Author Topic: What next: pay off car loan or save for down payment?  (Read 13441 times)

mabinogi

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What next: pay off car loan or save for down payment?
« on: April 09, 2015, 02:00:34 PM »
Basic info: married couple, early-mid 30's, soon-to-be-2 kids, single income of $86k, assets (retirement+savings) = $110k, debt = 1 $24k auto loan.

This year's focus is on getting our emergency fund up to $20,000, which we should easily be able to do by the end of the year. We're undecided on what we should do next. Our car loan, while certainly ill-advised by Mustachian standards, is pretty low-interest: 1.5ish, I believe. We're already making somewhat accelerated payments on it, of $500/mo. So, once we've met our EF goal, should we just work on knocking out that loan, even though it's low-interest? Or should we start working on a down payment, and just continue to pay off the car loan at our current pace? We have NOTHING saved to buy a house, and are renting now. We aren't in a hurry to buy - in fact, we hate where we're currently living and are hoping to get the heck out of Dodge within the next few years, so we don't actually want to buy here at all. But of course we'd like to buy something eventually, hopefully before interest rates skyrocket again.

What would you do? (I realize that one option would be to sell the $24k car, but neither of us is especially willing to do that. We love this car - VW Jetta Sportwagon TDI - and it suits us very well. It's the first new car we've ever owned, and we will drive it forever.) We could split the difference and work on both goals concurrently, but my preference is to focus on one at a time.

Thanks for your input!

robbyho

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Re: What next: pay off car loan or save for down payment?
« Reply #1 on: April 09, 2015, 02:09:55 PM »
Sell Sell Sell !

mabinogi

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Re: What next: pay off car loan or save for down payment?
« Reply #2 on: April 09, 2015, 02:11:23 PM »
Hey, I told you I wasn't doing that! ;)

mabinogi

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Re: What next: pay off car loan or save for down payment?
« Reply #3 on: April 09, 2015, 02:14:40 PM »
I also wanted to add, for what it's worth, that the reason we didn't put cash down on our car is that we chose to take what would've been the down payment on the car and use it to pay off what was left of my (6.25% interest) student loans instead.

Cassie

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Re: What next: pay off car loan or save for down payment?
« Reply #4 on: April 09, 2015, 03:13:44 PM »
At that low interest rate I would save for the down payment on a house.

mabinogi

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Re: What next: pay off car loan or save for down payment?
« Reply #5 on: April 09, 2015, 03:16:36 PM »
Thanks, Cassie. That seems to make the most sense to me as well, from a financial standpoint. From a psychological standpoint, though, it sure would feel good to knock out that car payment! Ah well - that's our penance for being a nicer/newer car than we really need, I guess. ;)

Valhalla

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Re: What next: pay off car loan or save for down payment?
« Reply #6 on: April 09, 2015, 03:17:50 PM »
Option 1) sell the car (it's really the smartest financial decision).

If not, then option 2) pay off the car loan as quickly as possible.  The 1.5% interest you save will outweigh the meager savings you'd get from saving the money for a house.  If you fall behind on a few payments they get to take the car. I wouldn't want that no matter what.

After that start saving and following Dave Ramsey's baby steps on retirement & housing.

Valhalla

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Re: What next: pay off car loan or save for down payment?
« Reply #7 on: April 09, 2015, 03:19:28 PM »
Thanks, Cassie. That seems to make the most sense to me as well, from a financial standpoint. From a psychological standpoint, though, it sure would feel good to knock out that car payment! Ah well - that's our penance for being a nicer/newer car than we really need, I guess. ;)
Actually it doesn't make any sense.

Pay 1.5% non-tax deductible interest while saving up cash with 0.1% interest? Nope... not gonna do that any day.   Just because 1.5% is low does not mean it's a good idea.

The ideal scenario is to have a paid for, USED car that you own 100%. That beats a $24k rapidly depreciating car being financed at 1.5% APR.  Just doesn't make sense, never will. 

Gin1984

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Re: What next: pay off car loan or save for down payment?
« Reply #8 on: April 09, 2015, 03:23:39 PM »
Option 1) sell the car (it's really the smartest financial decision).

If not, then option 2) pay off the car loan as quickly as possible.  The 1.5% interest you save will outweigh the meager savings you'd get from saving the money for a house.  If you fall behind on a few payments they get to take the car. I wouldn't want that no matter what.

After that start saving and following Dave Ramsey's baby steps on retirement & housing.
This is really bad advice.  Don't follow Ramsey ever.  I'd leave the car loan alone and save for a house, as long as you are also saving for retirement.  What amount are you saving for that?  Btw, you can get 1.5 from a high yield checking account: http://www.bankrate.com/finance/checking/2011-high-yield-checking-survey.aspx

Valhalla

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Re: What next: pay off car loan or save for down payment?
« Reply #9 on: April 09, 2015, 03:26:22 PM »

This is really bad advice.  Don't follow Ramsey ever.  I'd leave the car loan alone and save for a house, as long as you are also saving for retirement.  What amount are you saving for that?  Btw, you can get 1.5 from a high yield checking account: http://www.bankrate.com/finance/checking/2011-high-yield-checking-survey.aspx
Sorry, you're completely off base here.

If the goal is FIRE, then keeping the car is not an option.  Paying interest on a depreciating item is financial suicide.

I have friends who buy new cars every year and then trade them in the next year, for that new car smell.  They would say Dave Ramsey is crazy...and according to their values they'd be right.

But according to MMM values it's just plain stupid to keep a $24k car loan.

As a Senior Mustachian you really should know better than this.
« Last Edit: April 09, 2015, 03:29:35 PM by Valhalla »

mabinogi

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Re: What next: pay off car loan or save for down payment?
« Reply #10 on: April 09, 2015, 03:32:43 PM »
I hear what you're saying re paying 1.5% interest versus earning basically no interest on savings, Valhalla. But it also doesn't seem to me that mortgage interest rates are likely to stay low indefinitely. Postponing buying a house by even a year could result in a substantially higher interest rate that seems likely to result in much higher costs in the long run than the interest on this car loan.

Yeah, I know the ideal scenario is to have a paid for, USED car that you own 100%. And hey, we've got one of those too! I could give you my laundry list of excuses for why we chose this car, but it's very unlikely that we're going to sell it.

