Transcript
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hey babe, what are we talking about today?
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today we are talking about a juicy question that came into our dms on our instagram page at the sugar daddy podcast, and it's about taking out or paying for a car outright.
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So whether to take a loan or to pay for it outright.
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So we're going to get into that, but first we have been asking you guys to leave us a review, especially on Apple podcasts and Spotify, because those reviews help drive our podcast into other people's algorithms, and so we wanted to take a moment to shout out some of our more recent reviews that we've gotten.
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So thank you for understanding the assignment.
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We appreciate you.
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So this one says loving how informative and relatable the content is.
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Such a great couple.
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Thank you for helping to increase my financial knowledge and freedom.
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That came from Kay Douglas, thank you.
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We have another one that says thank you for educating us on all things pertaining to money and for sharing your daily tips.
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Stay well, my friends.
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That one came from the Foreman family, so no telling who that came from.
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Foreman is my maiden name and you know I have like 30 first cousins, so shout out to the fam.
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Thank you, yeah legitimately she has her 31st cousin.
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Imagine if like every single one of my cousins left a review, and then had their kids leave a review and all of my aunties and uncles left a review.
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Hey, fam, that's what we need you to do, thanks.
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Her dad's like one of nine 11.
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Oh sorry, totally cut that short.
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One of 11.
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Yeah, okay, we'll read one more.
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This one says love, love, love.
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The Sugar Daddy podcast.
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So many great financial tips from a real couple who are just like us, but with knowledge and tips and tricks.
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Additionally, love their chemistry together and the things that they share.
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That one came from Brandy Weber.
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Thank you, brandy.
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So we'll try to read some of these because we do want you to know that we actually read these reviews and that we look for them, and they mean a lot to us, again because we want to know that we're on the right track, but also because we want our podcast to get in front of more people.
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So thanks for all of those reviews and if you haven't yet left one, please take the two seconds it takes to leave a five-star rating and the like 30 seconds that it takes to leave a written review.
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Let's get into this DM.
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Are you ready?
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I'm ready.
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It says hey, brandon and Jess love the podcast and I've been listening since the very beginning.
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Thank you.
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Thanks for all of your insights and for helping level up my financial knowledge.
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I'm writing because I need a new, new to me car and I'm wondering if it's better to buy a car outright or get a loan or a lease.
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I'm a single six-figure earner and the only debt I have is my mortgage.
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I save 12 to 15% of my income in my 401k and Roth IRA.
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Okay, I also max out my HSA.
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Ooh, there's a lot of acronyms.
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Why finance?
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Why I have 60K in my emergency fund?
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Okay, just snaps, because this person is doing all the right things, which is what I would use to pay for the car outright.
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The car I'm looking at is a certified pre-owned and would cost 36K.
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What should I do?
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Would cost 36K.
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What should I do?
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First of all, can we just like take a moment to applaud this person, because I mean on paper and what you know they said in our DMs.
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I mean they're doing all the right things.
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Right, emergency fund is stacked, you know, more than 10% into retirement funds.
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No consumer debt.
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The only debt is the mortgage.
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Also, they're saying this is a new to me car, so that tells me it's not a new car, right?
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They're not on the lot looking for those 2025s, which is amazing, and the car is priced at 36K.
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So I mean, what were your initial thoughts?
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Thoughts, because I felt like there was a whole bunch of good stuff coming out of this dm yeah, no, it's good to acknowledge that.
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It seems as though the person is on track and doing a lot of the you know, quote, unquote right things when it comes to their finances, and there are a couple things that jump out tell me, jump out to me immediately, upon you know, hearing her question wait, we don't know.
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We don't know if it's a guy or a girl.
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The name was like, not indicative and there was no picture in the profile.
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Was um?
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the person.
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Yeah, I'm just saying don't make assumptions, you know touche.
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Well, that was a good assumption.
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I was making an assumption that women tend to be do better than the men do on their own.
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Yeah, okay, fine, I'll take it.
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It was at least a good assumption.
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I'm just saying we don't technically know, touche yeah All right.
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So the individual seems to be doing a lot of the good things, but some of the things that jump out to me immediately are one the new car.
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Is this a need where the car that you currently have is no longer working and you immediately need to get another car, or is it you need a new car, the car that you're driving still works perfectly fine and you simply want a new car?
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I maybe would not dip into the emergency fund in order to pay for the car.
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Reason being is that technically, this is not an emergency, and although I do say sometimes an emergency fund can also be an opportunity fund where you have the opportunity to invest where it's going to bring you some type of return.
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We all know that cars are not an investment.
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They're a depreciating asset.
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So if this is not an emergency where you need a car because the one that you have is not working, I would probably not necessarily dip into your emergency fund to purchase the car, not necessarily dip into your emergency fund to purchase the car.
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If it is a want, then I probably would set up a goal to you know have a separate fund that is dedicated to putting money in there, to have money set aside to buy another car.
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So maybe well, I have a couple of thoughts too.
