Lease VS Buy................

[Verticaltrx]

AMEN Verticaltrx! This is why i am having such a hard time signing a note! I actually could cash purchase right now but it would pull 90% of my emergency fund leaving me only a month or 2 worth of $$$ in the bank. That is a VERY uncomfortable feeling for me! Having no bills has been a blessing for us as a family and like you say, You can cherry pick jobs instead of HAVING to take work just to make a note payment. We should be able to go the manual underwriting way within the next 6 months with our local credit union. The regular financing for this home is actually a backup plan just in case the owner decides to have a fire sale......

Have you thought about buying used? I've pretty much quit buying new equipment for two reasons:

First, I'm not super impressed by what is being made these days. Between all the electronics and emission related things, I'd like to see all the bugs ironed out for a few years before I am willing to buy. I'm also not convinced that the quality control is what it used to be. Many models are the same as they have been for decades (5000 series Deere, B-series Kubota, etc etc) but the newer machines end up with more small issues than the older ones. The companies are larger and spread about the globe and don't take the care in manufacturing that they used to. We've had far more issues with a 5045e Deere we bought new a couple years ago than a Deere 2550 my father bought in new '85 (which now has about 3000hrs). Kubota is the same, as well as any other brand I would guess. Little things that slip through Quality Control.

Second, there is a great value in used machines if you can find the right one. Tractors may not depreciate as fast as cars, but there is still significant savings in buying one that is a few years old. A 5-10yr old tractor isn't nearly as dated as a automobile of the same vintage. I've bought used from dealers as well as private individuals and had great luck getting good equipment at good prices. Part of the fun is in the search and finding that really good piece of equipment for a great price. The key is finding one and working it hard for a good hour or so to make sure everything works as it should and there are no hidden issues. I would never buy a tractor sight unseen over the phone/internet, nor would I at an auction (unless it was super super cheap)

The only interest that we can write off is mortgage interest (until the House and Senate say otherwise). As you noted, most potential home owners do not want to live long enough paying rent while they save up enough money to pay cash for their first home. Yet many people with excellent credit don't have any debt, or if they do, it is debt they could readily pay for with cash but they took on the debt because the cash they have is earning more than the interest they're paying servicing their debt. Thus paying for certain kinds of things outright comes at an opportunity cost of money not earning a return on investment. When I forgo paying for something with cash so as to keep my money working for me, I don't have any emotional misgivings. In fact it is the opposite because I'm applying a concept of arbitrage from high finance and doing it on a household level, a thing that always makes me think that I'm gaming my the silly people offering such low interest rates. My fun and games aside, your point about being able to sleep at night remains true and at some point, like yourself, even people comfortable with exercising credit would rather pay for something with cash than service debt.

Even so, the willingness to pay for things outright doesn't dissuade people with high credit scores from exercising credit. Those people may have three or four credit cards that they use for different types of spending, yet they pay them up every month. I cannot speak for you, but for people living in the middle of nowhere, Amazon Prime is the best thing since buttered bread! Cash-back cards are looked upon by such people as instant wallet coupons, or as a fun little revenue streams. Even so, as a group, people with excellent credit do, as a rule, spend less than their income--which is why there is a correlation between higher credit scores and wealth accumulation.

That said, high-net-worth people have the luxury, due to their wealth, that they don't need to play by the same money management rules as does most Americans simply because high-net worth-people can self-finance. High-net-worth people are kind of like super successful private companies in that they don't have underwriters at a bank to answer to just like successful private companies don't have public shareholders to answer to. High-net-worth people can manage their money however they wish, because they have deep pockets. But trust me: people who maintain their high-net-worth, especially generational wealth, tend to adhere to strict money management rules themselves and their children are often taught to be fluent in money management. Those children who lack the discipline to do so for themselves are kicked off into trust fund land so they cannot bankrupt themselves and their family.

Anyway, you have great points and if you've positioned yourself to a point where credit and credit scores don't matter, then awesome! At the same time, be willing to empathize with the fact that most Americans are not in the same place as yourself and the difference for them between average credit and good credit really does impact the quality of their lives as well as the quality of their retirement.

Two things:

If you reverse the situation, how many people would borrow money just to go invest it? Probably very few, and it's exactly the same thing as holding on to debt to use your cash for investments. Finances aren't just about the numbers, there is a big mental and emotional aspect of it that most people easily overlook.