It's important to remember, too, that not everybody on these forums has the same goals. I'm interested in achieving FI, but because my husband is career-driven and not especially interested in retiring very early, we're not on a strict timeline. 

Gin1984, yes, we are saving for retirement. We're not doing much for my ROTH at the moment (~$2k/yr) but are putting away 10+% of my husband's income in his 401K. We're planning to increase both once we knock out a few of our other goals. ETA: We have a total of ~$90k in our retirement accounts right now.
« Last Edit: April 09, 2015, 03:34:57 PM by mabinogi »

Gin1984

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Re: What next: pay off car loan or save for down payment?
« Reply #11 on: April 09, 2015, 03:36:06 PM »

This is really bad advice.  Don't follow Ramsey ever.  I'd leave the car loan alone and save for a house, as long as you are also saving for retirement.  What amount are you saving for that?  Btw, you can get 1.5 from a high yield checking account: http://www.bankrate.com/finance/checking/2011-high-yield-checking-survey.aspx
Sorry, you're completely off base here.

If the goal is FIRE, then keeping the car is not an option.  Paying interest on a depreciating item is financial suicide.

I have friends who buy new cars every year and then trade them in the next year, for that new car smell.  They would say Dave Ramsey is crazy...and according to their values they'd be right.

But according to MMM values it's just plain stupid to keep a $24k car loan.

As a Senior Mustachian you really should know better than this.
Actually we have had the debate about pre-paying your mortgage vs investing and which was better.  And, mathematically investing is better.  And personally I'd not pay down a car loan or any loan under 3%.

Valhalla

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Re: What next: pay off car loan or save for down payment?
« Reply #12 on: April 09, 2015, 03:37:25 PM »
I hear what you're saying re paying 1.5% interest versus earning basically no interest on savings, Valhalla. But it also doesn't seem to me that mortgage interest rates are likely to stay low indefinitely. Postponing buying a house by even a year could result in a substantially higher interest rate that seems likely to result in much higher costs in the long run than the interest on this car loan.

Yeah, I know the ideal scenario is to have a paid for, USED car that you own 100%. And hey, we've got one of those too! I could give you my laundry list of excuses for why we chose this car, but it's very unlikely that we're going to sell it.

It's important to remember, too, that not everybody on these forums has the same goals. I'm interested in achieving FI, but because my husband is career-driven and not especially interested in retiring very early, we're not on a strict timeline. 

Gin1984, yes, we are saving for retirement. We're not doing much for my ROTH at the moment (~$2k/yr) but are putting away 10+% of my husband's income in his 401K. We're planning to increase both once we knock out a few of our other goals. ETA: We have a total of ~$90k in our retirement accounts right now.
I'm sorry to say you're pretty wrong, but nothing wrong that if you're okay with it.

I've stuck to time proven principles, and at stage of the game I have amassed a 1MM net worth, because I was ruthless with stupidity like this.

Now I can afford to buy any car I want... but I just don't see the value any more.  My daily driver is a $5k beater, that I love to death. Many times I have driven to dealer lots, taken test drives, but the allure of that new car smell does not outweigh the money in my wallet.

I'm a car lover, but I'm not stupid.  Being financially smart about things like this now allows me the option that few have, including buying a new car for cash (which I will never do because it's dumb).

Valhalla

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Re: What next: pay off car loan or save for down payment?
« Reply #13 on: April 09, 2015, 03:40:00 PM »

Actually we have had the debate about pre-paying your mortgage vs investing and which was better.  And, mathematically investing is better.  And personally I'd not pay down a car loan or any loan under 3%.
The math is wrong.

Because you're financing a depreciating item (which falls in value 20-30% in the first few years) and it will be worth 50% in 3-4 years.  Forget the 1.5% APR on the loan, forget the 1.5% or whatever investment return you'd get, the fundamental equation is flawed.

You NEVER buy a deeply depreciating item unless it's pocket change to you.

Learn from those who have been there.  I have been there, I have taken the path less traveled, and am telling you what that path is.

But you probably won't listen.  Your math will convince you're better off keeping the car.

Good luck.

PS it's funny the older you get, the wiser you become. I used to dream about Ferrari's and such...back in the day I'd have KILLED to own / drive a Ferrari. Today I can buy a used Ferrari.  But I have zero desire. Why? Because the money is worth more to me. The freedom is worth more to me.  It's ironic when something becomes in reach, it becomes less desirable to you.  A new car has zero meaning to me, whereas to a family in poverty they'd probably drool over it, versus the $5k beater I drive.
« Last Edit: April 09, 2015, 03:42:17 PM by Valhalla »

mabinogi

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Re: What next: pay off car loan or save for down payment?
« Reply #14 on: April 09, 2015, 03:43:52 PM »
Pretty wrong about what, the likelihood of mortgage interest rates increasing? I KNOW that keeping this car isn't the smartest choice, financially, and I've admitted that. Also, like I said, this is the first new car either of us has ever owned, so it's not the "new car smell" that we were looking for. We wanted a TDI for a variety of reasons, and because they hold their value well and have a low turnover rate there were no used ones available anywhere near us. We have two young kids, so driving a beater isn't an option - we need something safe, with enough room for rear-facing car seats and my 6'4" husband. We value having something that has high fuel efficiency. Etc etc. But yes, I have no doubt that we could get something that suits our needs for somewhat less.

I'm not debating the math regarding keeping or selling the car. I was just seeking suggestions on whether or not to pay down the loan, given that we've already decided to keep the car.

Cassie

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Re: What next: pay off car loan or save for down payment?
« Reply #15 on: April 09, 2015, 03:43:52 PM »
Since you already bought the car & have taken depreciation hits I would keep the car. WE usually buy a car that is anywhere from 2-4 years old with low miles & drive it until it is dead or costing too much to fix. Also if one of our cars gets really old we make sure the other car is more reliable for long trips, etc.  The OP has stated that he doesn't want to sell the car so I don't know why people keep saying that. House interest rates will increase so that is another reason I would save for the house first.  You don't want to have a higher interest rate on a mortgage that will last a lot longer then a car loan.  There can be different paths to the same successful end.

