[Athens]

Ok this is more a question for Railhead, but since you cant make posts directed at people I can only hope he sees it.

Been thinking about credit more and more for buying a house and a car. While its good to pay upfront the entire amount so you don't pay interest, im starting to think interest isn't that bad because of inflation. The value of money goes up over time along with the price of things, when paying on payments I think you actually save money. Example

1984 Honda Prelude was $12 000.00
1984 House in Vancouver was $150 000.00

So lets just say 162 000 in total.

So monthly your paying $1,153.75 for 20 years. Total paid on the 2 items ends up being $276 900.00

Now 20 years later the same kind of car and house would cost you
40 000
650 000

Total = $690 000.00 or $4 914.11 per month if you did 20 years. The point is that 1984 house that was finished being paid for in 2004 was at a rate/money value of 1984. Even though it was stretched out 20 years. Leaving more money back in 1984 to use at its full value on things, while paying for a house 15 years later at the price of 1984.

What I guess im trying to say is that by buying a house and car on credit, as your money gains in value, as your house gains in value over the years, the orginal cost of the house stays stuck in time.

To support that orginal house purchase a person back in 84 would have had to be making around 2000.00 a month 12.50 a hour job, which would have been good money in 84, such good money todays similar job would prob be close to 27.00 a hour today (4320.00 a month) The way I see it your still better off because while it was 50% of your income going towards it at the start, the gap should increase over the years to where its only 25%of your income.

Now if you spend the 20 years saving up to purchase the house, you would have started at a house 150 000 back in 84, now looking at a house for 650 000, you would have had to save up 650 000 over those 20 years vs spending 277 000 when you could have had it 20 years before. And to save up enough to by a house today if you started 20 years ago, avoiding credit and only paying out right you would have had to save 2708.33 per month for those 20 years and no win fall on the gain of value from the land value

Now back to todays prices, if you buy a house and car at 690 000 today and pay for 20 years at $4 914.11 the total cost is $1 179 386.40 spend totally. The question is, this same house and car, what will they cost 20 years from now. My guess would be

Car: $133 200.00
House: $2 795 000.00

So the same process would repeat 20 years from now at: $2 928 200.00. or $12200.83 a month lol. Ok opinions from those that could actually follow what i was saying. It prob sounds more complicated then it is, but its hard to get this from my head into text.

[The Godfather]

It is ok to dislike the system, yet at the same time aligning yourself to the system. Everyone eventually whores themselves.

Take rent into account too. What's your saving power if you are renting?

[Matt OS X]

Athens:

One solution: Join Canadian Diamond Traders Inc

it is risk-free success and it pays off your debts. :-)

see me if you have any questions.

[Mastrap]

Excellent plan. What could possibly go wrong™?

[Dakar]

Splitting hairs, I think the car you would be purchasing would be the 1984 model, since that was what you intended to buy when you started saving 20 years ago, so it will be significantly cheaper than $40,000.

[ibookuser2]

The value of money goes up over time along with the price of things

The value of money most definitely does NOT go up when inflation occurs. A dollar today gets you a lot less than a dollar did fifty years ago.

[Athens]

Originally Posted by Dakar

Splitting hairs, I think the car you would be purchasing would be the 1984 model, since that was what you intended to buy when you started saving 20 years ago, so it will be significantly cheaper than $40,000.

if i started saving 20 years ago I would have started at age 5

What I ment is the top of the line Prelude model in 84 was 12 000, while a Datsun a lower end car was 5000. Compare that 2001 a Prelude was 35 000 and a lower end car was 15 000, over 20 years the price of a car trippled. Now wages back in 84, a good paying job was around 12 bucks a hour and a McD job was 4 bucks a hour, compare that to today where a normal paying job is 12 bucks a hour and a good paying job is around 26.00 a hour. I see little point in trying to save outright for something and more value in credit.

[mac128k-1984]

Originally Posted by Athens

The value of money goes up over time along with the price of things, when paying on payments I think you actually save money. Example

Actually the value of money goes down. It will always cost more to buy something in the future then it does now which means the dollar is weaker in the future.

Like anything if done in moderation debt isn't bad. You want a house within the next few years, then the odds are going to be in your favor of incurring debt to purchase it. If your dead set against debt, then your not going to get a house in a few years.

I think for major purchases its incredibly difficult to avoid debt, you get into deep weeds when you start charging everything because your short on cash. Want a new pool for the house, new widescreen tv, new stereo etc.

Personally I try to avoid using the credit card and only pay cash but to be honest that's almost impossible - especially with 2 kids.

The trick is to live within your means, and I believe this is something that a lot of Americans have trouble doing.

[Dakar]

Originally Posted by mac128k-1984

The trick is to live within your means, and I believe this is something that a lot of Americans have trouble doing.

Amen.

Problem is everyone says it, but few live it.

[Gossamer]

Originally Posted by Athens

if i started saving 20 years ago I would have started at age 5

What I ment is the top of the line Prelude model in 84 was 12 000, while a Datsun a lower end car was 5000. Compare that 2001 a Prelude was 35 000 and a lower end car was 15 000, over 20 years the price of a car trippled. Now wages back in 84, a good paying job was around 12 bucks a hour and a McD job was 4 bucks a hour, compare that to today where a normal paying job is 12 bucks a hour and a good paying job is around 26.00 a hour. I see little point in trying to save outright for something and more value in credit.

