:08 AM
Author: *Lindsey*
I think that this is not a great topic. It's no one business how someone choose to pay for something, or how much someone pays for something. It's rude to critique the financial situation of others, and it's not really necessary. If you have the means to pay for large items in cash, be proud (but modest.) If you don't, let it be a goal to work towards. We pay for our things outright, but I would not dream of preaching about it to someone else. Also, whether someone choose to invest their money, pay off their home... that's a very personal decision, and there's no one right answer.

This is very true... however there may be a smarter answer.

Seriously though. I vote to be nice and quit attacking people and their decisions. I was merely trying to inform not degrade one's financial decisions. There are personal reasons that people have for making these types choices and I think that everyones opinion should be respected.

 

[winternight]

I actually thought people were posting some really interesting points about leveraging assets vs. paying cash. Not to mention the importance of adequate insurance that one poster brought up. I have family in a hurricane region and they''re paying for flood insurance just in case, even though they''re not in a flood zone. That''s a harsh lesson learned from Katrina. I never brought up a specific thread, I just noted that there were threads about financing rings.