Valhalla

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Re: What next: pay off car loan or save for down payment?
« Reply #16 on: April 09, 2015, 03:46:45 PM »
Since you already bought the car & have taken depreciation hits I would keep the car. WE usually buy a car that is anywhere from 2-4 years old with low miles & drive it until it is dead or costing too much to fix. Also if one of our cars gets really old we make sure the other car is more reliable for long trips, etc.  The OP has stated that he doesn't want to sell the car so I don't know why people keep saying that. House interest rates will increase so that is another reason I would save for the house first.  You don't want to have a higher interest rate on a mortgage that will last a lot longer then a car loan.  There can be different paths to the same successful end.
Actually, I'd rather buy a house when interest rates are higher, than when interest rates are low.

I bought my first house when interest rates were at 9%.  As interest rates came down, my house doubled in value (in a HCOL area).  I sold that sucker and moved to a lower COL area, and bought a better house where housing prices had not gone up yet.

I'm going to edit this post and post a link for an analysis on this topic.  Buying when everyone else is buying because of low interest rates is a financial mistake.

And I know the OP says he won't sell the car... but if he wants MMM advice that's exactly what he needs.  Otherwise don't ask for the advice for the best option.

EDIT: here's the article I mentioned:  http://patrick.net/housing/crash1.html

Quote
Because it's a terrible time to buy when interest rates are low, like now. House prices rose as interest rates fell, and house prices will fall if interest rates rise without a strong increase in jobs, because a fixed monthly payment covers a smaller mortgage at a higher interest rate. Since interest rates have nowhere to go but up, prices have nowhere to go but down. When housing falls, you lose your equity, but not your debt.
The way to win the game is to have cash on hand to buy outright at a low price when others cannot borrow very much because of high interest rates. Then you get a low price, and you get capital appreciation caused by future interest rate declines. To buy an expensive house at a time of low interest rates and high prices like now is a mistake.

It is far better to pay a low price with a high interest rate than a high price with a low interest rate, even if the mortgage payment is the same either way.

A low price lets you pay it all off instead of being a debt-slave for the rest of your life.
As interest rates fall, real estate prices generally rise.
Your property taxes will be lower with a low purchase price.
Paying a high price now may trap you "under water", meaning you'll have a mortgage debt larger than the value of the house. Then you will not be able to refinance because then you'll have no equity, and will not be able to sell without a loss. Even if you get a long-term fixed rate mortgage, when rates inevitably go up the value of your property will go down. Paying a low price minimizes your damage.
You can refinance when you buy at a higher interest rate and rates fall, but current buyers will never be able to refinance for a lower interest rate in the future. Rates are already as low as they can go.
« Last Edit: April 09, 2015, 03:49:56 PM by Valhalla »

Cassie

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Re: What next: pay off car loan or save for down payment?
« Reply #17 on: April 09, 2015, 03:50:20 PM »
In 1980 we bought a house when interest rates were at 12% & over 14 years the house only slightly appreciated so I would say that you got lucky. She asked for the best option between the 2 choices she gave. To keep repeating something that is not going to happen is not helpful. The house we are in now was bought for cash when interest rates were low & it has now doubled in value. 

Valhalla

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Re: What next: pay off car loan or save for down payment?
« Reply #18 on: April 09, 2015, 03:52:11 PM »
In 1980 we bought a house when interest rates were at 12% & over 14 years the house only slightly appreciated so I would say that you got lucky. She asked for the best option between the 2 choices she gave. To keep repeating something that is not going to happen is not helpful. The house we are in now was bought for cash when interest rates were low & it has now doubled in value.
I wouldn't say it's not help to give the optimal advice.  It may be useful to some other readers in the same situation where that option might be open to them as well.  This advice is for all in this situation, not just the OP.

Just because your house didn't appreciate does not mean it's universally true.  This analysis makes a lot of sense and has been my experience as well as my friends...

Quote
Because it's a terrible time to buy when interest rates are low, like now. House prices rose as interest rates fell, and house prices will fall if interest rates rise without a strong increase in jobs, because a fixed monthly payment covers a smaller mortgage at a higher interest rate. Since interest rates have nowhere to go but up, prices have nowhere to go but down. When housing falls, you lose your equity, but not your debt.
The way to win the game is to have cash on hand to buy outright at a low price when others cannot borrow very much because of high interest rates. Then you get a low price, and you get capital appreciation caused by future interest rate declines. To buy an expensive house at a time of low interest rates and high prices like now is a mistake.

It is far better to pay a low price with a high interest rate than a high price with a low interest rate, even if the mortgage payment is the same either way.

A low price lets you pay it all off instead of being a debt-slave for the rest of your life.
As interest rates fall, real estate prices generally rise.
Your property taxes will be lower with a low purchase price.
Paying a high price now may trap you "under water", meaning you'll have a mortgage debt larger than the value of the house. Then you will not be able to refinance because then you'll have no equity, and will not be able to sell without a loss. Even if you get a long-term fixed rate mortgage, when rates inevitably go up the value of your property will go down. Paying a low price minimizes your damage.
You can refinance when you buy at a higher interest rate and rates fall, but current buyers will never be able to refinance for a lower interest rate in the future. Rates are already as low as they can go.

mabinogi

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Re: What next: pay off car loan or save for down payment?
« Reply #19 on: April 09, 2015, 03:53:50 PM »
And I know the OP says he won't sell the car... but if he wants MMM advice that's exactly what he needs.  Otherwise don't ask for the advice for the best option.
[/quote]

Really, I'm only allowed to ask for advice on these forums if I'm looking for the ABSOLUTE BEST financial decision? We're not allowed to have differing goals/timelines/values? I asked for advice on one decision within a set of given variables. (And, not that it especially matters, but I'm a woman.)

Valhalla

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Re: What next: pay off car loan or save for down payment?
« Reply #20 on: April 09, 2015, 03:55:58 PM »

Really, I'm only allowed to ask for advice on these forums if I'm looking for the ABSOLUTE BEST financial decision? We're not allowed to have differing goals/timelines/values? I asked for advice on one decision within a set of given variables. (And, not that it especially matters, but I'm a woman.)
I'm giving the advice that got me to where I am today, the best path forward. It might fall on deaf ears here (as I stated in my original post), but I'm going to post it anyway for others to learn from.

