The Money Mustache Community
General Discussion => Welcome and General Discussion => Topic started by: surfer349 on October 13, 2021, 12:38:45 PM
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so looking for advice here. I feel like I've set up a lot of the building blocks and potential ways to pay for big purchases, but not sure what to exactly do.
Looking for advice or tips for ways to pay for big purchases ($5k-$10k+) like a used car or home reno projects that will make the most sense for frugal and fiscally-savy people like ourselves.
Should I just write cash checks or setup a margin loan and play the interest arbitrage? Any advice here?
Background:
- good paying job
- no debt except for mortgage. CC's paid in full every month.
- large cash reserve (was waiting for the ever-predicted crash)
- large 401k and IRA accounts, ROTH and regular (can take loans against for short term, right?)
- large HELOC account, available at 3.25%
- large WholeLife cash value (able to take loans, direct recognition)
- large post-tax investment accounts (can do margin loans)
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I prefer to use credit cards, get rewards, then pay it off right away so I don't pay interest. Why complicate matters unnecessarily?
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large cash reserve (was waiting for the ever-predicted crash)
This seems an obvious, simple solution.
Hopefully $5k is something a fiscally-minded person with a “good paying job” could cash-flow over the course of just a few months. If not there are deeper questions to answer
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large cash reserve (was waiting for the ever-predicted crash)
This seems an obvious, simple solution.
Hopefully $5k is something a fiscally-minded person with a “good paying job” could cash-flow over the course of just a few months. If not there are deeper questions to answer
Yeah, I don't really get the question if there's a good income.
If we're talking actual large amounts, like 40K, then I could see complicating it, but for 5-10K, that just goes on credit cards and then gets paid off. If it's a but larger and can't be paid off immediately, the remainder goes onto LOC until it's paid off.
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For big purchases where credit cards are accepted, I'll often ask if there is a discount for paying cash. Most sellers will gladly give a 2% discount to avoid paying 3% in fees. I end up paying the same price as if I had used a rewards card and the sellers get more money from the deal.
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I had a $10k purchase to make last November. I looked at credit card offers, and got an AMEX card that had a $600 bonus if you charged x amount in six months, and paid back a percentage (1%, I think) of purchases. It was also interest free for a year. I just paid $1k/month until it was done, paid zero interest, and got $700 off my purchase.
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This is something I felt I had to address before I retired. I wanted to have cash or near cash on hand for things like a car or major home repair, but I also did not want large spikes in income that would come from withdrawing large sums from my IRA or 401K (because obamacare). I also was opposed to taking on debt in retirement. My solution was to set aside a large pool of money in Municipal bonds and Roth IRA that I could tap for this purpose (about $100K which is less than 10% of my portfolio). The interest on the muni bonds counts as income, but that is not huge. This is a bit of a drag on my portfolio earnings, but I was never going to be 100% equities anyway. It's barely keeping up with inflation, but I'm ok with that. So far, I have been retired for 6 years and have not had to tap this money yet. Eventually, I will graduate to Medicare and I will have less incentive to keep my income low. I might put the muni bond money to work elsewhere if I have not spent it by then.
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I prefer to use credit cards, get rewards, then pay it off right away so I don't pay interest. Why complicate matters unnecessarily?
Yes: harvest points/perks from the CC, pay it off before you owe interest - and if you don't have $$$ then pay the card with a low-interest LoC, HELOC, or margin loan. Like if IBKR will let you take out some cash at around 1.5%... may as well keep your funds in the market making more...
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I charge to my CC and they pay off each month. This is for convenience and points, as well as the protections offered by the card company. For a surprise expense, $5k is easy and I could probably swing $10k in time to pay off the card. If not, I could tap into the portion of savings that I keep just floating around in liquid places, and then replenish over the following few months. If it is like several of the things OP mentioned--home reno, a new to me car--then I could certainly save up for a few months in advance of the expense and have the cash waiting to pay off the CC charge.
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I'm going to go against the flow here. Right now my credit union is offering new car loans at 2.65% and used car loans at 2.79%. Meanwhile my i-series savings bonds are paying more than that. In the current inflation environment I'd take out a loan for something like a new/used car. But I have a top-notch credit score.
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I prefer to use credit cards, get rewards, then pay it off right away so I don't pay interest. Why complicate matters unnecessarily?
This is pretty much our most common method. Earn whatever we can through credit card rewards or 0% interest and then pay it off before any interest would be added.
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Large impending purchases are the perfect time to get a new credit card with a sign up bonus and up to 18 months interest free.
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If you have a cash reserve, and then are paying for these purchases on credit/margin to attempt to arbitrage the interest rate, you're not doing it right. Taking out a $10k loan at 3.25% while you have $10k cash earning 0-1% doesn't make sense unless you have (or fear) a liquidity crunch.
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It also depends on what you are buying and what payment methods they will take.
Note, we don't live in a fancy area so our options are different than many fancy places.
I'm about 40% on putting used cars on my credit card from dealerships. Some do, some don't. Credit card is my preferred method for most things. I've done a check for one. Cash for the rest. Cash has never gotten me a discount, they would rather I finance, which I don't do.
We have had some home repairs done and some of the places do checks, some want cash, some do cash discounts (as in true cash- they like greenbacks), some do credit cards, some only debit cards, some cashier check only. We have never had any work done that has taken financing, the big work we have done ourselves over time so the pieces went on credit card once we had the cash reserves to pay it of.
Everything we have done has been cash equivalent, the credit card is just a pass through for control, timing, and cash back.
Loren