Where to put excess money?

[Meadbh]

This whole discussion is degenerating into a moralistic rant about the DD’s supposed profligacy in having purchased a new, reliable vehicle. I have been in DD’s shoes. A year after graduating from medical school I bought a new car. Why? Because I was a doctor on call, and I needed safe and reliable transportation. I have owned only four cars in my lifetime, all new, and I have kept all of them for many years. DD has nothing to apologize for in my book.

The second issue is the loan. I bought my first car after LBYM and saving madly during my internship year, with the aid of an interest free loan from Mum and Dad for 25% of the cost. I got a significant discount by buying it from my uncle’s dealership. I was able to pay my parents back within six months. Was I wrong to borrow money to finance an essential tool? Of course not.

The third issue is that we need to focus on the OP’s question. What should DD do now? She has already made her vehicle purchasing decision. Whatever you think of it’s merits, the money spent on the vehicle is a SUNK COST. Just accept it, and move on.

[pb4uski]

+1000

[purplesky]

Quote:

Originally Posted by OldShooter Wow. This car purchase discussion is really mixing up some unrelated concepts. 1) That the OP's daughter cannot afford a car without borrowing. This is poppycock. After a foolish car loan to buy a used Porsche right out of graduate school I never borrowed to buy a car again. We had a Volvo sedan and a Volvo wagon, both the old style "122" series, all paid for with cash. Zero prestige, but as reliable as a block of granite. Somewhere along the line my wife bought a Rabbit convert with cash. I don't remember exact dates, but roughly that gaggle of cars carried us well into the 1980s. As our incomes grew (and as the OP's daughter's income grows) we could buy nicer cars. For a while we were buying 2-5 YO Merkur Scorpio sporty sedans, which were great cars but at the time were stunning bargains because they were a market failure for Mercury. The only actually new car we've ever bought was a 1994 K1500 Chev Pickup, bought because ordering a new one (for cash) was cheaper than buying one of the year-old used ones that every lot seemed to have. Lately we have been buying "new" cars that are one model year old. So as we have prospered, we have been able to buy better rides. But we have prospered IMO to some degree because we avoided car loans and avoided expensive depreciation. 2) That used cars are unreliable. We're not talking about beaters here. In my experience, even 100,000 miles isn't a breaking point for cars any more. Typically I have driven my cars close to 10 years with excellent reliability then end up selling them because our northern-clime road salt has finally made them look unacceptably tatty. I can't remember a time, except once 35 years ago, when a car stranded me. 3) That used cars require an uneconomic level of maintenance. There are many studies that rebut this. Except in very unusual circumstances, it is always going to be cheaper to maintain a car than to replace it with one that involves big depreciation costs.

But the DD does have a car loan at a decent interest rate so thats the issue.
Should DD throw excess cash at the cheap money? or invest excess cash at a fairly young age to take advantage of the magic of compounding interest.

My DS is 23 and now owes about $3k on his Honda loan. He has the money now to pay it off but I have to remind him he is only paying about $6 per month in interest.
That $3k is worth much more to him if he puts it in his Vanguard VTI ETF bucket in his Roth IRA.

But my 23 year old DS does listen to Dave Ramsey occasionally and gets caught up in this debt free mentality that no payments are the only way to go. Yes in a perfect world.

Its the same with people that are freaked out about paying off their low interest mortgage early but don't save enough or anything in a retirement account. You can't eat a house.

Yes you are correct that buying a used car with cash is probably the best choice.
But you can now finance a brand new Toyota or Honda or Subaru right now for 0% interest. That is free money.

I choose brand new with free money. And drive it for 10 years like the millionaire next door.

[brewer12345]

Eh, this is just purplesky getting its undies in a wad over nothing yet again. Put that thing on ignore and you will keep a bit more of your sanity.

[purplesky]

Quote:

Originally Posted by brewer12345 Eh, this is just purplesky getting its undies in a wad over nothing yet again. Put that thing on ignore and you will keep a bit more of your sanity.

Discussing how to use excess cash?

Try to keep up.

[Doc0]

A girl buys a car to mark the end of her education years and the beginning of her work years and a bunch of old ..... sit around trying to prove whose the bigger cheapskate. Testosterone anybody?

[RobbieB]

I like to put excess money in my pie hole -

[JoeWras]

Love er.org, but dang this thread is scaring me.

[aja8888]

Quote:

Originally Posted by Doc0 A girl buys a car to mark the end of her education years and the beginning of her work years and a bunch of old ..... sit around trying to prove whose the bigger cheapskate. Testosterone anybody?

