Money thoughts?

madmax

A lot of time I do what I do and don't sit down and ponder on it. I got to thinking about how different people pay different amounts for the same thing without even knowing it!

Lets say one guy has an investment that makes 5% and another guy owes 5% on his house and has 20 years left to pay. For either of these guys if they buy a $1k piece of equipment rather than paying on the mortgage or putting it in the investment they have effectively spent a lot more than they thought. The guy with the mortgage payment just spent $2000 when he bought it. (20 yrs x 5% x $1000 = $2000). The guy with the investment suffers the same loss over the same time period. Another guy with the same mortgage who pulls the $1000 out of a 5% investment actually spends $3k for the same $1K piece of equipment in the long run because he lost $1k from the investment, paid $1K more in interest on the mortgage plus paid the $1K for the equipment. Another guy bought it for $500 used with money he made extra from selling other stuff.

I concluded that depending on how you do it you can end up paying anywhere from $500 to $3k for the same piece of equipment.

Anyone else got any babble on money thoughts or other ponderings?
madmax

nadams

If I put my entire beer fund towards my debt and mortgage, didn't go on vacation (where I am right now), and sat at home working all day, I'd have all my credit cards paid off, any probably my truck, too. But that wouldn't be any fun, would it?

Big Dawg

No, that's not correct. You need to understand the time value of money. $1 today is worth more than $1 next year. If, in your example, the rate of inflation is 5%, then $1000 today is the same as $2000 in 20 years (not really, due to compounding, but keeping it simple). So, you've lost nothing, AND gotten the 20 years of utility/pleasure.

madmax

Big Dawg wrote: »

No, that's not correct. You need to understand the time value of money. $1 today is worth more than $1 next year. If, in your example, the rate of inflation is 5%, then $1000 today is the same as $2000 in 20 years (not really, due to compounding, but keeping it simple). So, you've lost nothing, AND gotten the 20 years of utility/pleasure.

Yeah, I guess the guy who looses is really the one who took it out of his investment. So if we have a lot of inflation maybe it would be cheaper to go ahead and get it now. Good point!

Norm Apter

Big Dawg wrote: »

No, that's not correct. You need to understand the time value of money. $1 today is worth more than $1 next year. If, in your example, the rate of inflation is 5%, then $1000 today is the same as $2000 in 20 years (not really, due to compounding, but keeping it simple). So, you've lost nothing, AND gotten the 20 years of utility/pleasure.

Generally, your absolutely right. However, we're in kind of an exceptional period right now. Most economists seem to agree that there is a far greater risk of deflation than inflation in the short-term future. For long-term investments, etc, I think things will even out (and give credence to the principle you've outlined above) but the conditions for the short-term might require some tweaking of approaches. Just something to think about.

fatchowmein

madmax wrote: »

Anyone else got any babble on money thoughts or other ponderings?
madmax

I'm middle-class, I'm married, I'm screwed.

danger boy

pay cash for everything

TECHNOKID

madmax wrote: »

Yeah, I guess the guy who looses is really the one who took it out of his investment. So if we have a lot of inflation maybe it would be cheaper to go ahead and get it now. Good point!

Your OP makes sense however in theory. Balance is a big factor...

* My home is actually my investment, if I have any extra money that is where I will invest it (monthly if at all possible). Through the years, I noticed that my mortgage payments has slowly dropped year after years and that the price of my house along with the cost of renting an apartment went the total opposite way. So, I figure I save big time :cool:

* I made a decision few years back and stay loan free. IE: I have not bought any new cars for close to 10 years now and simply buy a used car I can trust, pay the car completely through my credit card and make sure I repay before the deadline (my last one was bought 2 years ago and finally it costed me 50$ on top of the car cost since I couldn't make the deadline fully) :cool:

* As a consumer, I buy stuff according to my means and again will use the CC if I can't fully pay for the purchase but again make sure it is re-paid before the deadline. I also use free credit from the store which provide me a few months to repay without interest. I can then dump that money on the mortgage and of course repay the credit before the deadline.

* It can sometime take me a couple years to acquire the object of my dream since I want to make sure it is budget friendly for me. IE: I wanted HT recliners for a couple years now, missed some great sales but finally got the 2 3 seaters delivered last week, acquired them at sale pricing (1/2 price) and have 7 months to pay for them. The nice thing, I figured I will more likely be able to dump a minimum of 600$ on the mortgage by the end of the month (Yeah, in 2 days ) :cool:

* Acting in such a way, gives me extra financial power years after years. Maybe some day, I'll be able to afford High End gear versus the mid level gear my modest means has dictated me to acquire through the years :cool:

So, your OP makes a lot of sense but it is simply a matter of balance and planning. I am convinced while the way I spend the money is good for my finance I realize I am probably making some mistakes once in a while but the overall picture of my finance is looking healthier day after days. Balance is the key, not to spend above your means while not having the belt so tight you can't enjoy life.

