I am among the oldest posting here, so I grew up with the same ethic as most of that generation......."only finance what you must, and pay cash for everything you can"....but, the government has made it financially lucrative to borrow, for some people, myself included....
Let me narrate.......My retirement income occurs when I withdraw at least the minimum funds required by law from my IRA...WHEN I withdraw those funds, I become liable for income taxes as the normal rate..in my case, the combined federal and state taxes amount to 23%......
My IRA funds are tax-sheltered until I withdraw them...while they are in the IRA they earn a composite of 9% annually through dividends...I am invested fully in closed end funds that are diversified across the entire financial spectrum.
If I were to have paid cash for my new trailer last summer, I would have had to withdraw an addition $20,000 from the IRA and pay the taxes on that withdrawal.....additionally, I would have lost the earning power at 9% on that $20,000....
My credit union offered financing at 3.75% interest....a rate that seems almost unbelievable to me.......
The cherry on top is that the IRS allows me to write off the interest on the RV as a second home.
The aggregate total of "savings" to me this past year by not paying cash for my trailer, lower income taxes, earned income from dividends by leaving the money in the IRA, and interest deduction, amounts to nearly $4000.......
I understand the appeal of paying cash, and I have bought many cars that way (because you cannot deduct the interest).......but, the good old government certainly can push a buyer towards financing rather than paying cash, simply by virtue of the laws they have passed.
There is no correct answer, except what is "right" for each individual....
That is a good analysis and I totally agree with you. In addition to our 401K and IRA accounts, we have 3 after-tax savings accounts. For our coach, we used our after tax savings. No way would I take from the retirement accounts. We don't want to touch those until we hit 70.5 if we can. If we hadn't saved so diligently for a coach, we would have done the finance thing.
We could have paid cash for the trailer and if we had to , we could pay it off tomorrow. So why didn't we? It makes more sense to have the cash available in case of a emergency or opportunity than having the feel good sensation of having the title in hand.
2011 GulfStream Amerilite 25BH
2007/2003 Ford Expedition
Nights camped in 2011 21
Nights camped in 2012 16
I agree, I posted on another thread that it makes more sense to pay for a depreciating asset with future dollars that are worth less than to liquidate a currently appreciating asset. This is especially true now with interest rates at rock bottom. This was the obvious answer for us. Each person has to run their own numbers.
Miles and Darcey
1989 Holiday Rambler Crown Imperial
I understand the appeal of paying cash, and I have bought many cars that way (because you cannot deduct the interest)..........
If your earning 9%, even car loans make sense. My wifes car was financed at 2.75%, and I got to keep all the rebates going at the time ( last Dec ). Not that I'm as stable financialy as you seem to be, but it all works for me.
11 Chevy Silverado Ext.Cab Z-71 4x4, 5.3 v8, 3:43 w/locker, Factory tow package, Equal-I-zer 1200#, Curt Class V Receiver
12 Cougar XLite 27RLS ( 960# Tongue, 6740# Gross as loaded)
Just the Wife and I.
I too finance when the situation is right for us. there is usually no bad financing if you KNOW what you are doing, lower interest rates, the price you can afford and all other financials fall into place. financing is not a bad word in this home. It is a word that comes with alot of responsibility tho.
so many people finance responsible. everyone is not an idiot when it comes to financing and get in over their heads on credit cards, bad housing situations and all that.
An opposing opinion easily validated by anyone wanting to conduct an internet search:
The average American has $20K in credit card debt. This doesn't include all other forms of debt such as housing, transportion, and "luxury."
The average American has much more debt than assets. We are NEGATIVE on average.
Most of us live in a "want it now" culture. It is not a wise thing to encourage any debt-related manipulation as we, as a whole, are stupid financially. As a whole, yes we are idiots.
It has been documented over and over, case after case by the individuals themselves, that financial responsibility, such as those taught by Dave Ramsey and others, lead to prosperous life choices, sound futures, financial responsibility, and overall happiness.
there are many reasons people are in debt. health concerns can be catastrophic. medical debt can make ANYONE easily fall into the category above.
ALONG with many other situations that another person may never have to face.
quoting stats is one thing, finding out reasons behind them is another I feel.
as a whole most people are not idiots. they are not saying lets go buy a 100K rig when we make $25K per year. charge it!!!! finance it!!! No, I believe most of the stats we see are forced life changes that can affect anyone at anytime to a catastrophic end in finances. (don't get me wrong, there are some idiots who charge even if income is lacking to cover and they take the chances and lose)