A question of economics, how much cash should you have today?
05-12-2020, 12:11 AM
#31
Agreed, and in California, I think it requires even more savings. My advice to people has always been, do not buy a house in California unless you can survive five years without income (or a very low income) or can walk away from all of your equity without breaking a sweat. The quickest way for the average person to get poor is to buy California real estate and then be forced to sell into a down market. You have to be able to survive an extended downturn here or you can just lose so much money on your house. I have a relative that went from millionaire to dead flat broke, zero $ to their name during the last downturn. A series of bad decisions without enough cushion.
5 years without income is a completely impossible standard for most folks. Sorry but the real lesson is to walk away from a losing deal immediately and not waste good money on a bad situation. This is what short sales and bankruptcy are for. Burning your life savings because you hope next month will be better isn’t a plan.
05-12-2020, 12:38 AM
#32
Burning Brakes
Thread Starter
You're right though, most people don't have 6 months expenses saved, but those people aren't on here talking about buying a 115k$ car.
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josephr25 (05-12-2020)
05-12-2020, 12:42 AM
#33
I'm definitely not considered "very wealthy", just comfortable.
If one doesn't have 12 - 24 months saved up, that's not good. It can be invested though, doesn't have to be cold cash sitting in a bank. I don't think you have to be rich, you just have to know how live within your means and be disciplined with finances.
If one doesn't have 12 - 24 months saved up, that's not good. It can be invested though, doesn't have to be cold cash sitting in a bank. I don't think you have to be rich, you just have to know how live within your means and be disciplined with finances.
These are all relative terms. "Comfortable" to you, may be "rich" to someone else.
The (sad) fact is that the majority of people have less than 3 months safety net (liquid) available to them. Perhaps one of the positive things to come out of this "pandemic" will be that some of these folks will realize just how precarious their financial position is and do something about it.
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DFW01TT (05-12-2020)
05-12-2020, 01:27 AM
#34
Asking for financial advice on a Porsche forum is all lolz but I’ll take a swing.
The standard advice of 3 months expenses is much too small. I understand many people simply can’t afford to save money. They also can’t afford a a Porsche no matter how hard they try because the income side of the budget is brutally too small.
6-12 months seems a lot more reasonable. You need to cover the time it takes to find a new job if you lose your current one. In a recession that could be a long time. Not everything needs to be in cash. If your assets are liquid, then you could sit on a couple months cash, and a few months credit to cover liquidating assets for emergencies. At these interest rates, it’s useful to understand what the trade offs of using credit are and when it makes more sense to take a loan than sell an asset.
Personal situations vary widely. “I will have no debt” can be a rigid and counterproductive rule. If you opt out of the credit reporting game, you will get f—ked if you end up needing or wanting credit. This kind of rule makes more sense for folks who already have a mortgage and a comfortable situation. It’s not a good idea for younger folks who will need excellent credit later. No debt is bad for credit ratings. There are other situations where more debt can be much better than liquidating an asset for tax or other reasons. Some assets are illiquid and a little secured debt might be more constructive than a sale.
but you do need to understand the costs of debt and leverage, and remember that if you are forced to sell assets, there is a good chance it’s because of a bad economy when lots of people need to sell and not many people want to buy so your assets will at least temporarily be worth a lot less than usual.
you also need to consider opportunity costs. If you keep too much cash in a bull market, you’re losing out on a lot of gains. In a bear market, cash is king. Interest rates are low and returns pretty bad across the board so there’s less of a penalty. Having a nice buffer is critical if you lose your job, and if you don’t, it’s very nice to exploit buying opportunities. Used car prices will drop like a rock. In a year or two so will housing markets. Cash gives you choices.
you should also consider what it means to radically downsize your expenses and life style to preserve your assets. Here debt is a problem because it can be used to force you to sell assets on disadvantageous terms. But as you consider what savings means, consider how reducing expenses might work (short sale the house, kids to public school, ixnay on the vacation, etc). Some are obviously more bitter than others. But if you think about which perks you can live without, that too is a saving. You manage both the numerator and denominator for how many months your reserves will last.
The standard advice of 3 months expenses is much too small. I understand many people simply can’t afford to save money. They also can’t afford a a Porsche no matter how hard they try because the income side of the budget is brutally too small.
6-12 months seems a lot more reasonable. You need to cover the time it takes to find a new job if you lose your current one. In a recession that could be a long time. Not everything needs to be in cash. If your assets are liquid, then you could sit on a couple months cash, and a few months credit to cover liquidating assets for emergencies. At these interest rates, it’s useful to understand what the trade offs of using credit are and when it makes more sense to take a loan than sell an asset.
