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Post by Deleted on Apr 18, 2011 7:10:05 GMT -5
you can afford it".
My wife and I were out with some friends last night and one of our friends mentioned how someone was driving this latest (I am guessing expensive) car, yet that same person was complaining how they were broke a couple weeks back.
My wife said it the new car doesn't necessarily means that the person is swimming in money since nowadays you can finance/lease anything (so proud of her).
Anyway, her friend comeback was: if you can lease/finance it, you can afford it. And it may me think: she does have a point.
In her mind if you can shell out the monthly payments to finance/lease an expensive items, it is no different than the next person that paid cash. You both can afford it.
To everyone else, you will appear as being on the same financial footing since both of you can afford the same thing (one on credit, the other cash). Made me think of my cousin that bought a BMW and was living in someone basement in East Orange, NJ (not the nicest/safest city). He was paying more for his car/insurance than rent.
To him it made sense because: people don't know or can't see where he lives but they can see what he drives. So it's more important to him to drive a nice car than live in a nice apartment.
Discuss!
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bman
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Post by bman on Apr 18, 2011 7:26:13 GMT -5
I think lots of people (especially in America) are more concerned with appearing wealthy than actually being wealthy. And as most on YM know, trying to appear wealthy all of the time is asurefire way to keep yourself broke and in debt.
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TD2K
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Post by TD2K on Apr 18, 2011 7:28:09 GMT -5
I think if you can afford to meet your monthly obligations you can't say they can't afford it. If someone can't make their monthly bills then they can't afford their choices. For myself, just because I could meet my bills doesn't equal I can afford it (the commercial about the guy riding his tractor saying "I'm in my debt up to my eyeballs" comes to mind) but that comes more down to a personal choice what you want and what you are willing to defer. I like to save money because it gives me options. My job is seriously pissing me off and if needed, I could walk and support myself for a very long time. Can't do that when you are living pay check to pay check. Correction, I couldn't do that Others would I guess and then worry about how to pay bills. I know leasing isn't the subject of your post but it just makes no sense to me because I drive my cars for years. My WRX is a 2002 so it's coming up on 10 years old, 120k miles and it runs great and best thing: no car loan payments. Other people like a new car and so they lease, either because it's cheaper in their view or they run a business and can write it off against profits.
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michelyn8
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Post by michelyn8 on Apr 18, 2011 7:46:03 GMT -5
To everyone else, you will appear as being on the same financial footing since both of you can afford the same thing (one on credit, the other cash). Made me think of my cousin that bought a BMW and was living in someone basement in East Orange, NJ (not the nicest/safest city). He was paying more for his car/insurance than rent.
To him it made sense because: people don't know or can't see where he lives but they can see what he drives. So it's more important to him to drive a nice car than live in a nice apartment.
This made me think of something an old co-worker told me several years ago. He is from WV would go back to visit family now and then. He mentioned one time about a cousin who lived in a home that was falling apart and barely standing (think stereotypical hillbilly shack in the hills but slightly more 60's rancher) but drove one of those larger Hummers. My co-worker just couldn't understand the logic of having a car worth more and in better condition than the house you live in.
I see a lot of this in the lower income heavily minority neighborhoods in the neighboring city. I don't get it either. If you can afford to drive top of the line vehicles, you can afford to live somewhere where the landlord isn't a Section 8 slumlord. And I know a lot of the appearance is from the care and maintenance they put into the vehicle, but its a shame they don't seem to care as much about the home they're forcing their kids to grow up in.
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Post by Savoir Faire-Demogague in NJ on Apr 18, 2011 8:29:57 GMT -5
Leasing continuously, puts you in a situation where you never get out from under car debt.
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Post by Deleted on Apr 18, 2011 8:30:00 GMT -5
If someone isn't stealing or committing fraud to obtain something, then they can afford whatever their creditors will give them. I don't really care if people fail in the future because they made the wrong (in my mind) financial decisions. Let them live the "baller" lifestyle now and I'll chuckle from my front porch in retirement as I see them driving to work still.
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strider
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Post by strider on Apr 18, 2011 8:56:29 GMT -5
Yes and no. I say yes because you can certainly achieve a way better car than if you hadn't financed. Saving up 25k-30k is a little hard just getting out of college I'm starting to figure out. I run a risk if I lose my job but I'd be more worried if I had a mortgage. I can sell a car easier than I can sell a house.
I say no because I saw people driving all of these fancy cars worth 45k-75k and completely ruining their credit or having their cars repo'd.
If you have a reasonable car loan it shouldn't be a huge burden.
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2kids10horses
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Post by 2kids10horses on Apr 18, 2011 9:36:42 GMT -5
LOL!!!
I was discussing this very same topic with my 15 year old son yesterday as we were driving on the hiway taking him to Symphony rehearsal. I saw a Mercedes 450SL. They used to be the HOT car back in the early '80s.
I can remember when I was shopping for a condos for a place to live, driving around looking at condo complexes, and marveling at how "all" the owners (or people living there, at least) seemed to own 450SLs. If I remember correctly, even back in those days they were $45K, and the condos I was looking at were in the $60s, so I was thinking "how could these people drive cars worth as much as their condo?"