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I'm assuming and you know what they say about assumptions, but I'm assuming, based on all the things that this person is already doing right that that $60,000 in the emergency fund is hopefully sitting in a high yield savings account.
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If it's not, obviously go and move it so you can get that 4% to 5%, you know, because that's a lot of money and you could literally be making money.
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But let's assume that that money is sitting in a high yield savings.
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What about if they are then to create more of a sinking fund, right, because it's dedicated to this new to them car?
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What about lessening, maybe, some of their current 12 to 15 percent of the money that they're putting into their investments and maybe diverting like 5 percent for a temporary amount of time into that new sinking fund for the car?
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I mean that is an option, but if they do have so, if they have money left over that they can still do the same amount of savings that they have been previously doing to the different vehicles, I would continue doing that, and by vehicles you mean actual accounts.
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Yeah, sorry, actual accounts.
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We're literally talking about cars.
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Babe, touche, watch yourself.
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If you could still dedicate the savings to the different savings vehicles you know, the HSA, the 401k plan and still be able to put money aside for the car, then I would do that.
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Like I said, it really boils down to whether or not this is a need or a want for a car.
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So let's just, in this scenario, like because we already just kind of discussed for when it's a want yeah.
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If it's a need, then you have options there.
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All right, so if you have a good credit score, it may make more sense to maybe take a loan out instead of necessarily, you know, exhausting a good portion of your emergency fund to purchase the vehicle.
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Now, based upon your credit score is going to determine, hey, what are you eligible for from an interest rate standpoint, and that's going to make a big difference, you know.
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Well, and two, to call out this is a good time to shop around, because you can shop your rates and you should definitely be looking I would say easily at three to five different institutions, right?
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So a lot of times your local credit unions will have offers that maybe the big banks don't have, because they're trying to earn your business and they're in your community.
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And then you can also look at some of those online options, right, like, for example, I have a Discover credit card, so I always get I mean, once a month, it feels like I get an offer for a Discover loan or a Discover personal loan in the mail.
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So those are the opportunities where you can then call and say, hey, what do you have available?
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We also bank with USAA because we are a military family through my dad, and so I know that they offer car loans and so definitely shop for those rates.
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But there's also something to be said for looking at the cars that are currently offering 0% financing, especially when you do have a great credit score.
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And that's something that your mom recently did, right, she kind of pivoted from the car that she wanted and kind of went with her second option because they offered her zero percent, even though, just like this person, they could have paid.
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She could have paid outright.
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Yeah.
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So in that scenario, some car makers are offering zero percent interest rates on, you know, for a loan on specific types of cars.
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Now, also, one thing to keep in mind is the time of year in which you are actually purchasing a car, because if you're getting closer to like the end of the year, you know you might actually get a better deal on, possibly even in a quote, unquote new car.
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So we're in 2024.
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So getting a 2024 because they're trying to make room on the lot for 2025.
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Yeah.
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So again, is it an?
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Is it an emergency, or can you wait for a couple of months?
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Can you wait three, four months to get you to the end of the year, to where they're trying to clear that lot?
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Yeah, so a few months ago my mom was looking at new cars and my mom's not a car person whatsoever and she had enough money to buy the car outright cash, with no issues.
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But she was able, with her credit score and the car that she was looking at she ended up going with a Nissan, a new Nissan Rogue, and they gave her a 0% interest rate.
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And the funny part was is having my mom's a math professor okay, so math education, math, is her jam.
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But I had to explain to her because she was like I don't want a thousand dollar car payment and I'm like, mom, it doesn't matter because you have the cash and it's a 0% interest rate, so it doesn't matter, and she didn't put any money down, which is why the car payment was so high.
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And I was like it doesn't matter.
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So just even like you know someone who is 100% a math person, you know the emotional aspect of it, you know, kind of crept in for a minute and I had to like ran her back in.
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Yeah, and we, um, we actually have a lease as well.
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So for us that was something that just made sense.
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As our children are growing, you know our needs are going to change, and so we didn't want, you know, to be quote unquote locked into a certain kind of car.
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And so I know, in your message you said that you are single, but maybe that is going to change, maybe that, you know, will change.
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Or you're going to expand your family, whatever that might look like, maybe a lease makes sense Again.
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Can you get a good rate, can you get a good monthly payment?
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You know, for my, for example, for me I work from home and so I don't drive a ton, and most of the driving that I do is really around town.
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You know, grocery shopping, picking up kids, etc.
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And so I knew that I would be able to stay under my mileage.
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Now, if you're commuting an hour to work every day, that might not make sense.
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But leasing terms have really changed as well in the last several years and for us it just made sense.
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So we didn't put any money down.
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So we do have a little bit of a higher payment, but our services are covered.
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You know, our oil changes, things like that.
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And so, again, for where we are in our lives, it makes sense for now to have a lease.
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So we have one lease and then we have one car that is paid off and we're, you know, again, for the around town.