Bogleheads anyone?

[ncbill]

Quote:

Originally Posted by Meadbh This whole discussion is degenerating into a moralistic rant about the DD’s supposed profligacy in having purchased a new, reliable vehicle...the money spent on the vehicle is a SUNK COST. Just accept it, and move on.

Which is why in the future I plan on leasing...treating transportation as just another monthly bill.

Don't much care how I get from point A to point B, so the following would suit me just fine:
2017 Nissan Sentra SV - $99.00 per month lease - No Down Payment

[RobLJ]

Get off my lawn!

[brewer12345]

Quote:

Originally Posted by RobbieB I like to put excess money in my pie hole -

I bet there would be real money in it if you filmed that and put it on the interwebs.

[meierlde]

One needs to check if the car loan is a rule of 78 loan or a simple interest loan (apparently a loan over 5 years is not a rule of 78 loan). https://www.investopedia.com/terms/r/ruleof78.asp The rule of 78 pays more that the simple interest in the first part of the loan and less than the simple interest in the latter part of the loan. Pay off simple interest loans before before rule of 78 loans, due to the way the interest is calculated. Side story I had a co-worker who asked a customer service rep about the rule of 78 in the context of a loan, and the rep said you would need to be a mathematician to understand it, it just so happened that he had a Phd in Math.

[aja8888]

Quote:

Originally Posted by RobbieB I like to put excess money in my pie hole -

You mean here of course:

https://www.urbandictionary.com/defi...erm=Pie%20Hole

Quote:

The facial orafice into which one shoves pie and other food items (ie: the mouth).

[JoeWras]

Quote:

Originally Posted by RobbieB I like to put excess money in my pie hole -

[RobbieB]

Quote:

Originally Posted by brewer12345 I bet there would be real money in it if you filmed that and put it on the interwebs.

My new fresh harvest Washington chestnuts freshly roasted and peeled;



50% more expensive than grocery nuts and worth it -

[brewer12345]

Quote:

Originally Posted by RobbieB My new fresh harvest Washington chestnuts freshly roasted and peeled; 50% more expensive than grocery nuts and worth it -

Now if only you had written it "chest nuts." I bet the audience for that would be much bigger than granny porn or even clown porn.

A friend posted on facebook today about getting her CSA veggies and the last "meat share" of the season. I could not resist.

[RobbieB]

Don't get me started...

[AndyS]

Quote:

Originally Posted by Dan32 My DD is a 30 year old, financially responsible, single, medical professional at the top of the 25% tax bracket (or just barely in the 28% tax bracket). She is currently contributing 6% to a 401K and has a $28,000 student loan at 3.25% interest and a $15,000 car loan at 3% interest. In what order should she be applying excess cash? 1. Increasing 401K? 2. Paying off a student loan (highest interest rate)? 3. Paying off her car loan (smallest balance)? or 1. Paying off her car loan (smallest balance) 2. Pay off a student loan - eliminate all debt 3. Increase 401K ( I think the above is what Dave Ramsey would recommend?) or Some other order? Looking for recommendations on what makes the most financial sense as well as what makes the most psychological sense.

Eliminate all debt, LBYM, and vow never to take any more debt ever again .. because her income is high enough she should never have to. That's the advice I'd give.

You can argue the numbers and probably win ... but over the course of a lifetime of living you'd lose the argument as to the peace of mind.

https://www.youtube.com/watch?v=P9LJRvMJu60

But hey, don't listen to me .. I'm just a burnt out old hippie.

[Meadbh]

Quote:

Originally Posted by AndyS Eliminate all debt, LBYM, and vow never to take any more debt ever again .. because her income is high enough she should never have to. That's the advice I'd give. You can argue the numbers and probably win ... but over the course of a lifetime of living you'd lose the argument as to the peace of mind. But hey, don't listen to me .. I'm just a burnt out old hippie.

With all due respect, I think that advice is nonsense. As a medical professional, during her career she may very well go into private practice. If so, it would be to her advantage to borrow, within reason, to set up her office. She will probably purchase a home. How many people can purchase a home without going into debt? (Mortgages are debts, in case anyone has forgotten). Finally, she may well wish to do as I have done, and invest in income property (which could be her office building). Leveraging an investment that produces regular, reliable cash flow is a great way to build wealth.

I still have over $100K of investment debt (down by 80% from peak). My leveraged property investments gave me great peace of mind during the Great Recession. They were the only part of my portfolio which was not shrinking daily, and the cash kept flowing in. I do not fear good debt. It gives me peace of mind.