Cheers!
TK

nooshinjohn

fatchowmein wrote: »

I'm middle-class, I'm married, I'm screwed.

Yeah... this!:D

I would submit that having a decent rig can reduce stress, increase lifespan and reduce domestic violence. I wonder if I could get a government grant to study that hypothesis.:p;)

GSRBOB

fatchowmein wrote: »

i'm middle-class, i'm married, i'm screwed.

lmao

Toxis

Way too much time on your hands. In that case, life should include nothing but the absolute bare necessities... or you're wasting money.

gimpod

I have a very simple philosophy when it come's to money "GIVE ME MORE:D" JK actually it's "If you can't pay cash for it, You don't need it". I don't have credit cards and i NEVER will, and never ever spend more than you have.

exalted512

TECHNOKID wrote: »

Your OP makes sense however in theory. Balance is a big factor...

* My home is actually my investment, if I have any extra money that is where I will invest it (monthly if at all possible). Through the years, I noticed that my mortgage payments has slowly dropped year after years and that the price of my house along with the cost of renting an apartment went the total opposite way. So, I figure I save big time :cool:

* I made a decision few years back and stay loan free. IE: I have not bought any new cars for close to 10 years now and simply buy a used car I can trust, pay the car completely through my credit card and make sure I repay before the deadline (my last one was bought 2 years ago and finally it costed me 50$ on top of the car cost since I couldn't make the deadline fully) :cool:

* As a consumer, I buy stuff according to my means and again will use the CC if I can't fully pay for the purchase but again make sure it is re-paid before the deadline. I also use free credit from the store which provide me a few months to repay without interest. I can then dump that money on the mortgage and of course repay the credit before the deadline.

* It can sometime take me a couple years to acquire the object of my dream since I want to make sure it is budget friendly for me. IE: I wanted HT recliners for a couple years now, missed some great sales but finally got the 2 3 seaters delivered last week, acquired them at sale pricing (1/2 price) and have 7 months to pay for them. The nice thing, I figured I will more likely be able to dump a minimum of 600$ on the mortgage by the end of the month (Yeah, in 2 days ) :cool:

* Acting in such a way, gives me extra financial power years after years. Maybe some day, I'll be able to afford High End gear versus the mid level gear my modest means has dictated me to acquire through the years :cool:

So, your OP makes a lot of sense but it is simply a matter of balance and planning. I am convinced while the way I spend the money is good for my finance I realize I am probably making some mistakes once in a while but the overall picture of my finance is looking healthier day after days. Balance is the key, not to spend above your means while not having the belt so tight you can't enjoy life.

Cheers!
TK

A friend of mine and I had a conversation kind of related to what you're saying.

But depending on the interest rates of purchases (home/cars), it doesnt always make sense to pay stuff off immediately or sink a lot in to your home when you could be investing it somewhere else.

If your interest rate is low enough, it is almost always more beneficial to invest in a IRA or something along those lines as you make more in interest on the investment than the interest you pay on the purchase.

Meaning...and extreme example just to clarify.

You have a 7% yield on investment A. You're car note is 0%. You have enough to cash right now to buy the car out right. The car is $30,000. Or you could invest the $30,000 making interest, then slowly depleting that after you make payments on the car. I dont have my financial calculator with me, but it makes a lot more financial sense to put your money in investment A than to spend the $30,000 out right.

Same goes with the house, yes, you're paying it off faster, yes, you're saving interest, but are you saving more interest than you could be making by investing that money somewhere else?

Food for thought;)
-Cody

Hawkeye

Balance of course. I work to live, not live to work. I save for the future, but not to the point where I don't have money for fun today. I could be dead in the morning, and would hate to think I scrimped and saved for the future when there is no future!

Case in point: My father had 13 brothers and sisters and they were dirt poor. They would have qualified for food stamps, WIC, rent assist you name it. When my grandfather died, all the 14 kids got together to pool their money to bury their father. What did the grandma say? don't worry about money. She dug out a sheet of paper with little x's all over it. She gave it to my dad and said go dig in the backyard on each x. My dad dug up over $125,000.00 buried in the backyard. The family was stunned that they were dirt poor growing up and all the money was being buried.

So balance is my credo. Save, but have fun while your still alive.