IDK where these 'normal' paying jobs are. McD pays like $6/hr now. Not that different.

[Athens]

Originally Posted by Gossamer

IDK where these 'normal' paying jobs are. McD pays like $6/hr now. Not that different.

Well I was refering to here where McD pays 8.50 starting wage, average wage for most people at McD that have been there a year or more is closer to 9.50

[mac128k-1984]

Originally Posted by Dakar

Amen.

Problem is everyone says it, but few live it.

I know what you mean, me and my wife are stuggling at this right now. With 6 month old babies, she out on leave, means less money in the household. Add on top of that, diapers, formula, baby clothes and such means we are really trying to stretch the dollar.

[Benton]

I want an Apple branded Visa credit card that earns credits for redeeming at an AppleStyle Store. Apple is becoming more investment savy by moving its money management operation to Nevada to save taxes. Why not follow the example of firms listed in my signature?

[Benton]

Others favor an Apple branded rewards credit card.
MyMac.com: publishing since 1995

[Your Mama]

Originally Posted by Benton 

Why not follow the example of firms listed in my signature?

How about not spamming the forum with your sig

And btw, it's also violating the sig rules.

[tooki]

Indeed, accountants will tell you that if the interest rate is lower than inflation (or the inflation within the relevant market, e.g. real estate) then it makes sense to buy on credit rather than cash. You can leverage the time value of money, essentially. It's because the value of money goes down (not up) with time: a fixed-interest mortgage with fixed monthly payments means that you're paying with valuable 2006 dollars today, but with "cheap" 2036 dollars (which by then will be worth 1/3 as much) by the end of the mortgage. In 2006, the mortgage payment might have made up 1/3 of your income, while by 2036, the same dollar amount might represent only 1/10, even if your income increased only to match inflation (so-called cost of living adjustments). (Of course, if you also rose up the ranks and were given merit raises, then it would increase in your favor even more.)

Similarly, this is the value of the zero interest car loans, as well as of those zero interest, no payment for 12 months credit accounts at stores. You can keep your money in the bank, earning interest, for longer, without owing the vendor extra.

tooki

[SirCastor]

Couple quick thoughts:

If everything in the future is more expensive, then what the heck happened with computers? I remember my Dad paid upwards of $4000 for the IIci he bought, I paid $2000 for the G4 I bought only a decade later. Computers have not followed the trend, and apparently are the inverse of it.

Cars lose value, houses (hopefully) don't.

Originally Posted by tookie

Similarly, this is the value of the zero interest car loans, as well as of those zero interest, no payment for 12 months credit accounts at stores. You can keep your money in the bank, earning interest, for longer, without owing the vendor extra.

Which is a great idea on paper, but practice is different entirely. In the US at least, people have a hard time holding onto money for very long, hence the credit problems here.

[Dork.]

Like I posted in another thread on this topic a few months back, debt is a financial tool, and there is nothing inherently bad about tools. If you use debt to finance a lifestyle that is beyond your means, then that's bad, but the loan didn't make you spend all that money.

Some forms of debt (liek credit card debt) are more ruinous than others (like a tradtional 30-year mortgage), and it's up to you to manage your finances properly.

Another way to look at it is that if you save money to buy a house outright, you will have to rent a place to live and save up your money. You can buy a house earlier by obtaining a mortgage, where you own the house after the transaction but the bank puts up most of the money on your behalf, a service which you pay them back for over time.

A mortgage is essentially renting money, because the bank owns the money at first, but lets you use it in exchange for interest payments. If you rent a house for thrity years, though, at the end of those thirty years you don't own the house, you just own the money you've managed to save. If you rent money to buy a house, then at the end of thirty years you own the house. Which, in most cases, has gone up in value relative to when you bought it, where the money you've saved for thirty years (unless it's wisely invested) has gone down in relative value dur to inflation.

So, if you live in an area where the price to rent is close to the monthly payment on a mortgage, and you don't mind settling down in one area, buying a house on credit is absolutely the right way to go.

[SirCastor]

Originally Posted by Dork. 

So, if you live in an area where the price to rent is close to the monthly payment on a mortgage, and you don't mind settling down in one area, buying a house on credit is absolutely the right way to go.

Not only that, but when you're putting money into a house, your putting personal value into that. Renting is really just giving money for the opportunity to live in a place. There's no return beyond living there. When you're paying a mortgage, you're buying the house from the bank. Every time you make a payment, you've put money into the house, which can be pulled back out again when selling (or if you want to take another loan out on Equity, but frankly you really ought to be getting out of the interest-to-someone-else model".

Credit is not an inherently evil thing, it's very useful. The major credit problems today come out of using credit outside of your means. Buying a car on credit that you can barely manage (or can't) or buying a big screen TV on credit, or a fancy Bed, or expensive furniture. There's a fine line between using credit to get what you need (smartly) and using credit to get what you just want.