Personal situations vary widely. “I will have no debt” can be a rigid and counterproductive rule. If you opt out of the credit reporting game, you will get f—ked if you end up needing or wanting credit. This kind of rule makes more sense for folks who already have a mortgage and a comfortable situation. It’s not a good idea for younger folks who will need excellent credit later. No debt is bad for credit ratings. There are other situations where more debt can be much better than liquidating an asset for tax or other reasons. Some assets are illiquid and a little secured debt might be more constructive than a sale.
but you do need to understand the costs of debt and leverage, and remember that if you are forced to sell assets, there is a good chance it’s because of a bad economy when lots of people need to sell and not many people want to buy so your assets will at least temporarily be worth a lot less than usual.
you also need to consider opportunity costs. If you keep too much cash in a bull market, you’re losing out on a lot of gains. In a bear market, cash is king. Interest rates are low and returns pretty bad across the board so there’s less of a penalty. Having a nice buffer is critical if you lose your job, and if you don’t, it’s very nice to exploit buying opportunities. Used car prices will drop like a rock. In a year or two so will housing markets. Cash gives you choices.
you should also consider what it means to radically downsize your expenses and life style to preserve your assets. Here debt is a problem because it can be used to force you to sell assets on disadvantageous terms. But as you consider what savings means, consider how reducing expenses might work (short sale the house, kids to public school, ixnay on the vacation, etc). Some are obviously more bitter than others. But if you think about which perks you can live without, that too is a saving. You manage both the numerator and denominator for how many months your reserves will last.
05-12-2020, 11:31 AM
#35
These are all relative terms. "Comfortable" to you, may be "rich" to someone else.
The (sad) fact is that the majority of people have less than 3 months safety net (liquid) available to them. Perhaps one of the positive things to come out of this "pandemic" will be that some of these folks will realize just how precarious their financial position is and do something about it.
The (sad) fact is that the majority of people have less than 3 months safety net (liquid) available to them. Perhaps one of the positive things to come out of this "pandemic" will be that some of these folks will realize just how precarious their financial position is and do something about it.
05-12-2020, 12:06 PM
#36
Burning Brakes
Agreed, and in California, I think it requires even more savings. My advice to people has always been, do not buy a house in California unless you can survive five years without income (or a very low income) or can walk away from all of your equity without breaking a sweat. The quickest way for the average person to get poor is to buy California real estate and then be forced to sell into a down market. You have to be able to survive an extended downturn here or you can just lose so much money on your house. I have a relative that went from millionaire to dead flat broke, zero $ to their name during the last downturn. A series of bad decisions without enough cushion.
05-12-2020, 01:04 PM
#37
Burning Brakes
Aren't orders open up until 2021 or 2022? I would just save up until the last second and see how feel then. But if you really *need* to get the car now, and can weather any potential storms for the next year or two, then I say go for it. But for me, I feel like even if I got one now, where would I take it? The only time I drive is to check out my condo.
Three to six months of savings is also definitely better than nothing
Three to six months of savings is also definitely better than nothing
05-12-2020, 01:11 PM
#38
RL Community Team
Rennlist Member
Rennlist Member
Aren't orders open up until 2021 or 2022? I would just save up until the last second and see how feel then. But if you really *need* to get the car now, and can weather any potential storms for the next year or two, then I say go for it. But for me, I feel like even if I got one now, where would I take it? The only time I drive is to check out my condo.
Three to six months of savings is also definitely better than nothing
Three to six months of savings is also definitely better than nothing
Orders for sure in 2021 in fact some here have had their 2020 order pushed out until this fall, no official word on 2022...
05-12-2020, 02:37 PM
#39
Rennlist Member
Asking for financial advice on a Porsche forum is all lolz but I’ll take a swing.
The standard advice of 3 months expenses is much too small. I understand many people simply can’t afford to save money. They also can’t afford a a Porsche no matter how hard they try because the income side of the budget is brutally too small.
6-12 months seems a lot more reasonable. You need to cover the time it takes to find a new job if you lose your current one. In a recession that could be a long time. Not everything needs to be in cash. If your assets are liquid, then you could sit on a couple months cash, and a few months credit to cover liquidating assets for emergencies. At these interest rates, it’s useful to understand what the trade offs of using credit are and when it makes more sense to take a loan than sell an asset.