Gordon

tcrossma

I didn't spend a lot of time pondering your thoughts, but right off the bat I will say that borrowing $1000 for 20 years @ 5% with monthly payments equals $1583.89 in total payments at the end of the mortgage, not $2000.

shack

Opportunity costs. Anytime you spend or do something instead of something else, there is a cost associated in not doing the other thing. There is an immediate effect in that any dollar spent on the gear is a dollar not invested or used to pay down debt. It is not a straight line effect. There is value in the gear and the use of it...so no...it did not cost you $2,000 - $3,000. It may have cost you the DIFFERENCE in the future value of what you didn't do vs the residual value of what you did plus the value of the use. Again that is not an easy thing to determine on the front end. That $1,000 invested may or MAY NOT be worth more than the value of gear. The investment could actually go down in value...not even considering inflation eating away the future value. You may have purchased a piece of gear that actually appreciated in value...so much so that even with inflation the future value exceeds the value of the investment. Paying down debt? Same thing. You don't know the ultimate outcome.

The immediate opportunity cost is simple. You can only spend the dollar one way. Once gone the opportunity to do something else is gone...but again...it is only the difference inthe expected value of one vs the other at the time the dollar is spent.

wz2p7j

shack wrote: »

Opportunity costs. Anytime you spend or do something instead of something else, there is a cost associated in not doing the other thing. There is an immediate effect in that any dollar spent on the gear is a dollar not invested or used to pay down debt. It is not a straight line effect. There is value in the gear and the use of it...so no...it did not cost you $2,000 - $3,000. It may have cost you the DIFFERENCE in the future value of what you didn't do vs the residual value of what you did plus the value of the use. Again that is not an easy thing to determine on the front end. That $1,000 invested may or MAY NOT be worth more than the value of gear. The investment could actually go down in value...not even considering inflation eating away the future value. You may have purchased a piece of gear that actually appreciated in value...so much so that even with inflation the future value exceeds the value of the investment. Paying down debt? Same thing. You don't know the ultimate outcome.

The immediate opportunity cost is simple. You can only spend the dollar one way. Once gone the opportunity to do something else is gone...but again...it is only the difference inthe expected value of one vs the other at the time the dollar is spent.

+10000

And thank you for saving me the time of not typing what you typed above.
Opportunity cost of typing or something???

Chris

Hawkeye

I guess I missed the intent of this thread:o

Gordon

cheif pontiac

Mortgages are amortized over time so your interest calcualtions are not correct. I would also like to mention that both mortagage interest and IRA contributions are both tax deductable further complicating the true cost of investing in either or.

If you are living on a budget allocating monies for IRA contributions and mortagage payments, along with monies for bills, food, transportation and everything else involved in life. If one also budgets monies for home improvement (home theatre lol) and entertainment (home theatre lol) then you have niether lost or gained in any investment. You have simply spent your budget for such. A cost of living.

On a side note I see elsewhere in the thread were someone mentioned if you mortgage has an interest rate low enough one would be better off investing extra monies in a higher interest earning venture. Sounds like someone with a PHD in selling forclosure mortgages. That was the catalyst and basis for the non conforming mortagage market and interest only loans. The logic being, why pay into equity on a home, especially if you plan to be there less than 5 years when through appreciation you will gain equity.
This is a great idea in a inclining market when the appreciation will give you security to sell or refinance with the apreciation equity. The problem is a home as an investment is a realitively new concept. Traditionally homes were purchased with cash or built by hand by the owner as a homestead, a place to have a roof over ones head.
Regardless of what expenditure cost you more in the long run. Paying for and owning a home outright will outweigh any investment one could ever think of. Take it from one that has been homeless.
I bought a forclosed home for 70K. Which, given values of money over time has been the average cost of a home. I don't care if I eat Ramen noodles and and mend my old clothes. I am going to pay my house off as soon as I can. I do not have the faith in wallstreet, government, Gold or oil. They come and go. The roof over my head will always be here.

P.S. yes my username is misspelled as I am sure what I wrote has plenty of typos.

bugzbunny

Actually, on the other hand, if you are married, you are probably not getting screwed,.....:D

fatchowmein wrote: »

I'm middle-class, I'm married, I'm screwed.

inspiredsports

gim54pod wrote: »

I have a very simple philosophy when it come's to money "GIVE ME MORE:D" JK actually it's "If you can't pay cash for it, You don't need it". I don't have credit cards and i NEVER will, and never ever spend more than you have.

Do you own a home free and clear that you paid cash for?

inspiredsports

cheif pontiac wrote: »

Mortgages are amortized over time so your interest calcualtions are not correct. I would also like to mention that both mortagage interest and IRA contributions are both tax deductable further complicating the true cost of investing in either or.

If you are living on a budget allocating monies for IRA contributions and mortagage payments, along with monies for bills, food, transportation and everything else involved in life. If one also budgets monies for home improvement (home theatre lol) and entertainment (home theatre lol) then you have niether lost or gained in any investment. You have simply spent your budget for such. A cost of living.

