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BRZ First-Gen (2012+) -- General Topics All discussions about the first-gen Subaru BRZ coupe |
View Poll Results: What Should I buy this week? | |||
New BRZ - same exact one but 0 miles. Ordered, nothing in stock | 24 | 58.54% | |
Veloster N - hyundai 260 torque, and has a lame 3rd door for my cat I guess. | 3 | 7.32% | |
VW GTI SE - kind of darth vader inside. Fancy. Might explode in 3000 miles? | 2 | 4.88% | |
Mazda MX-5 RF - machine gray, 2019, no backseat = rebel | 12 | 29.27% | |
Voters: 41. You may not vote on this poll |
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08-17-2019, 11:01 AM | #71 | |
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The real wizards talk about liquid asset allocation, and how tying up the cash into any more than a certain amount of product becomes a negative gain.. I'm not smart enough for all the numbers, or to even do it myself. But like any numbers game, a single straight answer isn't always the best.
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08-17-2019, 11:46 AM | #72 | |
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The time value of money implies a dollar today is worth more than a dollar tomorrow. If you pay cash today, you're paying in more expensive dollars, money that is worth more than it will be in a year, two years, five years because of inflation. Today you're paying more in real (inflation adjusted) dollars, which are the only type of dollar that matter. On average, loans get easier to pay over time because you're paying with cheaper dollars as the loan gets older. In fact, lenders can actually lose money on a fixed rate loan if inflation rises unexpectedly and cancels out the interest. Opportunity cost is what you lose by using the money on the car rather than the next best option. If your next best option is to invest the money instead, the time value of money kicks in again to say those dollars cost you more if you spend them today because of all the income you lose by not investing them. Opportunity cost can also be non-monetary. For example, suppose your choice is to pay cash for the car and continue living in your mom's house, or finance the car and have enough to make a down payment on a house of your own. The better quality of life that goes with adulting in a home of your own may have economic value. There's also an opportunity cost in the delay in purchasing while you save up cash. Suppose I have $5K to put down on a BRZ and a high enough income to reasonably afford a monthly payment on a 5 year, 2% loan at my credit union. Suppose you also have $5K and the same income, but you want to wait until you save enough to pay cash for the car. The utility and satisfaction I'll get from driving my BRZ around with a big smile on my face for the next couple of years while you mope around in your mom's hand-me-down '98 Tercel also has economic value that is significantly higher than the amount of interest I'll pay on my loan. Therefore, whether paying cash or financing is better depends on what interest rate you can get, how fast inflation is rising and how using the money elsewhere will contribute to your life. "The instant you pay cash" may actually cost you more than financing. BTW, my credentials: CPA with a degree in Finance. I actually do know what I'm talking about. |
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08-17-2019, 12:16 PM | #73 | |
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My case adds the factor that I get paid mileage which covers my car payments. My wife (an accountant) uses the cash that would have been paid out to make money. If we paid cash we would actually end up losing some money.
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08-17-2019, 12:24 PM | #74 |
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Like i said, smarter people than me.
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08-17-2019, 12:39 PM | #75 |
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I'm not that smart either, DW.
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08-17-2019, 12:55 PM | #76 | |
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Just offering a a different point of view that's all, not going to argue it with you.
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08-17-2019, 01:12 PM | #77 | |
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Racecar spelled backwards is Racecar, because Racecar.
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08-17-2019, 01:19 PM | #78 | |
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08-17-2019, 04:24 PM | #79 | |
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In my line of work (auditing), we evaluate risks in terms of impact and likelihood. Something with a high impact and a high likelihood is obviously high risk. Something that's extremely unlikely and wouldn't matter if it did happen is obviously low risk. The interesting ones are where they are mismatched. If there's a 1 in a billion likelihood that I'll fall on my head if I step outside, but the outcome if I did would be death, is that high risk or low risk? I'd call it low and step outside. You might call it high and stay indoors. That's a function of your risk appetite. Risk appetites are different from person to person and even within the same person from moment to moment. Once we estimate the severity of the risk, we look at the controls that are in place to mitigate it. What's left over is residual risk. We want to control for risk until the residual risk is consistent with our risk appetite. In your example, the likelihood of losing my job may be higher or lower than yours. Maybe I'm in a field that's prime for outsourcing to India. Maybe you're one of only four people in the world who can do an essential job. The impact might be higher because I have less savings. It might be lower because I'm reasonably assured of getting another job before my savings runs out. My impact may be lower because I don't have any kids, pets or plants who also rely on my income. I can't possibly know all your risk factors, nor can you know all of mine. Suppose I lose my job and don't have enough monthly income or savings to make my car payment (mine's paid off and had other considerations involved, but suppose for the sake of discussion I were still financing). I can control for this risk to some extent by making sure that I won't be upside down on the car and can sell it fairly quickly without losing money. Either I pay a little extra for gap insurance or have a short enough loan from the beginning that my equity stays ahead of the depreciation curve. What's the risk of being unable to sell it at all? What if I have to accept the residual risk of walking away from the vehicle altogether and letting it go back to the lender as a repossession. Obviously that has consequences, but they're not death or jail. If I look at the hit to my credit and can accept what it will take to come back from it, that might be a risk with a relatively high impact but a low enough likelihood within the context of all my other financial and career decisions that I don't really worry about it. Is the economic value of having the car high enough to make the risk/reward relationship attractive? Maybe it is for me. Maybe I simply estimate the likelihood of the loss of my job and the impact of it even if it did happen as being too low to outweigh the benefit of having both the car and the cash I haven't yet spent on it. At that point all that's left to worry about is personal responsibility. I'm all for it. If I risked a car payment, lost my job and had to sell the car, I'd say, "Well, I knew the risks and consequences." I don't blame the lender for my decisions or demand a bailout from the government. I say, "That sucks," then move on to the next decision. In reality nobody (including me) really applies these concepts to daily life in this kind of detail. Humans make decisions based on emotion and then look for ways to rationalize them after the fact. However, having a framework like this can definitely influence those emotional decisions and can help come to terms with both positive and negative outcomes. It has certainly prevented me from making some mistakes. But I can also look at a bad decision, say, "Fuck it, I'll risk it," and be okay with it if it all goes to hell. |
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09-15-2019, 03:58 AM | #80 |
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I made a new post. "Not a BRZ".
i miss it already, but new flavors are good for life. |
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