May 23, 20197 yr A strong personal balance sheet with a lot of liquidity Just for fun, can you quantify "a lot of liquidity"?
May 23, 20197 yr You can get a mortgage without credit. Any community bank will underwrite you without credit. A strong personal balance sheet with a lot of liquidity and little to no debt > somebody with a good credit score leveraged to their eyeballs Again, using people with maxed out credit as a reason to not have credit is not a fair shake. And even though you can get a mortgage "without credit," even manual underwriters will require a ton of documentation proving your income and payments to certain entities. So it's quite literally the same thing, minus the score.
May 23, 20197 yr Just for fun, can you quantify "a lot of liquidity"? There's obviously no correct number for everybody but let's say someone that could cover all of their payments if their income stopped today for at least a year or so?
May 23, 20197 yr There's obviously no correct number for everybody but let's say someone that could cover all of their payments if their income stopped today for at least a year or so? And how long, on average, would it take a person to build that kind of cushion?
May 23, 20197 yr And how long, on average, would it take a person to build that kind of cushion? About 5 months for us. We’re currently in the process of building exactly that sort of fund.
May 23, 20197 yr And how long, on average, would it take a person to build that kind of cushion? With little debt not very long at all.
May 23, 20197 yr There's obviously no correct number for everybody but let's say someone that could cover all of their payments if their income stopped today for at least a year or so? So for a family with a HHI of $75,000, who are probably netting around $52,500, they have "a lot" of liquidity at about $42,000 (80% of their net pay)? I'm not disagreeing, per se, just wanting to get my arms around a lot of liquidity. So the family with a HHI of $125,000, they'd need about $70,000 in cash to feel solid. A 1%'er, which in KY starts at an annual pay of $255,000, they'd need about $145,000 liquid to feel good having little to no available credit. Again, not disagreeing as I think the "cash only" model is not the best way to maximize your financial situation (seems akin to money under a mattress to me, but again, to each their own), but just trying to figure out what someone would likely need in cash on hand to feel comfortable in that no-available-credit option. Thanks!
May 23, 20197 yr How am I saving less? That $500 in car payments is instead an extra $500 a month I can invest in my retirement accounts. Maybe saving less was the wrong term. I should have said you're missing out on the compounding of the money that you spent upfront. Again, refer to Duece's example that he gave on financing. By not taking advantage of cheap (or free) financing, you're losing out on the interest the cash you spent up front could have made. So if you buy a $30k car and put $15k down, the $15k you would have spent to buy the vehicle outright, is still sitting in the bank earning, instead of tied up in a vehicle. And yes, you'd slowly be able to put that back by not having a loan to pay, but a $15k lump sum will earn more over 5 years than putting it back $500 a month over the life of the loan you would have had. Plus you've got the $15k should something go haywire in your life. Again, living debt free is great. But being able to save your money, and spend someone else's (who's given it to you cheap) is also a nice thing. If you've worked hard to build great credit, you absolutely should use it and the advantages it offers you. But you must do it wisely, and you never should spend money that you don't already have or are going to have soon.
May 23, 20197 yr About 5 months for us. We’re currently in the process of building exactly that sort of fund. That's awesome. Hopefully you never have it disappear because of unforeseen circumstances.
May 23, 20197 yr What do you mean you don't need credit to get a mortgage? Paying all cash for everything, again, sounds good on the surface. That's until an unforeseen circumstance (or series of them happens), and the checking and savings disappear and you have nothing. I deal with it weekly. People with the "all cash" mentality that stumble on bad times and can't get a loan to cover them in the time being because they have little to no credit. "I make $100,000 a year!" Well, that's great, but you've never proven you can pay anybody back. It's not the daily expenses where credit will save you, it's on the things you can't predict. A savings account is great until it's not there. Just for an example, we’ve had roughly $15k in unforeseen expenses since the start of the year. We’ve been able to easily just cover them in cash because we don’t have monthly payments or owe people money, and have been putting money away for those instances. I’m not saying debt is horrible or awful or anything of the sort. I’m just saying IMO it’s not a wise decision to take it on if at all possible.
May 23, 20197 yr I’m not saying debt is horrible or awful or anything of the sort. I’m just saying IMO it’s not a wise decision to take it on if at all possible. We all agree that taking on high-interest / credit card debt is a NIGHTMARE scenario. No doubt about it.
May 23, 20197 yr I’m not saying debt is horrible or awful or anything of the sort. I’m just saying IMO it’s not a wise decision to take it on if at all possible. If we're talking about someone with a mentality of "Woohoo! Credit cards! Look at all this money I can spend and not pay it back immediately!" then I 100% agree with you. I'm talking about having available credit as a necessity. To me, a car payment and a mortgage are small and expected prices to pay for knowing I can get money if I ever need it. I wouldn't have that piece of mind in a cash-only scenario.
May 23, 20197 yr It is amazing how clueless some people are financially. I know people personally that think that if they have checks in their checkbook, they must have money too.
May 23, 20197 yr Paying cash for a car will also get you a discounted price or built-in rebate for not financing. The newest car we ever purchased was listed at $12,600 online. We bought it for $9,246, which ended up being $10,000 on the road. While I agree that financing can be advantageous when you crunch the numbers & assume investments go your way, those numbers don't taken into the account the risk that is always involved when borrowing money. I prefer the peace of mind of having control over 100% of my money every single month. Regardless of where one stands on new vs. used or cash vs. financing, discipline is a necessity for money management. As for our family, we've been completely debt free for five years now & wouldn't trade that for the way we used to do money (which wasn't careless by any means). Good discussion here, though. Thanks to everyone who has contributed.
May 23, 20197 yr I feel the whole “emergency” situations can go both ways. If you have debt and all of a sudden you or your spouse lose your jobs it could definitely make making those payments much more difficult. Like Randy said, it’s a good discussion regardless of what side of the coin one falls.
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