Buying a new car is a mistake, a very costly financial mistake. That is how many households unnecessarily waste money without fully understanding it.  There's tons of justifications and such, fine... but it doesn't change the fact that it's a mistake.  Cars are far more reliable these days than ever, getting 200k - 300k miles out of a car is the norm now.  Therefore the default behavior is to buy a well depreciated used car if your goal is FIRE.

It just blows me away how few understand this.  I make well above the norm and it is even painful for me to buy a new car (which I never will), and yet those who make far less than me do it so easily as if they're buying a new pair of pants.
« Last Edit: April 09, 2015, 03:59:03 PM by Valhalla »

mabinogi

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Re: What next: pay off car loan or save for down payment?
« Reply #21 on: April 09, 2015, 03:59:13 PM »
Cassie, thanks for addressing the question that I was actually asking. I appreciate your insight.

And Valhalla, thanks for the information regarding buying a house when interest rates are low vs. high. That's not an analysis I'm familiar with, and it's comforting given that we are still quite a few years out from being in a position to buy a house with a good down payment (regardless of this car issue!).

lezaline

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Re: What next: pay off car loan or save for down payment?
« Reply #22 on: April 09, 2015, 04:10:29 PM »
Mabinogi, I felt so strongly I finally decided to create a username/account! We are pretty much exactly the same demographic. Bought a car a few years ago, bought our house before we were able to sell the house we had (it's a rental now). However, I will tell you NOT having 20% down and paying Private Mortgage Insurance is killing our psyche. With such a low interest rate on the car, I would pay minimum payments there and start saving for the house, especially since you said you didn't have anything saved for a home purchase. Every month that we open the mortgage statement we cringe.

Our youngest will be out of preschool/childcare in June when my husband is off for the summer. We are eager to throw that extra $500 a month at the mortgage balance so we can break that 78% loan value and be rid of the PMI.

Good luck! For the record, our mortgage interest is 3.25 (NOT including the extra $225 in PMI EACH MONTH *I just threw up writing that*) and our car payment interest is 5.25

Valhalla

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Re: What next: pay off car loan or save for down payment?
« Reply #23 on: April 09, 2015, 04:14:20 PM »
This is not for the OP, but for future readers - read this article:  http://www.mrmoneymustache.com/2011/11/28/new-cars-and-auto-financing-stupid-or-sensible/

And read this:  http://www.daveramsey.com/blog/make-it-happen-dream-car/?ictid=btxt?atid=davesays

Nothing against new cars - they're amazing, but they are not worth the true price you'll pay in damage to your financial future.  This is time tested true advice.  You can never justify a new car, not if your goal is to get financially ahead.

... and our car payment interest is 5.25
just blown away here...  staggered...(I threw up reading that)... You people want to validate unhealthy financial habits, fine... just try to avoid doing it here where your mistakes are clear as day.  I'm doing this for future readers who hopefully will better understand what the best choices are.
« Last Edit: April 09, 2015, 04:23:16 PM by Valhalla »

robbyho

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Re: What next: pay off car loan or save for down payment?
« Reply #24 on: April 09, 2015, 04:22:47 PM »
Since you already bought the car & have taken depreciation hits I would keep the car. WE usually buy a car that is anywhere from 2-4 years old with low miles & drive it until it is dead or costing too much to fix. Also if one of our cars gets really old we make sure the other car is more reliable for long trips, etc.  The OP has stated that he doesn't want to sell the car so I don't know why people keep saying that. House interest rates will increase so that is another reason I would save for the house first.  You don't want to have a higher interest rate on a mortgage that will last a lot longer then a car loan.  There can be different paths to the same successful end.
Actually, I'd rather buy a house when interest rates are higher, than when interest rates are low.

I bought my first house when interest rates were at 9%.  As interest rates came down, my house doubled in value (in a HCOL area).  I sold that sucker and moved to a lower COL area, and bought a better house where housing prices had not gone up yet.

I'm going to edit this post and post a link for an analysis on this topic.  Buying when everyone else is buying because of low interest rates is a financial mistake.

And I know the OP says he won't sell the car... but if he wants MMM advice that's exactly what he needs.  Otherwise don't ask for the advice for the best option.

EDIT: here's the article I mentioned:  http://patrick.net/housing/crash1.html

Quote
Because it's a terrible time to buy when interest rates are low, like now. House prices rose as interest rates fell, and house prices will fall if interest rates rise without a strong increase in jobs, because a fixed monthly payment covers a smaller mortgage at a higher interest rate. Since interest rates have nowhere to go but up, prices have nowhere to go but down. When housing falls, you lose your equity, but not your debt.
The way to win the game is to have cash on hand to buy outright at a low price when others cannot borrow very much because of high interest rates. Then you get a low price, and you get capital appreciation caused by future interest rate declines. To buy an expensive house at a time of low interest rates and high prices like now is a mistake.

It is far better to pay a low price with a high interest rate than a high price with a low interest rate, even if the mortgage payment is the same either way.

A low price lets you pay it all off instead of being a debt-slave for the rest of your life.
As interest rates fall, real estate prices generally rise.
Your property taxes will be lower with a low purchase price.
Paying a high price now may trap you "under water", meaning you'll have a mortgage debt larger than the value of the house. Then you will not be able to refinance because then you'll have no equity, and will not be able to sell without a loss. Even if you get a long-term fixed rate mortgage, when rates inevitably go up the value of your property will go down. Paying a low price minimizes your damage.
You can refinance when you buy at a higher interest rate and rates fall, but current buyers will never be able to refinance for a lower interest rate in the future. Rates are already as low as they can go.

At least in my area in CT, rates are LOW, prices are LOW, and people still aren't buying. I'm a realtor and my father has been for my whole life and I can't imagine how this level of low price and low rates is sustainable. You can get mortgage loans as little as 2.5% around here.

