Weird about Spending

**autoxer** · 06-01-2012, 07:21 PM

I don't mind low interest rates at all.

I don't think that is being weird about spending, just recognizing the cost and risk of taking a loan, and it sounds like the cost and risk are pretty low.

As long as the low rate doesn't tempt you to spend more than you were otherwise willing, I don't see a problem with taking a low interest loan and keeping your cash in an interest bearing account.

**PMMM** · 06-01-2012, 11:58 PM

We financed about 8 k on a car. We had the cash as well to pay for it. I thought the same thing. Keep the cash. The loan was at 2.99%. I finally just paid it off. Got tired of making the payment and I got more tired of looking at the interest each month. I felt like I was flushing money down the toilet.

I like the fact that it is paid off. But I understand the safe feeling of having the cash. I think each situation is different. If you would short your emergency fund or leave your self needy in some other way by spending the cash then I would not do so. Money is certainly cheap right now and it's pretty easy to live with low interest for a short time.

But as the old saying goes "Cash is king".

**DebtFree&Broke** · 06-02-2012, 01:44 AM

We are weird about spending....we are so weird about spending that we won't spend a penny that we don't have to.

I don't get it, how is paying extra on a car in the form of interest saving money?

If you are paying the bank interest you are just throwing money away.

If you don't have enough money to feel comfortable parting with some, then don't buy the car yet.

**Jon991** · 06-02-2012, 05:35 AM

never finance anything that depreciates in value. PERIOD

**disneysteve** · 06-02-2012, 06:10 AM

I understand how he feels. There definitely is a security issue to sitting on cash, seeing that balance on your account statements. There can also be a more practical issue regarding cash flow. It is mentally easier to spend $500/month for 10 months than to spend $5,000 all at once. Yes, you will pay a bit of interest so it isn't mathematically the best move but as we often discuss, personal finance is about a lot more than just the numbers. If it'll cost you $50 or so for him to feel safe and secure with the purchase, that isn't such a high price to pay.

**LivingAlmostLarge** · 06-02-2012, 07:22 AM

Nope we aren't financing a new car nor even a newish used car. It's just an older used car.

PMMM, I feel that way. I'm lazy enough to not want to pay another bill.

DebtfreeBroke, it's like having a mortgage. Something you know you will have to do and you pay interest on. I don't know if my DH will ever be comfortable paying cash up front with a car.

DS that's what it is. The cash sensitivity to not wanting to see your account drained any amount.

**ShawnaC123** · 06-02-2012, 07:40 AM

I'm having a similar debate with myself. I have a credit card balance that is on 0% until September. I can't decide if I want to transfer it for another year and pay the 3% transfer fee, or pull out a chunk of my EF to pay it off.

I really want to be have no cc debt so I can totally concentrate on my student loans, but seeing my EF shrink makes me really nervous.

**jpg7n16** · 06-02-2012, 09:22 AM

Originally posted by Jon991 View Post

never finance anything that depreciates in value. PERIOD

Why not?

If you're buying a deprciating asset, what difference does it make if you used cash you already had, or cash you borrowed??

And if you say "well, you pay interest - duh!" - then I'll reply with "then never finance anything that appreciates in value, because you'll pay interest"

**disneysteve** · 06-02-2012, 10:52 AM

Originally posted by Jon991 View Post

never finance anything that depreciates in value. PERIOD

The general concept isn't that you shouldn't finance something that depreciates. The concept is that you shouldn't finance luxury purchases. If you have to borrow, you can't afford it. Of course, that's debatable too.

**humandraydel** · 06-03-2012, 03:27 AM

Originally posted by disneysteve View Post

The general concept isn't that you shouldn't finance something that depreciates. The concept is that you shouldn't finance luxury purchases. If you have to borrow, you can't afford it. Of course, that's debatable too.

I think it's more about the potential to become upside down on a loan which, for many people, makes life even more difficult. At least if you finance only 50-60% of a car, you can sell it quickly if you need to.

**kv968** · 06-03-2012, 04:27 AM

Originally posted by jpg7n16 View Post

Why not?

If you're buying a deprciating asset, what difference does it make if you used cash you already had, or cash you borrowed??

And if you say "well, you pay interest - duh!" - then I'll reply with "then never finance anything that appreciates in value, because you'll pay interest"

I think the general gist of paying interest on a depreciating asset is that you're getting hit twice. Not only are you paying interest on it, but the asset itself is losing money. Whereas with an appreciating asset, at least it somewhat minimizes, or could even outpace, the interest paid. Kinda back to the ROI thing again.

For example, you buy a car with a 5% interest rate and it depreciates at say 15%/yr (made up figure). Well then in real terms you're losing 20%/yr while you have the loan out and the car keeps depreciating afterwards.

If you buy a house with a 5% interest rate but it appreciates say 3%/yr (ah, those were the days), then your real loss is only 2%/yr. Still losing overall but at a lower rate and once paid off, the house will (assumingly) keep appreciating whereas a car just goes to zero.

Hence when buying a car, either pay cash (which many can't do with a house) or get the shortest loan term possible since it's going to be worth much less when the loan's over.

**kv968** · 06-03-2012, 04:45 AM

Originally posted by LivingAlmostLarge View Post

Do you find yourself as savers having trouble parting with your money? I think my DH is having trouble parting with more of our cash. It's funny I think he likes the security and doesn't seem to mind carrying a car payment with a low interest rate say 1-2% for a year or two.

I can totally understand where he's coming from since I kinda did the same thing. When I bought my car, I could have put more down but with a 2.5% rate I just felt "better" keeping the money in my hands. Granted I HATE paying interest and haven't done so with my CC's in over a decade but the little extra bit of money I am paying in interest for not putting down more is ok with me even though I "know better".

Same could be said for my EF. I hope an emergency doesn't happen because I can see myself having a very hard time pulling that money out even though that's what it's there for. I mean I won't go into debt without using that money first if a situation should arise but I know it'll hurt.

My GF is the same way...very money conscious, doesn't spend much, hates interest, etc...however when I first met her she always had about $500-1000 or so running on her CC which she used for everything. She'd pay off everything else on it but always kept a balance running. I always asked her why she just didn't pay it off since she has more than enough socked away in an EF and she said that she just couldn't stand to see that big chunk of change leave her EF. All this while paying off the rest of the $2000 or so bill with no problem. She KNEW it didn't make any sense but just couldn't do it even though she had the means to do so. She finally sucked it up and paid it off and hasn't had a balance since but it just goes to show even if you know it's wrong to pay the interest (which she did) and have the means to stop it (which she did), it's sometimes hard to actually do it when you get in a certain mindset.

**LivingAlmostLarge** · 06-03-2012, 06:31 AM

That's it exactly. I had to clock him on the head to pay off his student loans. We had the cash and he hedged for a couple of months. Finally he agreed and it was done within 4 months of them starting. He sort of freaked out over "spending" $25k on student loans. I hated carrying them and we had deliberately saved the cash for not being in student loan debt.

I don't like extra monthly payments even at 0% interest. He likes it and says make 10 equal payments. I'm lazy enough to not do it.

**NuggetBrain** · 06-03-2012, 07:28 AM

I will never understand the mindset of saving cash for something, and then when it's time to buy the thing you've been saving for financing it because you can't part with the cash. What was the point in saving up the money if you're just going to finance it anyways? Back when people were getting 4 or 5% interest rates on savings accounts it would have made sense to finance something at 2% and let the money sit and collect interest because you come out ahead.

I know there's an emotional side of it, not wanting to let the cash go, but I'll just never understand it.

Weird about Spending