Originally Posted by Camper_bob
I'd like to see what liquid cash you're sitting on that gives you a 7% return? And to call that "modest" in today's climate? 7% is pretty darn good without putting it all at risk.
I understand the idea behind paying cash for your belongings. I really do get it. And it made a LOT of sense when interest rates were high. But take my truck for example: I pay less than 1.6% on a 4-yr note for that truck. In the end I will pay virtually nothing in interest over the life of the loan. Money is cheap right now if you have good credit and pay your debts. As long as you don't get in over your head or get seriously upside down, it doesn't pay to use your own cash to buy things. Pay a very minimal amount of interest on someone elses' money. Use your cash to invest (perhaps even in something that will grow value) and you're better off.
As long as interest rates are this low, I'm going to finance it. Interest rates go up, and I'll finance less and less.
I know this is way off topic, so this will be my last comment on this topic in this thread. Maybe someone should start a thread related to personal finance since it seems to create so much activity everytime it comes up.
My liquid cash doesn't get 7%, nowhere near; I get just over 1% on liquid cash but that is a very small percentage of my assets.
My point was with respect to someone buying a "toy" on a 10-15 year loan, I mentioned car payment in my original post but just as easily could have said boat or RV. Regardless how cheap the money is today, if you can differ the gratification of "I want it now" or buy something less expensive you can pay cash for, then you can save the payment in an investment account. For me that investment account holds no load low cost index funds which over the long term will return 7% as history has shown. For a disciplined investor 7% is a conservative figure over time, many folks realize higher returns, and over time you will end up with a pile of money. Opposed to spending that money to service a loan where you end up with a toy worth a fraction of its purchase price. Servicing that loan is your opportunity cost for the toy, which means the real cost of that toy is the opportunity cost not purchase the price.
This is why I don't have the same aversion to a primary home mortgage. History has shown over time a home will appreciate in value while delivering the intended benefit of providing shelter.
My views are clearly in the minority and I couldn't care less what others chose to do with their money. I have a plan for our money and our future that works for my family and I. This plan has put me in a much better financial position than most of my peers, only wish I had embraced this philosophy sooner. I will point out however my pees often have use of nicer toys, but they certainly don't have ownership of those toys. Often our collective taste in toys and hobbies change over time too, not having debt against them makes it much easier to get in and out of a particular toy without the possibility of rolling negative equity to the next toy.
Many will disagree, but I also think our society would be considerably better off if we used far less financing and paid for things at purchase. I look at the mountains of debt that folks carry and it worries me. I am particularly alarmed by the enormous student loans that college kids are dealing with. I can't prove it, but I believe that the ever escalating cost of things like vehicles, schooling, etc is a result of easy credit. If credit wasn't so easy, these things would have to decelerate in their cost creep which would also help us as a society.