Secondly, I understand your points but some of your assumptions are flawed. My wife and I are in our 20's, make an average income and don't have an extremely high net worth. Anyone can chose to play by different rules, not just the super wealthy.

Wanna know why fast food chains started accepting credit? SALES! There have been NUMEROUS studies showing that people using plastic will spend 25-30% MORE at Mickey D's than they would spending cash. Their is NO emotional detachment swiping a card but breaking that $100 bill in your wallet hurts. When the credit card bill comes at the end of the month it's just that, A BILL. Not the same emotionally as spending cash. I will tell you where i live there are plenty of people that will take gold and silver for payment here as well as bartering.

Yup, that's why we leave the Debit card at home, basically for online purchases only.

I'm also looking into doing more bartering, both labor and goods. I think if there are specific things you need it's win-win for both parties. Keeps Uncle Sam out of your wallet and is a great way to hang on to cash for things where it is really needed. Also, the old say "A dollar saved is a dollar earned" is more like "a dollar saved is $1.50-$2.00 earned" by the time you figure in taxes and the other costs associated with going out and making that money.

 

[kcflhrc]

Never understood the whole credit score thing. My wife and I have the same debt, same credit cards that we pay off each month, and her credit score is consistently higher than mine. I don't get it. I wonder if you did an Ag loan that would be any different or if you even could. I know the credit app on an Ag loan is completely different as opposed to a retail loan. The Ag loans are very short and sweet.

 

[Beltman60]

Eric

Thanks for the great crash coarse on credit scores :thumbsup:
I have a 16 year old who will need to start establishing her credit and you have given me some things to chew on

Banks don't like to tell you how to do things unless it makes them money

 

[MinnesotaEric]

Two things:

If you reverse the situation, how many people would borrow money just to go invest it? Probably very few, and it's exactly the same thing as holding on to debt to use your cash for investments. Finances aren't just about the numbers, there is a big mental and emotional aspect of it that most people easily overlook.


Secondly, I understand your points but some of your assumptions are flawed. My wife and I are in our 20's, make an average income and don't have an extremely high net worth. Anyone can chose to play by different rules, not just the super wealthy.

Insofar as investing goes, many types of financial risk management tools are only available through the use of credit, or what is referred to as margin. I do not have the data handy from our current quarter, but as of the end of last year, never had so many investors deployed so much credit in order to invest.

While bartering sounds great, often the variety of barter opportunities is limited, as are the goods and services that can be bartered. I'd love it if Apple would be willing to barter a new Mac Pro with four 30" displays and 4TB in external storage because my existing Mac Pro is getting a little long in the tooth to easily run my latest investing platform software, but, sadly, Apple isn't into bartering and I still need to upgrade.

Sadly, if you're working in a white collar environment, it is very likely that your credit scores are getting referenced for purposes of review and promotion, under the assumption that if you run your own household well, you'll run your job well.

 

[MinnesotaEric]

Eric

Thanks for the great crash coarse on credit scores :thumbsup:
I have a 16 year old who will need to start establishing her credit and you have given me some things to chew on

Banks don't like to tell you how to do things unless it makes them money

Banks are subscribers to the credit agencies themselves and on a branch level within their lending arms, many lenders don't know the actual numbers or percentages are, or, if they do know, fear any legal reprisals from not being licensed to disclose. Meanwhile out on the internet the entire credit industry is gleefully setting out disinformation or misleading information because the exact numbers and percentages are corporate secrets so as to protect people from reverse engineering the algorithms that determine credit scores. Moreover, those algorithms are something of a moving target, so some information is time sensitive to one degree or another.

 

[Beltman60]

that's why I'm glad you took the time to give us a lesson

Thanks again

 

[jimpen]

Here's a question for you Eric.

I got tired of being cash starved one payday and "rich" the next. (My pay is the 15th and EOM.) I'm also carrying too many credit card balances, but that is another story. So a few years ago I got a bonus. What I did was get my mortgage a month ahead. And then I set up all my bill paying via the bank to pay at least half (if not more) of all the bills each payday. That even includes the electric and phone bill. The electric bill builds a credit over the summer which usually will get used up in the winter.