Cassie

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Re: What next: pay off car loan or save for down payment?
« Reply #25 on: April 09, 2015, 04:25:45 PM »
Buying a used car that is 2-4 years old with miles under 40,000 will give you the reliability of a new car without having to pay the new car price.

lezaline

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Re: What next: pay off car loan or save for down payment?
« Reply #26 on: April 09, 2015, 04:28:39 PM »
Valhalla, after suffering through multiple cheaper cars that literally put me in harms way with my babies in the back seat when they died in the middle of intersections for no apparent reason, or had the door fly open while driving down a highway, we opted for a used, but nicer car. We've always been fiscally minded, but are new to the MMM website/mindset. I do not feel a need to defend our family choices, but at the time it was what our family needed in order to continue to be gainfully employed and have safe vehicles for transporting our children. I drive a car that we paid less than $5,000 cash for just prior to needing to suddenly get a second vehicle which meant not much left to put a down payment on the car. Sometimes life happens, and no matter what your best plans are, sometimes you have to take a hit to your financial future to ensure your family's safety or health in the present.

Valhalla

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Re: What next: pay off car loan or save for down payment?
« Reply #27 on: April 09, 2015, 04:32:06 PM »

At least in my area in CT, rates are LOW, prices are LOW, and people still aren't buying. I'm a realtor and my father has been for my whole life and I can't imagine how this level of low price and low rates is sustainable. You can get mortgage loans as little as 2.5% around here.
Exactly, imagine how much worse it's going to get when mortgage rates go UP... think buying activity will increase?

Valhalla

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Re: What next: pay off car loan or save for down payment?
« Reply #28 on: April 09, 2015, 04:36:10 PM »
Valhalla, after suffering through multiple cheaper cars that literally put me in harms way with my babies in the back seat when they died in the middle of intersections for no apparent reason, or had the door fly open while driving down a highway, we opted for a used, but nicer car. We've always been fiscally minded, but are new to the MMM website/mindset. I do not feel a need to defend our family choices, but at the time it was what our family needed in order to continue to be gainfully employed and have safe vehicles for transporting our children. I drive a car that we paid less than $5,000 cash for just prior to needing to suddenly get a second vehicle which meant not much left to put a down payment on the car. Sometimes life happens, and no matter what your best plans are, sometimes you have to take a hit to your financial future to ensure your family's safety or health in the present.
Nice try justifying a poor financial choice. It's very emotional and I get it.

That is a false argument. There are tons of safe, well used vehicles out there.  Just because a car is used does not mean it is a time bomb waiting to fall apart on the road.  I have purchased nothing but used cars in my life, and usually higher quality used cars than cheaper built new cars.

The vast majority of people do anti-FIRE, which means there are literally tons of good used vehicles out there.  I was SHOCKED to find out that you could buy a 3-6 months old vehicle on craigslist. I mean who does that?  I searched for "2015" vehicles and find 2015 Camry's, Mazda's, even Lexus / BMW's that are literally only 6 months old or less.  The seller obviously is taking a huge hit at buying a brand new fancy vehicle and then selling it after taking a 10-20% hit just for driving it off the dealer lot.

Go to your local Craigslist listings, and search for new vehicles like "2015" or even "2016" and you will be shocked at literally weeks / months old "NEW" cars for sale by owners.  This stuff just floors me...

These are not trivial financial mistakes.  Best of luck with your financial future.
« Last Edit: April 09, 2015, 04:39:27 PM by Valhalla »

JLee

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Re: What next: pay off car loan or save for down payment?
« Reply #29 on: April 09, 2015, 04:40:23 PM »
Valhalla, after suffering through multiple cheaper cars that literally put me in harms way with my babies in the back seat when they died in the middle of intersections for no apparent reason, or had the door fly open while driving down a highway, we opted for a used, but nicer car. We've always been fiscally minded, but are new to the MMM website/mindset. I do not feel a need to defend our family choices, but at the time it was what our family needed in order to continue to be gainfully employed and have safe vehicles for transporting our children. I drive a car that we paid less than $5,000 cash for just prior to needing to suddenly get a second vehicle which meant not much left to put a down payment on the car. Sometimes life happens, and no matter what your best plans are, sometimes you have to take a hit to your financial future to ensure your family's safety or health in the present.
Nice try justifying a poor financial choice. It's very emotional and I get it.

That is a false argument. There are tons of safe, well used vehicles out there.  Just because a car is used does not mean it is a time bomb waiting to fall apart on the road.  I have purchased nothing but used cars in my life, and usually higher quality used cars than cheaper built new cars.

The vast majority of people do anti-FIRE, which means there are literally tons of good used vehicles out there.  I was SHOCKED to find out that you could buy a 3-6 months old vehicle on craigslist. I mean who does that?  I searched for "2015" vehicles and find 2015 Camry's, Mazda's, even Lexus / BMW's that are literally only 6 months old or less.  The seller obviously is taking a huge hit at buying a brand new fancy vehicle and then selling it after taking a 10-20% hit just for driving it off the dealer lot.

Go to your local Craigslist listings, and search for new vehicles like "2015" or even "2016" and you will be shocked at literally weeks / months old "NEW" cars for sale by owners.  This stuff just floors me...

These are not trivial financial mistakes.  Best of luck with your financial future.
The person you just quoted did buy a used car. Who exactly are you lecturing right now?

I assume your intention is to help, but you have a very condescending presentation.

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Re: What next: pay off car loan or save for down payment?
« Reply #30 on: April 09, 2015, 04:41:14 PM »

The person you just quoted did buy a used car. Who exactly are you lecturing right now?
Yes, with an auto loan at 5.5% APR.  Who do you think?

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Re: What next: pay off car loan or save for down payment?
« Reply #31 on: April 09, 2015, 04:42:16 PM »

The person you just quoted did buy a used car. Who exactly are you lecturing right now?
Yes, with an auto loan at 5.5% APR.  Who do you think?
Well, your tirade about "people should be buying used cars" was in response to someone who did buy a used car. So, I have no idea.

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Re: What next: pay off car loan or save for down payment?
« Reply #32 on: April 09, 2015, 04:43:43 PM »

The person you just quoted did buy a used car. Who exactly are you lecturing right now?
Yes, with an auto loan at 5.5% APR.  Who do you think?
Well, your tirade about "people should be buying used cars" was responding to someone who did buy a used car. So, I have no idea.
Not just my tirade, but also MMM's tirade, Dave Ramsey's tirade, virtually all financial professional tirades.

