Quote:
Originally Posted by mln385
Exactly.....
use the tools of finance to your advantage....
Here are 2 scenarios.
1 an individual has the cash to buy a 100k car plus say 10% extra for unforseen issues.
So they buy the car and have 10k left over,said person then looses job or becomes seriously ill and can't work for months no income.
Now said person goes thru said 10k left over in a couple months and is now broke can't pay bills what does he do??
2 nd individual has the cash to buy 100k car but elects to keep it invested or in a cd, takes out "fixed" equity loan which is also tax deductable.
So they buy the car said person then looses job or becomes seriously ill and can't work for months no income.
However said person has the 100k in bank or security's to ween off of untill things get better.
I ask you who is better off in this situation 1 or 2??  |
Let's use number two as an example:
Loses job and has to draw money out of investments (like now? Not a good idea?) or 401k or CD's (both have subsantial penalties and tax consequences, not to mention may take a serious loss on 401k investments to boot). And because of the economy, he's unable to sell the car for what he owes and get out from under the equity loan on the house. Is this scenerio beginning to sound familiar?
So, now he can't sell the car for what he owes, is faced with a loss and taxes on whatever he must liquidate in order to make his house and equity payments and if it runs out. HE STILL LOSES HIS HOME!
However, if he had gotten an AUTO loan to buy the car and his world tanked. He could (worst case again) give it back to the bank (voluntary repo) and use whatever assets he has left to keep him afloat a little longer.
Net worth in this day and age means nothing if that worth is all on paper (equity of a home, rental property, business property, hard assets like art or coins, classic cars, etc). If it is comprised of liquid assets then it is meaningful.
It's how much cash you can get your grubby hands on RIGHT NOW (without trying to liquidate assets) that really matters. Try to sell your rental property in this market and what do you get. Probably next to nothing. Doesn't help does it?
That's why cash is king! Money tied up in assets is worthless in this economy.
It' good to be the King!
And by the way, in either scenerio, he can sell the car and recover SOME of the $100grand. In scenerio one, he just loses some cash. In #2, he can lose his home.
You decide!