On a side note I see elsewhere in the thread were someone mentioned if you mortgage has an interest rate low enough one would be better off investing extra monies in a higher interest earning venture. Sounds like someone with a PHD in selling forclosure mortgages. That was the catalyst and basis for the non conforming mortagage market and interest only loans. The logic being, why pay into equity on a home, especially if you plan to be there less than 5 years when through appreciation you will gain equity.
This is a great idea in a inclining market when the appreciation will give you security to sell or refinance with the apreciation equity. The problem is a home as an investment is a realitively new concept. Traditionally homes were purchased with cash or built by hand by the owner as a homestead, a place to have a roof over ones head.
Regardless of what expenditure cost you more in the long run. Paying for and owning a home outright will outweigh any investment one could ever think of. Take it from one that has been homeless.
I bought a forclosed home for 70K. Which, given values of money over time has been the average cost of a home. I don't care if I eat Ramen noodles and and mend my old clothes. I am going to pay my house off as soon as I can. I do not have the faith in wallstreet, government, Gold or oil. They come and go. The roof over my head will always be here.

P.S. yes my username is misspelled as I am sure what I wrote has plenty of typos.

A lot of what you say makes sense, but don't underestimate the strength of gold and oil in an economic storm, and don't overestimate the strength of that roof in a tornado.

fatchowmein

bugzbunny wrote: »

Actually, on the other hand, if you are married, you are probably not getting screwed,.....:D

No hablo englis.

GoBigBlue

I live with my parents. They pay for everything. I love my life.

shack

GoBigBlue wrote:

I live with my parents. They pay for everything. I love my life.

My daughter lives with us because no one is hiring architects right now (especially recent college grads). I help her out with some of her expenses. While she doesn't "hate" her life, she would rather be on her own paying her way.

inspiredsports

gobigblue wrote:

i live with my parents. They pay for everything. I love my life.

shack wrote:

my daughter lives with us because no one is hiring architects right now (especially recent college grads). I help her out with some of her expenses. While she doesn't "hate" her life, she would rather be on her own paying her way.

Well said.

I have 3 adult age daughters (yes, Daddy's little girls) at home that I think agree more with gobigblue :mad:

cfrizz

inspiredsports wrote: »

Do you own a home free and clear that you paid cash for?

Yes and I thank God for it now that I'm out of a job! At least I won't end up homeless.

Being in debt is a very bad thing especially in todays economy. You can't know if you are going to keep your job, nor can you know when you will get another one.

And paying for something over & over again because you can't pay off a credit card makes zero sense to me.

Always live within your means, put money away for emergencies, pay your bills in full so that if disaster strikes, you will have one less worry.

sda2mike

some people save like a **** for retirement...then leave this world early...i say: live for now, like today is your last...don't be a fool, tho...cause if you're still here tomorrow, you'll have to live with your crazy self.

madmax

TECHNOKID wrote: »

* My home is actually my investment, if I have any extra money that is where I will invest it (monthly if at all possible). Through the years, I noticed that my mortgage payments has slowly dropped year after years and that the price of my house along with the cost of renting an apartment went the total opposite way. So, I figure I save big time :cool:
TK

OK, so I tend to agree with your whole post. The above thought is one I haven't been able to trust in my own mind but would like to. What keeps eating at me is right now the mortgage seems like a lot of money but I know in 15 years it will seem like nothing due to inflation. Why would someone pay it off right now when it is much tougher to get the cash to do so? BTW, I currently have an account building up trying to decide whether to dump it on the mortgage. I really want to knock this thing off in the next 5 years but I'm not sure that is the best idea.

sda2mike

madmax wrote: »

OK, so I tend to agree with your whole post. The above thought is one I haven't been able to trust in my own mind but would like to. What keeps eating at me is right now the mortgage seems like a lot of money but I know in 15 years it will seem like nothing due to inflation. Why would someone pay it off right now when it is much tougher to get the cash to do so? BTW, I currently have an account building up trying to decide whether to dump it on the mortgage. I really want to knock this thing off in the next 5 years but I'm not sure that is the best idea.

that would depend on the interest rate your paying and the interest rate you could/are earning

fatchowmein

Alright, since we're yakking about money and opportunity cost...

Have we as a nation toppled over the purchasing pinacle? Was the period before this latest economic malaise the zenith of American purchasing power? Are we heading towards a simpler life less filled with material needs? Is the material girl dead or is this merely a bump in the road and we'll be back to, "Don't Worry, Be Happy" once we get out of? Ultimately, are we just temporarily tightening our belt during this lean period or are we experiencing a paradigm shift?


Is Cathy becoming the new normal?

cfrizz wrote: »

Always live within your means, put money away for emergencies, pay your bills in full so that if disaster strikes, you will have one less worry.