You know what's better than "saving" $17.5k in taxes? Not paying $50k in interest.
Not paying off a mortgage "because of the tax write off" never, ever, ever makes sense. The math will never work.
Liquid Assets and Expensive Car Purchase
- Thread starter Dr. Gonzo
- Start date
You know what's better than "saving" $17.5k in taxes? Not paying $50k in interest.
Not paying off a mortgage "because of the tax write off" never, ever, ever makes sense. The math will never work.
I'd never consider buying a car that I couldn't buy with what's currently in my liquid savings account. That being said, I usually put 20% down on a new car and finance the rest over 3-5 years. If I had to sell immediately for some crazy reason, I wouldn't be upside down. Then, I usually pay the car off at an accelerated rate. The monthly car payment tends to keep me from buying another serious toy. I'm usually ok with two car payments per month.
In your case I'd resist the urge to think about a $100k car. No way. My grandfather would raise out of his grave and drag me by the neck six feet below if I spent any money given to me on a toy. Just my line of thInking. With $215k, i would put $60k into my mortgage, invest $110k, and put $45k into savings. I'd buy a low mileage c6z for under $45k, and you have everything you're asking for in a car. Put 5-10k down and finance the rest on this car
In your case I'd resist the urge to think about a $100k car. No way. My grandfather would raise out of his grave and drag me by the neck six feet below if I spent any money given to me on a toy. Just my line of thInking. With $215k, i would put $60k into my mortgage, invest $110k, and put $45k into savings. I'd buy a low mileage c6z for under $45k, and you have everything you're asking for in a car. Put 5-10k down and finance the rest on this car
That's the route I'll end up going. I'll even look for a clean, nicely modded C5Z to save money on the initial cost and on property taxes. I had a mint FRC and loved that car. There is something about the body lines that I am constantly drawn to.
You can buy a nice C6Z for mid to low 30s. Skip the C5Z.
Life is short, enjoy it. Bills are paid, money in the bank, etc? It's ok to buy yourself something nice.
Lots and lots of opinions, but the math of whether or not to take a loan, given your decision to buy a car, boils down to 2 things:
1. Loan Interest Rate (assuming no additional fees)
2. Opportunity Cost (expected return on investments)
Interest rate > Expected rate of return => no loan
Expected rate of return > Interest rate => loan
Now, your opportunity cost may not be a simple calculation, because it depends on the type of investments you make. The more risk averse you are, the less variance in your investments, hence a safer albeit smaller ROI. But, it's hard to beat an auto loan interest rate in this manner. The more risk tolerant, the higher your expected return, but also the greater the variance (less secure). The current expected stock market return in the long-run is expected to be below historical averages... maybe 6-8% total return. This beats what someone with excellent credit is likely to find for an auto loan, but is not very safe, as IMO the market is currently overvalued.
1. Loan Interest Rate (assuming no additional fees)
2. Opportunity Cost (expected return on investments)
Interest rate > Expected rate of return => no loan
Expected rate of return > Interest rate => loan
Now, your opportunity cost may not be a simple calculation, because it depends on the type of investments you make. The more risk averse you are, the less variance in your investments, hence a safer albeit smaller ROI. But, it's hard to beat an auto loan interest rate in this manner. The more risk tolerant, the higher your expected return, but also the greater the variance (less secure). The current expected stock market return in the long-run is expected to be below historical averages... maybe 6-8% total return. This beats what someone with excellent credit is likely to find for an auto loan, but is not very safe, as IMO the market is currently overvalued.
It beats the analysis because y’all never include the downside risk from market volatility, or beta, only the alpha is ever shown. Paying off debt always has no beta. It’s perfectly risk free.
Math aside- When I meet a rich person that tells me they got rich due to car debt, I might start listening...
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baZINGa
I hit risk all over that post. Plus, I clearly stated "given your decision to buy a car." So, I'm addressing only the second decision of whether or not to finance. Furthermore, I did not suggest taking the car loan. So, I don't know to which "y'all" you're referring. If you can't be bothered to read in entirety, please don't respond.
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Just one idea for your consideration: If you've got a mortgage at 3%, and write off 35% of the interest paid, you're effectively borrowing money at 1.95% interest. The 10-year federal treasury currently returns 2.3% and is as safe an investment as they come. So, if you're in the position of having the money to pay off your mortgage or invest in the 10-year treasury note, which option makes the most financial sense?
To me, it looks like the guy with a $1,000,000 mortgage who is investing as above gains $3,500 each year over the guy who paid off his mortgage. I'll grant there are wiser ways to invest, but this is the simplest, clearest example of the point.
Until the market tanks, his house's market value plummets, he loses his job and has no way to make a Million dollar mortgage payment. It's happened before, it'll happen again.
Agreed, there's more than one way to skin a cat here. Me personally, I'm going to work towards zero debt regardless instead of playing the interest vs interest game.
I'm no tax code expert but I'm not sure a guy making enough money to afford a million dollar mortgage would even be able to write off mortgage interest. It starts getting reduced at a certain income level, only around $150,000/yr I believe.
Correct. Rich people tax breaks. It depends on whether it’s an individual or joint filing but it’s within the realm of income you can reasonably buy a million dollar home without a very very large down payment. (2-3x gross income purchase price)
It’s also at risk for going away within the term of new mortgages being originated now.
I read entirely. You’re using college words to suggest risky shit seemingly without realizing it.
Control yourself. You want to disagree with something that isn't there; so you made it up. It's hard to have a rational discussion with someone who responds to things I didn't say and ignores the things I did, like my references to risk, security and lack of safety, as well as my warning that the stock market is currently overvalued.
You might as well just carry on this argument by yourself, since you're straw-manning me, anyways.
You might as well just carry on this argument by yourself, since you're straw-manning me, anyways.
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I your buying for your own enjoyment, most cars are a terrible investment, among the worst. Invest 200k and pay cash for a toy 50k or less. Always pay cash for toys. Only borrow for things you need and real estate.
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One word, “windfall”. Wait 6-8 months and re think your decision.
If it were me and you’re not maxing out your 401k and Roth IRA I would use that money and allot to either of those accounts. 250k can find a 401k in full for 13.5 years if you’re not contributing anything. When you retire is when you ball out and buy whatever car you want.
If it were me and you’re not maxing out your 401k and Roth IRA I would use that money and allot to either of those accounts. 250k can find a 401k in full for 13.5 years if you’re not contributing anything. When you retire is when you ball out and buy whatever car you want.
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