It's not just about a "used car".  Hell a used Ferrari can be purchased, does that mean it's a good financial decision?

The ideal situation is a used car you can buy with CASH.  Have you not been reading any of the links I posted, and is widely available online on this topic?

I am new to MMM and I'm staggered at the number of people that seem to be oblivious to some of the basic financial principles here...

Jack

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Re: What next: pay off car loan or save for down payment?
« Reply #33 on: April 09, 2015, 04:48:02 PM »
We wanted a TDI for a variety of reasons, and because they hold their value well and have a low turnover rate there were no used ones available anywhere near us.

I am both a mustachian and a TDI enthusiast, so you should take my advice.

Sell the new TDI and then go buy an old TDI (2000-2003 or 2004-2006 model). Fly out to get it and drive it back from a different state if you have to. Go on TDIClub.com, find a senior forum member (or better yet, guru) near where the car you want is, and have them go check it out for you before you commit to buying it.

Not only would an older TDI be better for your finances, they're better cars in general too. A MK4 Jetta Wagon is plenty safe, has more room than your JSW, costs a fuck-ton less, gets better fuel economy than your new one, and can even safely run on biodiesel (if you're into that sort of thing) whereas yours can't.

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Re: What next: pay off car loan or save for down payment?
« Reply #34 on: April 09, 2015, 04:49:10 PM »
We wanted a TDI for a variety of reasons, and because they hold their value well and have a low turnover rate there were no used ones available anywhere near us.

I am both a mustachian and a TDI enthusiast, so you should take my advice.

Sell the new TDI and then go buy an old TDI (2000-2003 or 2004-2006 model). Fly out to get it and drive it back from a different state if you have to. Go on TDIClub.com, find a senior forum member (or better yet, guru) near where the car you want is, and have them go check it out for you before you commit to buying it.

Not only would an older TDI be better for your finances, they're better cars in general too. A MK4 Jetta Wagon is plenty safe, has more room than your JSW, costs a fuck-ton less, gets better fuel economy than your new one, and can even safely run on biodiesel (if you're into that sort of thing) whereas yours can't.
DING DING DING we have a winner!!

Finally a voice of sanity a midst the sea of craziness. I was starting to wonder if I was on a MMM site any more after the various responses so far....

I think a lot of people just don't want to hear what the financially responsible thing to do... they just want affirmation that their financial mistake is "ok" and keep on that...
« Last Edit: April 09, 2015, 04:51:02 PM by Valhalla »

mabinogi

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Re: What next: pay off car loan or save for down payment?
« Reply #35 on: April 09, 2015, 04:58:11 PM »
We wanted a TDI for a variety of reasons, and because they hold their value well and have a low turnover rate there were no used ones available anywhere near us.

I am both a mustachian and a TDI enthusiast, so you should take my advice.

Sell the new TDI and then go buy an old TDI (2000-2003 or 2004-2006 model). Fly out to get it and drive it back from a different state if you have to. Go on TDIClub.com, find a senior forum member (or better yet, guru) near where the car you want is, and have them go check it out for you before you commit to buying it.

Not only would an older TDI be better for your finances, they're better cars in general too. A MK4 Jetta Wagon is plenty safe, has more room than your JSW, costs a fuck-ton less, gets better fuel economy than your new one, and can even safely run on biodiesel (if you're into that sort of thing) whereas yours can't.
DING DING DING we have a winner!!

Finally a voice of sanity a midst the sea of craziness. I was starting to wonder if I was on a MMM site any more after the various responses so far....

I think a lot of people just don't want to hear what the financially responsible thing to do... they just want affirmation that their financial mistake is "ok" and keep on that...

I wasn't seeking affirmation that my financial mistake was OK. I wasn't seeking opinions about that piece of my financial life AT ALL. But thanks for your continued input.

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Re: What next: pay off car loan or save for down payment?
« Reply #36 on: April 09, 2015, 04:59:31 PM »

I wasn't seeking affirmation that my financial mistake was OK. I wasn't seeking opinions about that piece of my financial life AT ALL. But thanks for your continued input.
No worries. It's really provided for others to see. You're ok with your decision, best of luck with that.

I posted this elsewhere but thought I'd share this too:

I am also not your normal car buyer. While my DD is only worth $5k, I also have a rare collectible vehicle that I use maybe 3-4 times a year?  I paid cash for that vehicle, and it's appreciating due to its rarity, not depreciating.  The fact I can do this is because I didn't make dumb financial decisions to finance rapidly depreciating new vehicles in my life time.

It's a bit crazy, but my auto collection is worth $100k, yet it depreciates far less than most people's new cars, because the used vehicles are all done with depreciation for the most part, while one vehicle is appreciating.  I enjoy my autos far more than most people with their "brand new" cars. I am a car enthusiast, but a financially smart one at that.

mabinogi

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Re: What next: pay off car loan or save for down payment?
« Reply #37 on: April 09, 2015, 05:00:50 PM »
We wanted a TDI for a variety of reasons, and because they hold their value well and have a low turnover rate there were no used ones available anywhere near us.

I am both a mustachian and a TDI enthusiast, so you should take my advice.

Sell the new TDI and then go buy an old TDI (2000-2003 or 2004-2006 model). Fly out to get it and drive it back from a different state if you have to. Go on TDIClub.com, find a senior forum member (or better yet, guru) near where the car you want is, and have them go check it out for you before you commit to buying it.

Not only would an older TDI be better for your finances, they're better cars in general too. A MK4 Jetta Wagon is plenty safe, has more room than your JSW, costs a fuck-ton less, gets better fuel economy than your new one, and can even safely run on biodiesel (if you're into that sort of thing) whereas yours can't.

Thanks, Jack. We're having a baby next month so that definitely won't be a top priority, but it's something to look into in the coming year. Any difference in safety standards between the older and newer Jetta models?

mabinogi

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Re: What next: pay off car loan or save for down payment?
« Reply #38 on: April 09, 2015, 05:10:10 PM »
And, just to throw it out there:

Selling a car is a big decision, and one that both halves of a couple half to be on board with. I'm much more FIRE-oriented than my husband is, and even if you convinced me to sell the car I think it is EXTREMELY unlikely that I'd be able to convince him to do so. Because he's the breadwinner (I'm currently a stay at home mom), he has at least as much input as I do where these things are concerned. As I mentioned earlier in the thread, because he loves his career he's not especially motivated by early retirement. As a result, he's not as motivated to cut costs as I am. So, I'm doing what I can to get us closer to financial independence within the structure of my marriage and family. Financial independence is NOT more important to me than marital happiness, so I'm not willing to push on every little thing.

