Since a lot of us here have expressed interest in not starving to death in a gutter, I figured I'd start a weekly thread to discuss financial matters.
Ground Rules
- Remember that we're all just Internet randos. Don't bet your life savings on a hot tip from this thread.
- Keep culture war in the culture war thread. Yes, global events may impact our personal finances, but that does not mean we have to incessantly harp on culture war aspects here. If you are going to discuss it, please stick to the practical impacts of it on an individual level.
- Be kind. Remember that everyone here comes from different circumstances. We all have different resources available and different risk tolerances.
- Don't let the perfect be the enemy of the good. Better is better. Celebrate people when they take a step up and work to move their finances in the right direction. Don't flame out because they haven't followed what you consider the optimal path. Everybody has to start somewhere.
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Notes -
Okay, need some double-checking of my thinking. With an expanding family, and expanding home needs my wife an I are getting a bigger (and safer) vehicle. Long story short, its $60k, which we can actually cover outright without strain. If we do, there is a manufacturer incentive in a $5k cash rebate, which is quite nice! However, a separate, mutually exclusive incentive offer is $0 down (though we will have to pay roughly $6k in taxes and fees upfront, but that happens no matter what option we chose), 0% APR for 72 months financing, which seems to me to be an absolutely screaming deal. Some quick math suggest this saves $12k over a conventional loan, but even more importantly if we just throw that $60k into an index fund and pull our loan payments out of it, we will still have between $22-26k left at the end assuming average returns. We tend to keep our cars a long time and don't envision wanting to change out of this one. Is there any good reason not to do this?
The 0 down/0% APR is great if there's no prepayment penalty and you're 100% certain you can pay it off in time. A lot of people take that deal, then don't pay it back and get hit with back interest.
I don't know if I'd recommend an index fund though, you can lose principal in a down market.
The prepayment wouldnt be an issue as the whole point is to stretch it out as much as possible. And theres no back interest, its simply a loan at 0%, if its in arrears it goes to collections/repo. Our intent is to have our finance guy create a separate account that we put $60k in and have monthy payments pulled out of, with the remaining principle invested. Naturally theres risk of losing principle, but thats true of all investing. The exact investment profile is TBD, i was just using S&P for some back of envelope calcs.
Well, even FDIC-insured accounts have some risk of the principal being lost, but if I were executing the plan you were, I'd put most/all of the principal into a savings account for very low risk 3.2-4% return instead of a low risk 8-10% in an index fund. In a 1-72 month time horizon, I think the difference in risk is sufficiently high as to be worth the lower returns, personally.
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A cursory search indicates that the cheapest new US vehicle with three rows of seating (not counting the Mitsubishi Outlander, whose third row is literally child-sized) is the Kia Sorento at just 34 k$, not 60 k$.
Hah, funnily enough thats the other model we had under consideration. We test drove both the base gas and premium phev versions and absolutely hated it. $34k stuck us as about $14k overpriced. Might as well just get a used lexus or something, and be much better off.
I think the cheap new car market right now is in a bad place- you can get fairly heavily depreciated but still new-ish and reliable upmarket vehicles for the same price and a much better ownership experience.
We'd both much rather buy a nice new car and drive it for decades (our newest current vehicle is 11 years old but still comfortable and reliable) than get a cheaper one that we'll get tired of and have issues.
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