Then I realized they were probably leased, they didn't own them, and never would.
Anyway...
cawiau, if you really want to read a good book on the wealth or lack thereof of fancy car owners, pick up a copy of "The Millionaire Next Door". (Or better yet, borrow it from the library.) It's kinda dry, lots of statistics, but it clearly shows that constantly driving new cars has a detrimental effect on your ability to accumulate long term wealth.
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Post by Savoir Faire-Demogague in NJ on Apr 18, 2011 9:45:04 GMT -5
it clearly shows that constantly driving new cars has a detrimental effect on your ability to accumulate long term wealth.
Especially Mercedes. A poster some time ago, mentioned how much she loved her Mercedes.... that is until she had to replace a headlight which cost $1400.
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strider
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Post by strider on Apr 18, 2011 10:03:40 GMT -5
So in your guys' eyes is there no such thing as a decent car loan? Say for a subaru or a lightweight pickup? (putting in my own situation here).
I agree that buying a 45k vehicle is stupid but is there a tolerable line for a loan? Say 10-15% of income?
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midjd
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Post by midjd on Apr 18, 2011 10:07:45 GMT -5
Well, I think the metric is that your total debt burden should be less than 40% of takehome - so assuming you have no mortgage, no SLs, and no CC debt, in theory you could lease/buy a car with a payment of 40% of your net income. Of course, since cars are depreciating assets, this would not be the wisest idea.
As far as a "decent" car loan, I think a lot depends on the term/interest rate, and how much the car will be worth at the end of the loan. But assuming other debt is in line, I don't think 10% is bad (as long as you factor in increased insurance, registration costs, etc. into that 10%).
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Deleted
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Post by Deleted on Apr 18, 2011 10:08:41 GMT -5
I won't ever borrow for a car again. It's just not worth it. They're just hunks of metal that eventually rust and break and drop in value every month you own them. We put $300/month in a car replacement fund and whatever is in there when we need a vehicle is what we can afford for one. If we have to borrow we can't afford it. Period. Hopefully, we don't need one this month as there's only $900 in the account. LOL
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Post by Savoir Faire-Demogague in NJ on Apr 18, 2011 10:09:29 GMT -5
So in your guys' eyes is there no such thing as a decent car loan? Say for a subaru or a lightweight pickup? (putting in my own situation here).
I have no problems with taking on a small auto loan to finance a purchase. If you can get dealer financing a 0% or 1%, that is dirt cheap money. When I bought my current auto six year ago in 2005, it was a 2002 model, I put down $5K in cash, borrowed another $5K from my bank, and took a couple thou' from a 0% CC offer. If I recall the bank loan was about $250 for 24 months or something like that. The cost of the auto was $12,500 for the car...new it listed for $28-30.
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RoadToRiches
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Post by RoadToRiches on Apr 18, 2011 10:18:39 GMT -5
I always had car payments. I never managed to save up to pay for my cars cash. I would always pay off my cars earlier though.
With that said, now I don't have a car payment for past year or so and I love it.
Next car, I will probably take out a loan, but I will have money saved up for it sitting in EF where it can earn me interest. If I can get low rate loan on a car, and still have that cash saved in case something happens, I see no reason why I wouldn't take out 0% or little higher loan..I am still covered if something happens.
I think that you can't afford something on payments when something happens and your car is getting repoed. That's when you know you couldn't afford it.
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dancinmama
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Post by dancinmama on Apr 18, 2011 10:40:20 GMT -5
you can afford it". To him it made sense because: people don't know or can't see where he lives but they can see what he drives. So it's more important to him to drive a nice car than live in a nice apartment. Discuss! This mindset has always amazed me. I drive a very nice car, but I don't really care what people think about what I drive. This mindset is a sure fired way to go through life broke. DH and I have never had a car loan. We always pay cash for our cars and with the exception of one vehicle, we always buy "used" (a couple of years old with low mileage). When we were younger and first starting out, my immediate supervisor drove a BMW that was leased. He also complained about his "debt". He and his wife liked to live like they had money, but it caused them to never really have any money to speak of. I know that he made more money than I did, but I am sure that I had more money than he did. The mindset that "if you can afford the payments, you can afford it" is a trap. That is why when you go to buy a car, they talk about what the payments will be instead of what the car will actually cost you - they don't want you to really know. cawiau: I just want to say that I LOVE that you are on the board. You bring up so many interesting subjects - especially for younger people like yourself who really need to pay attention to their finances and develop good habits that will serve them well through their entire lives.
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Post by Deleted on Apr 18, 2011 10:48:05 GMT -5
I don't mean just cars, but also others (quite a trend in my age group) that finance their faboulous lifestyle: - designer clothing - designer shoes - amazing 5star/resort vacation - latest gadgets / electronics - jewelry
Basically they might make about 50-70k a year but dress/live/look like someone that make 2-3X that income.
As long as they can afford to make the minimum payment or more on their credit cards, that means they can afford that lifestyle.