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Re: What next: pay off car loan or save for down payment?
« Reply #39 on: April 09, 2015, 05:13:32 PM »
Understood, you've made your situation loud and clear.  At this point you've got a lot of things to work on to bring your net worth up. Every little positive thing you can do now will pay huge dividends later.

To me, the lowest hanging fruit from almost anyone's financial situation is the car purchasing decision.  That's where you can stand to save the most money or lose the most money, aside from housing (which is an investment).  It's unfortunate you won't be able to change the behavior in this area, so you'll have to do better else where in the spirit of MMM.

Good luck to you.

mabinogi

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Re: What next: pay off car loan or save for down payment?
« Reply #40 on: April 09, 2015, 05:14:15 PM »

JLee

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Re: What next: pay off car loan or save for down payment?
« Reply #41 on: April 09, 2015, 05:15:54 PM »
And, just to throw it out there:

Selling a car is a big decision, and one that both halves of a couple half to be on board with. I'm much more FIRE-oriented than my husband is, and even if you convinced me to sell the car I think it is EXTREMELY unlikely that I'd be able to convince him to do so. Because he's the breadwinner (I'm currently a stay at home mom), he has at least as much input as I do where these things are concerned. As I mentioned earlier in the thread, because he loves his career he's not especially motivated by early retirement. As a result, he's not as motivated to cut costs as I am. So, I'm doing what I can to get us closer to financial independence within the structure of my marriage and family. Financial independence is NOT more important to me than marital happiness, so I'm not willing to push on every little thing.

I am in a similar situation with my SO, except she's working and will be FI at least five years before I will, if not more (we are currently in separate countries so combining finances is not realistic). I am also less interested in FI than she is, and I will accept expenses/etc that she won't because of our differing mindset.

I will say, though - the longer I am with her, my mindset slowly keeps creeping more towards 'how can I be more efficient, what else can I sell, where else can I cut.' :)

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Re: What next: pay off car loan or save for down payment?
« Reply #42 on: April 09, 2015, 05:16:14 PM »

The person you just quoted did buy a used car. Who exactly are you lecturing right now?
Yes, with an auto loan at 5.5% APR.  Who do you think?
Well, your tirade about "people should be buying used cars" was responding to someone who did buy a used car. So, I have no idea.
Not just my tirade, but also MMM's tirade, Dave Ramsey's tirade, virtually all financial professional tirades.

It's not just about a "used car".  Hell a used Ferrari can be purchased, does that mean it's a good financial decision?

The ideal situation is a used car you can buy with CASH.  Have you not been reading any of the links I posted, and is widely available online on this topic?

I am new to MMM and I'm staggered at the number of people that seem to be oblivious to some of the basic financial principles here...
Maybe you should check a few things out before being so condescending and rude.  Because there was a thread not that long ago about pre-paying ones mortgage vs investing and math is pretty clear, investing is a winner.  Yes, buying used and with cash may be the best, but there can be reasons not to.  And frankly no one is going to listen to someone holding up Ramsey as a model nor something being that rude.

Valhalla

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Re: What next: pay off car loan or save for down payment?
« Reply #43 on: April 09, 2015, 05:21:25 PM »

Maybe you should check a few things out before being so condescending and rude.  Because there was a thread not that long ago about pre-paying ones mortgage vs investing and math is pretty clear, investing is a winner.  Yes, buying used and with cash may be the best, but there can be reasons not to.  And frankly no one is going to listen to someone holding up Ramsey as a model nor something being that rude.
Can you kindly post the link to that thread?

I've not been talking about pre-paying mortgage vs investing...I've been talking about financing a car... have you been paying attention?

I'm sorry if it comes across as rude, but these are basic financial principles... sometimes it seems to be a sacred cow when people realize that they've been making mistakes in an area and it hurts to see that.  Once the pain subsides, they will be much better off and improve their situation.

I still don't understand your animosity towards Dave Ramsey.  I don't agree with him fully but he does have pretty valid suggestions and courses of action.

If you're doing better than Dave Ramsey or MMM please by all means share with us, how we could do better.

I'm only a beginner in this regard, with a 1MM net worth and no debt other than a mortgage (which I used the money to invest, just like you implied)...

Please do enlighten me on what I said was exactly wrong above.

Having just joined MMM trying to learn how to become better at it, I'm starting to get a sense that some senior members here just don't have as good of a grasp on FI or RE than a beginner like myself... becoming a little disillusioned at some of the members of this site. 

Hanging out here might be well a waste of my time and there's not that much to learn.... hopefully a lot more people will prove me wrong, as I'd love to pick up more tips / tricks on FIRE.
« Last Edit: April 09, 2015, 05:28:43 PM by Valhalla »

Jack

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Re: What next: pay off car loan or save for down payment?
« Reply #44 on: April 09, 2015, 05:48:48 PM »
Thanks, Jack. We're having a baby next month so that definitely won't be a top priority, but it's something to look into in the coming year. Any difference in safety standards between the older and newer Jetta models?

The new ones probably have a truly ridiculous number of airbags (vs. merely enough airbags in a MK4), and are likely festooned with silly electronic gizmos in an attempt to make them idiot proof (e.g. tire pressure monitoring systems, fancier electronic stability control, rear-view cameras, etc.). I have to admit I'm not completely versed on the details, given that I have no interest in owning such a new car and thus have no need to research it.

By the way, the right time to stop your vehicular hemorrhaging is now, not later. The longer you wait, the more the rate of depreciation will decrease and the less money you'll save. But that does not mean procrastination makes it magically become a retroactive good decision to keep the car! Quite the opposite, in fact: it would mean that you will have missed your opportunity and compounded your mistake.