Personal situations vary widely. “I will have no debt” can be a rigid and counterproductive rule. If you opt out of the credit reporting game, you will get f—ked if you end up needing or wanting credit. This kind of rule makes more sense for folks who already have a mortgage and a comfortable situation. It’s not a good idea for younger folks who will need excellent credit later. No debt is bad for credit ratings. There are other situations where more debt can be much better than liquidating an asset for tax or other reasons. Some assets are illiquid and a little secured debt might be more constructive than a sale.
but you do need to understand the costs of debt and leverage, and remember that if you are forced to sell assets, there is a good chance it’s because of a bad economy when lots of people need to sell and not many people want to buy so your assets will at least temporarily be worth a lot less than usual.
you also need to consider opportunity costs. If you keep too much cash in a bull market, you’re losing out on a lot of gains. In a bear market, cash is king. Interest rates are low and returns pretty bad across the board so there’s less of a penalty. Having a nice buffer is critical if you lose your job, and if you don’t, it’s very nice to exploit buying opportunities. Used car prices will drop like a rock. In a year or two so will housing markets. Cash gives you choices.
you should also consider what it means to radically downsize your expenses and life style to preserve your assets. Here debt is a problem because it can be used to force you to sell assets on disadvantageous terms. But as you consider what savings means, consider how reducing expenses might work (short sale the house, kids to public school, ixnay on the vacation, etc). Some are obviously more bitter than others. But if you think about which perks you can live without, that too is a saving. You manage both the numerator and denominator for how many months your reserves will last.
The standard advice of 3 months expenses is much too small. I understand many people simply can’t afford to save money. They also can’t afford a a Porsche no matter how hard they try because the income side of the budget is brutally too small.
6-12 months seems a lot more reasonable. You need to cover the time it takes to find a new job if you lose your current one. In a recession that could be a long time. Not everything needs to be in cash. If your assets are liquid, then you could sit on a couple months cash, and a few months credit to cover liquidating assets for emergencies. At these interest rates, it’s useful to understand what the trade offs of using credit are and when it makes more sense to take a loan than sell an asset.
Personal situations vary widely. “I will have no debt” can be a rigid and counterproductive rule. If you opt out of the credit reporting game, you will get f—ked if you end up needing or wanting credit. This kind of rule makes more sense for folks who already have a mortgage and a comfortable situation. It’s not a good idea for younger folks who will need excellent credit later. No debt is bad for credit ratings. There are other situations where more debt can be much better than liquidating an asset for tax or other reasons. Some assets are illiquid and a little secured debt might be more constructive than a sale.
but you do need to understand the costs of debt and leverage, and remember that if you are forced to sell assets, there is a good chance it’s because of a bad economy when lots of people need to sell and not many people want to buy so your assets will at least temporarily be worth a lot less than usual.
you also need to consider opportunity costs. If you keep too much cash in a bull market, you’re losing out on a lot of gains. In a bear market, cash is king. Interest rates are low and returns pretty bad across the board so there’s less of a penalty. Having a nice buffer is critical if you lose your job, and if you don’t, it’s very nice to exploit buying opportunities. Used car prices will drop like a rock. In a year or two so will housing markets. Cash gives you choices.
you should also consider what it means to radically downsize your expenses and life style to preserve your assets. Here debt is a problem because it can be used to force you to sell assets on disadvantageous terms. But as you consider what savings means, consider how reducing expenses might work (short sale the house, kids to public school, ixnay on the vacation, etc). Some are obviously more bitter than others. But if you think about which perks you can live without, that too is a saving. You manage both the numerator and denominator for how many months your reserves will last.
What an extremely detailed and highly educated response!
Since we’re discussing finances I have a sort of off topic question that I’ve been debating internally for weeks and would be very curious as to everyone’s thoughts here. Thought I’d ask just for fun to pass the time......
What would be the best way to pay for a new Porsche?
Option A: Straight up cash homie
Option B: All credit (line of credit) and use the cash towards purchasing and holding stable dividend paying equities. A lot are currently paying >6% annual dividends with a ~30% upside. Interest is ~3.5% and tax deductible so effectively ~1.75%. Delta = 4.25% per year income even if the stock value stays the same or drops. This would be a long play, the cash isn’t needed in the future at all. Plan to use the dividends to pay interest and principle down on the line of credit.
I’m only asking because cash is super cheap right now to borrow. I’d hate to pass up an opportunity to make some money by just dumping it all into a car and making zero income. My advisors say I’m being greedy, but then also tell me to be like Buffet and be greedy when others are fearful so I dunno haha?!?!?
05-12-2020, 03:00 PM
#40
RL Community Team
Rennlist Member
Rennlist Member
What an extremely detailed and highly educated response!