The only bill that is a pull is my car insurance (a 10% discount) and the rest are all pushed. Currently I'm not due for a car payment until August. The credit card bill may not be the full amount due for the month, but the second payment will make it over that minimum.

Is this a good way to do it, or does that hurt my FICO score?

 

[nc redneck]

Insurance Companies also look at your credit score and adjust there premium up or down depending on it. If you pay in full every month CC can be a great deal. Cash back or points. Points are not as good as they used to be. I can still pull off a free 5 K trip every 3 years off of my AMEX card only. Cost are 100 bucks per year membership. As points value decreases I do look harder and harder at cash back.
Amex has free travel advisors for members and they are very good. Did a 7 day cruise with Royal Caribbean last year 2 adjoining cabins my cost 0.
Points used to be worth 1 cent per mile, I think today around 1/2 to 3/4 cents per mile.

 

[MinnesotaEric]

Here's a question for you Eric.

I got tired of being cash starved one payday and "rich" the next. (My pay is the 15th and EOM.) I'm also carrying too many credit card balances, but that is another story. So a few years ago I got a bonus. What I did was get my mortgage a month ahead. And then I set up all my bill paying via the bank to pay at least half (if not more) of all the bills each payday. That even includes the electric and phone bill. The electric bill builds a credit over the summer which usually will get used up in the winter.

The only bill that is a pull is my car insurance (a 10% discount) and the rest are all pushed. Currently I'm not due for a car payment until August. The credit card bill may not be the full amount due for the month, but the second payment will make it over that minimum.

Is this a good way to do it, or does that hurt my FICO score?

As long as you're ahead, your ahead--but be sure to send in something every month. Don't coast and skip payments.

To me it sounds like your payment history is good. If you're really into it, ask your bank if they accept two payments per month without extra fees and apply the money to your P&I payments. If they do, understand that by splitting your regular monthly mortgage payment into two payments made every two weeks instead of once a month will shave about 36 payments off of a typical 30 year mortgage at current interest rates without you sending in an extra dime.

It sounds like you've already diagnosed a potential credit problem of carrying too credit card balances. Getting your arms around that will likely give your credit score the biggest bang for the buck beyond the good things you're already doing.

Insurance wise, all insurance companies tend to treat their customers like the boiling frog, slowly turning the heat up, slowly increasing premiums. It can pay to shop household insurance once in a while. When you do, shop everything: all real estate owned as well as vehicles and any riders you need to cover everything else. Continually ask for discounts. If you ever where in the Armed Forces I strongly suggest you shop USAA. If a parent was a member of USAA, children can also join and save money on insurance, so unless you need commercial insurance, shop USAA for insurance if you qualify.

Anyway, to answer your final question, paying ahead helps your FICO but always be sure to stay current by making some kind of payment--even if that payment is the minimum patent required (potentially zero) plus one dollar.

 

[jimpen]

As long as you're ahead, your ahead--but be sure to send in something every month. Don't coast and skip payments.

I will skip one on rare occasion if I have a sudden expense and can avoid dipping into the CC's. Such as the arm on my glasses broke so that right now they are being held together with gorilla glue. The replacements, with an exam, will be about $150-170. So if I skip one payment on a CC it will give me about half the amount and the rest can come out of free cash on payday, instead of charging it.

To me it sounds like your payment history is good. If you're really into it, ask your bank if they accept two payments per month without extra fees and apply the money to your P&I payments.

They hold it in an unapplied funds account and when the other half comes in the monthly payment is paid. I do add extra over the minimum that goes to the principle every month. It's only about $40-50 but I can't see it hurting over the course of time.

It sounds like you've already diagnosed a potential credit problem of carrying too many credit card balances. Getting your arms around that will likely give your credit score the biggest bang for the buck beyond the good things you're already doing.

I'm doing my best not to dip into the CCs and am slowly getting the balances down. I wouldn't complain about a distant uncle leaving me a $100K or so.

Insurance wise, all insurance companies tend to treat their customers like the boiling frog, slowly turning the heat up, slowly increasing premiums.

My car insurance is under $200 a month on a car and two trucks, with higher than min liability on them all, so I can't really complain about it.

Anyway, to answer your final question, paying ahead helps your FICO but always be sure to stay current by making some kind of payment--even if that payment is the minimum patent required (potentially zero) plus one dollar.

Thanks for all the advice. I'm glad to know I'm doing it generally right.