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2kids10horses
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Post by 2kids10horses on Apr 18, 2011 10:58:03 GMT -5
cawiau,
In Texas, they call that attitude, "Big hat, no cattle".
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2kids10horses
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Post by 2kids10horses on Apr 18, 2011 11:00:08 GMT -5
About 15 to 10 years ago, the description for that lifestyle was:
"Living Large"
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raeoflyte
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Post by raeoflyte on Apr 18, 2011 11:00:44 GMT -5
As long as they can afford to make the minimum payment or more on their credit cards, that means they can afford that lifestyle. I think that's the problem (and one lots of people can relate to). That first year might be fun. But eventually paying for yesterday's car, clothes, etc. affects being able to buy today's want. That is when it gets frustrating. That said, if I had the cash saved up, I wouldn't mind financing a car at a low interest rate. I'll also buy homes with little/no money down when the mortgage payment is the same or less than what a rent payment would be.
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Post by Savoir Faire-Demogague in NJ on Apr 18, 2011 11:03:30 GMT -5
That first year might be fun. But eventually paying for yesterday's car, clothes, etc. affects being able to buy today's want. That is when it gets frustrating
Simply charge it, and open another CC...
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RoadToRiches
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Post by RoadToRiches on Apr 18, 2011 11:08:03 GMT -5
That "How much is it a month?" way of thinking is not the way to build wealth.
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2kids10horses
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Post by 2kids10horses on Apr 18, 2011 11:22:04 GMT -5
The "how much is that a month" mentality...
I literally walked out of a Chevvy dealer about 9 years ago when I was looking to buy a pickup truck to haul my horses when the salesperson wouldn't negotiate on the price, he only wanted to talk about the monthly payment.
He kept asking me, what payment are you looking for? Is $500 ok? No? How about $480?
I knew what he was doing would be to just extend the loan to get the payment down! Geez... I told him, repeatedly, that let's get the price right, THEN we'd talk about financing. He just couldn't do it.
So, I told him, sorry, no deal. And walked out. He chased me, and my family down. Actually, the way they had us wedged in his little cubical, it was hard to leave... they do that on purpose. But, we didn't cause a scene or anything, we just walked out. He was trying to get us to return, we had test driven the truck, and it was ok, but we kept walking, and left.
About a week later, I bought a truck from another dealer. Used. It was 3 years old. I still own it.
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kimber45
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Post by kimber45 on Apr 18, 2011 11:22:10 GMT -5
As long as they can afford to make the minimum payment or more on their credit cards, that means they can afford that lifestyle.
Until one or both loses their job and they can't afford it anymore
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bean29
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Post by bean29 on Apr 18, 2011 11:27:48 GMT -5
That first year might be fun. But eventually paying for yesterday's car, clothes, etc. affects being able to buy today's want. That is when it gets frustratingSimply charge it, and open another CC... We have been saying for years that the people who are living beyond their means, were going to have that catch up to them. Lately they have been letting their homes go into forclosure and their cars be repo'd and like my DH says they just go out and buy another car.
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8 Bit WWBG
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Post by 8 Bit WWBG on Apr 18, 2011 13:04:01 GMT -5
This one has come up quite often... what the real definition of "afford" is. If you can make the payments, then you can afford it from a dictionary standpoint.
But if you want to talk about overall financial health, and reducing risk, then paying cash is far better. Sure, you might be able to swing those lease payments and save 2% of your salary as long as nothing goes wrong. But if you are overextended, then when trouble comes, its BIG trouble.
...:::"My wife said it the new car doesn't necessarily means that the person is swimming in money since nowadays you can finance/lease anything (so proud of her).":::...
Karma to her, via you, for this. Congratulations!
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strider
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Post by strider on Apr 18, 2011 13:09:55 GMT -5
What if your plan is to buy a new car and keep it for ten years? So for 4-5 years you know you'd have to finance but in the end what if you plan to just keep it. My problem with the whole car buying deal is that the first one will be the hardest to save for if you start from zero. It's a little hard to put 20-25k down on your first year's salary. If I made what my boss made then no problem.
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RoadToRiches
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Post by RoadToRiches on Apr 18, 2011 13:12:38 GMT -5
20-25k down? Damn..
How about saving up 10k? and buying car then?
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Post by Deleted on Apr 18, 2011 13:18:53 GMT -5
20-25k down? Damn.. How about saving up 10k? and buying car then? Or 5K? Just get what you can afford. If it's not a brand new 25K car right out of college, so what.
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strider
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Post by strider on Apr 18, 2011 13:51:21 GMT -5
Oh I'll have 5,000 no problem. It's just the people saying to buy the car with cash that if it's brand new that it is very hard to do is all.
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Post by Deleted on Apr 18, 2011 14:00:08 GMT -5
My Ex's cousin used to work for Mercedes. He wasn't involved with the leasing area at all, but he said that when unemployment was high, he'd get the occasional call from a friend of a friend, who was out of work and finding the payments on their shiny Mercedes unmanageable. They wondered if he could pull some strings and get them out of the lease. He couldn't do anything for them. It was an interesting lesson in the cost of keeping up appearances.
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