Since we’re discussing finances I have a sort of off topic question that I’ve been debating internally for weeks and would be very curious as to everyone’s thoughts here. Thought I’d ask just for fun to pass the time......
What would be the best way to pay for a new Porsche?
Option A: Straight up cash homie
Option B: All credit (line of credit) and use the cash towards purchasing and holding stable dividend paying equities. A lot are currently paying >6% annual dividends with a ~30% upside. Interest is ~3.5% and tax deductible so effectively ~1.75%. Delta = 4.25% per year income even if the stock value stays the same or drops. This would be a long play, the cash isn’t needed in the future at all. Plan to use the dividends to pay interest and principle down on the line of credit.
I’m only asking because cash is super cheap right now to borrow. I’d hate to pass up an opportunity to make some money by just dumping it all into a car and making zero income. My advisors say I’m being greedy, but then also tell me to be like Buffet and be greedy when others are fearful so I dunno haha?!?!?
Since we’re discussing finances I have a sort of off topic question that I’ve been debating internally for weeks and would be very curious as to everyone’s thoughts here. Thought I’d ask just for fun to pass the time......
What would be the best way to pay for a new Porsche?
Option A: Straight up cash homie
Option B: All credit (line of credit) and use the cash towards purchasing and holding stable dividend paying equities. A lot are currently paying >6% annual dividends with a ~30% upside. Interest is ~3.5% and tax deductible so effectively ~1.75%. Delta = 4.25% per year income even if the stock value stays the same or drops. This would be a long play, the cash isn’t needed in the future at all. Plan to use the dividends to pay interest and principle down on the line of credit.
I’m only asking because cash is super cheap right now to borrow. I’d hate to pass up an opportunity to make some money by just dumping it all into a car and making zero income. My advisors say I’m being greedy, but then also tell me to be like Buffet and be greedy when others are fearful so I dunno haha?!?!?
As for option B, do I read this that based on $100K and all that effort, monitoring and hopes that it all works out you might net an extra $4250 on the transaction?
05-12-2020, 03:07 PM
#41
Rennlist Member
This. If you can't pay for it you can't afford it.
05-12-2020, 03:27 PM
#42
Burning Brakes
05-12-2020, 03:36 PM
#43
Burning Brakes
Personal situations vary widely. “I will have no debt” can be a rigid and counterproductive rule. If you opt out of the credit reporting game, you will get f—ked if you end up needing or wanting credit. This kind of rule makes more sense for folks who already have a mortgage and a comfortable situation. It’s not a good idea for younger folks who will need excellent credit later. No debt is bad for credit ratings.
A strange one though is not having a current mortgage is actually a detriment to your credit rating. The system is flawed. If you've had a mortgage and paid it off effectively then why are you penalized? Ridiculous, but whatever, it's also ridiculous that I can't see green thread on the configurator for a 100k car. Plenty of unfair things in life.
05-12-2020, 03:39 PM
#44
5 years without income is a completely impossible standard for most folks. Sorry but the real lesson is to walk away from a losing deal immediately and not waste good money on a bad situation. This is what short sales and bankruptcy are for. Burning your life savings because you hope next month will be better isn’t a plan.
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DFW01TT (05-13-2020)
05-12-2020, 04:11 PM
#45
Agreed it is not good to opt out of credit reporting game. But there's a simple way around this. You take on some credit cards then never run a balance. I have a handful of cards and I pay for everything I possibly can on credit cards. I pay in full monthly, never run a balance, feed my credit worthiness and get cashback or air miles or whatever in the process. People who run balances and feed the credit card companies interest revenues fund all my free cash back. Plus there's other benefits of holding cards like rental insurance, concert access, so on. And some cards if you pay a few $100 yearly you get a significantly higher cashback stream, so that's an easy investment decision.
Turn out the overall credit rating is an illusion. Revolving credit and installment loans are evaluated separately. Credit cards don't count for ****. Being good with credit cards primarily makes it easy to get more credit cards. Having a high credit score with no auto or real estate loan history (in the last 7 years) means you can't get financing from a lot of places, including a Porsche lease. The dealer couldn't arrange any financing for me.
Now I keep a token auto loan going, and at about 2% that's just a tithe to the credit system.
A strange one though is not having a current mortgage is actually a detriment to your credit rating. The system is flawed. If you've had a mortgage and paid it off effectively then why are you penalized? Ridiculous, but whatever, it's also ridiculous that I can't see green thread on the configurator for a 100k car. Plenty of unfair things in life.
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DFW01TT (05-13-2020)