Valhalla

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Re: What next: pay off car loan or save for down payment?
« Reply #45 on: April 09, 2015, 06:00:31 PM »

By the way, the right time to stop your vehicular hemorrhaging is now, not later. The longer you wait, the more the rate of depreciation will decrease and the less money you'll save. But that does not mean procrastination makes it magically become a retroactive good decision to keep the car! Quite the opposite, in fact: it would mean that you will have missed your opportunity and compounded your mistake.
This is exactly the sort of financial wisdom I was expecting to see here. Thanks for restoring my faith in this site a little bit.

JLee

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Re: What next: pay off car loan or save for down payment?
« Reply #46 on: April 09, 2015, 06:32:24 PM »

Maybe you should check a few things out before being so condescending and rude.  Because there was a thread not that long ago about pre-paying ones mortgage vs investing and math is pretty clear, investing is a winner.  Yes, buying used and with cash may be the best, but there can be reasons not to.  And frankly no one is going to listen to someone holding up Ramsey as a model nor something being that rude.
Can you kindly post the link to that thread?

I've not been talking about pre-paying mortgage vs investing...I've been talking about financing a car... have you been paying attention?

I'm sorry if it comes across as rude, but these are basic financial principles... sometimes it seems to be a sacred cow when people realize that they've been making mistakes in an area and it hurts to see that.  Once the pain subsides, they will be much better off and improve their situation.

I still don't understand your animosity towards Dave Ramsey.  I don't agree with him fully but he does have pretty valid suggestions and courses of action.

If you're doing better than Dave Ramsey or MMM please by all means share with us, how we could do better.

I'm only a beginner in this regard, with a 1MM net worth and no debt other than a mortgage (which I used the money to invest, just like you implied)...

Please do enlighten me on what I said was exactly wrong above.

Having just joined MMM trying to learn how to become better at it, I'm starting to get a sense that some senior members here just don't have as good of a grasp on FI or RE than a beginner like myself... becoming a little disillusioned at some of the members of this site. 

Hanging out here might be well a waste of my time and there's not that much to learn.... hopefully a lot more people will prove me wrong, as I'd love to pick up more tips / tricks on FIRE.

The post you responded to said you were condescending and rude. I have selected the portions of your response to indicate why you are perceived as such.

You are already FI with $1mil. Many people here have retirement targets of half (or less) than what you already have.

Valhalla

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Re: What next: pay off car loan or save for down payment?
« Reply #47 on: April 09, 2015, 06:36:55 PM »

The post you responded to said you were condescending and rude. I have selected the portions of your response to indicate why you are perceived as such.

You are already FI with $1mil. Many people here have retirement targets of half (or less) than what you already have.
Um, the post you highlighted was after earlier posts stating I was rude, and I was stating how I felt.  And if it's rude in response to a rude post, then so be it.

And do people even understand why I am FI with $1 mil?  It is because of the decisions I have made with regards to topics like car buying. 

I think my advice would be pretty useless if I was heavily in debt, no savings, and such.  Therefore my advice here should be even more relevant and pertinent to those who are on the journey to where I am today.

Finally, the advice I've stated is the advice put forth by MMM himself, as well as other financial guru's far wiser than I.  I fail to see the problem????

It seems only "Jack" gets it, whereas most others want me to stop giving them this sage advice and comfort them instead.  What kind of wacky attitude is that, if one is here to get nuggets of financial wisdom and improve their goals towards financial freedom?

I'm still blown away by these replies I get in response to my sensible advice...some people just don't really care about financial freedom, at least not on pure honest and factual terms, apparently.  If that seems rude, it may be because the reality is rude. 

« Last Edit: April 09, 2015, 06:42:59 PM by Valhalla »

JLee

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Re: What next: pay off car loan or save for down payment?
« Reply #48 on: April 09, 2015, 06:43:41 PM »

The post you responded to said you were condescending and rude. I have selected the portions of your response to indicate why you are perceived as such.

You are already FI with $1mil. Many people here have retirement targets of half (or less) than what you already have.
Um, the post you highlighted was after earlier posts stating I was rude, and I was stating how I felt.  And if it's rude in response to a rude post, then so be it.

And do people even understand why I am FI with $1 mil?  It is because of the decisions I have made with regards to topics like car buying. 

I think my advice would be pretty useless if I was heavily in debt, no savings, and such.  Therefore my advice here should be even more relevant and pertinent to those who are on the journey to where I am today.

Finally, the advice I've stated is the advice put forth by MMM himself, as well as other financial guru's far wiser than I.  I fail to see the problem????

It seems only "Jack" gets it, whereas most others want me to stop giving them this sage advice and comfort them instead.  What kind of wacky attitude is that, if one is here to get nuggets of financial wisdom and improve their goals towards financial freedom?

I'm not talking about your advice. I'm talking about your perceived rudeness in communication, which has been a trend in many of your posts on this forum so far. If you truly want to help people, alienating them with condescension is not the best route.

Valhalla

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Re: What next: pay off car loan or save for down payment?
« Reply #49 on: April 09, 2015, 06:46:25 PM »

I'm not talking about your advice. I'm talking about your perceived rudeness in communication, which has been a trend in many of your posts on this forum so far. If you truly want to help people, alienating them with condescension is not the best route.
Hmm apologies if it comes across this way, not my intention but I get impatient with people who fail to understand basic financial principles, even ones preached by MMM himself, on this site.

I guess I'm a little underwhelmed by the level of FIRE expertise here so far.  This topic is beyond basic, and to get this sort of reaction is totally unexpected.  I'd expect this on a car forum (which I frequent) but not on a financial forum.

Reading my communication again, I don't believe I've been overly rude, just stating the facts as plainly as possible. If that seems rude, well, sorry.  I'm not here to make you feel better about a bad financial decision, I'm here to help you make the best financial decision today.

I'm also here to learn from others, and I'm a little dismayed at the lack of basic knowledge of some "senior" mustachians... (again this may seem rude...but sorry it's how I feel)

Finally, with regards to your "rude" comments, I've received personal messages from people thanking me for my advice.  I've wished everyone good luck after giving them my advice as well.  I think you might be a little jaded because I took issue with your car loan at 3.4%...
« Last Edit: April 09, 2015, 07:00:31 PM by Valhalla »