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We kind of trade cars on and off and try to make sure that we're maintaining our mileage If we go to the airport and are going to leave our car somewhere for you know, a week.
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It's like we take sometimes the older dealership where you know you can ask the right questions about the lease terms and get you into a car that makes sense for you, where you have maybe a little bit more flexibility.
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So when you have a good credit score, you've got money in the bank, you're doing all the right things.
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It sounds like you really have options to decide what you want to do and that's the best spot to be in.
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So kudos to you for getting yourself into that space and for having these options and for having a large amount of savings that could easily cover the cost of a $36,000 car.
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I also say you know you have to take into account the larger picture.
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So what else is going on in your life?
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You know that's maybe going to happen in the next year, because if there's any type of monetary value attached to things that you need to do in the year coming up, then once again exhausting emergency fund might not be the best route to go.
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So you can't just look at it and like you know one little silo.
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Now, if you do decide to go ahead and use your emergency fund to purchase the vehicle outright with cash, then I would definitely make it a priority to allocate money going back into your emergency fund on a monthly basis to build it back up.
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Yeah, what about taking a lesser amount?
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from the emergency fund to help reduce the monthly payment.
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That is an option as well, instead of taking all $36,000, take $10,000 or $8,000.
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That's the beauty about it is that there isn't one right answer.
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There is not one single right answer.
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There are multiple answers that can be correct based upon what you feel is best for your situation, and that's one of the things that we really want to preach.
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Is that for so many things in finance, I think for the longest time it was all based upon just math.
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Do the numbers make sense for this?
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And let's choose the option where the numbers make the most sense?
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And the reality is that emotion is also attached to this.
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So for you, maybe not having a car payment is better for you in the sense of an emotional standpoint, because it just helps you deal better, and that might be the right answer for you, or maybe it's not.
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So you could, like you said, you could choose to put a portion down, the total amount down.
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Whatever it may be, it's just a matter of, like I said, looking through the options that work.
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You know the options that are available to you, looking at the pros and cons of each option and then choosing the one that works best for you.
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The one thing that I really like about having you know not necessarily paying the cash is that you have options now, because the worst thing that could happen is is that you go ahead and buy the car with your emergency fund, and we're talking about in a scenario where this is not a need, this is a want, and the next thing you know that happens is that you have a large emergency happen right afterwards.
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So that's the only reason that, like I, think about options, because if you were to take the loan out, you could eventually, you know, pay down.
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You know pay down the loan.
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You could take a three year loan instead of a five year loan or, you know, like I said, put additional payments towards it.
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Yeah.
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I just like flexibility personally, and so I always just put that out there for people to think about.
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Yeah, and I would just make sure all of the loans that I've ever gotten, I always make sure that there's no penalty for paying off the loan early.
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And I don't know what kind of career you have or how you get paid, but if you maybe are in a commission-based role, for example, and it's very likely that you have a large check coming right those commission roles if you're in sales and then you have a windfall, maybe you take the loan for the full $36,000, but then you get a $12,000 commission check and you decide I'm going to just put it all straight to the loan and it goes to the principal and it helps you pay it off sooner and there's no penalty for early payoff.
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So just make sure that you're also looking at the terms of the loan, because that will make a difference as well in how you can structure your payoffs.
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And this is probably not the case for most people out there, but let's just kind of put it out there just in case.
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If you happen to be a business owner a small business owner there could be other ways that you could purchase that car that are much more beneficial to you from a tax standpoint.
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So if that is your scenario, then I would definitely recommend working with a CPA, an accountant that works with small business owners, that is familiar with this.
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That can really help walk you through the option that would be best for you.
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Yeah, because I can't think of a single scenario and I am not a CPA, so obviously consult a professional, but I can't think of any scenario where a car wouldn't be a write-off for your business.
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Well, for my business it wouldn't be, because you have to use it for business purposes and I'm a virtual advisor.
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Okay, Well, when?
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when, when you started and you were actually going to see clients or you were going to an office.
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Yes, it would have been.
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All right.
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So that's why we talk to professionals.
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We don't look good in orange.
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You've already been given your.
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You know terms and conditions.
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Always take everything with a grain of salt.
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So, anyways, this was a great question.
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I think this is often on a lot of people's minds, right, especially in most of the places in the United States.
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We need cars to get around, and I know we're in North Carolina.
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We don't have great public transit, so you know, having a functioning vehicle is important, and so hopefully this was beneficial and hopefully we helped answer your question, and we wish you the best of luck with deciding on what to do with your new to you car.
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We also encourage more of you that are listening.
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If you have questions to contact us, reach us, you know, via the DM.
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However, maybe email us, but we are more than willing to you know, answer as many questions as we can.
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Yeah, because the reality is is, if you have a question about something, somebody else very likely has the same question.
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So, just like today, you know it's a simple question, but here's a you know a full episode about it.
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So get your questions answered.
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That's what we're here for.
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Send us a DM, shoot us an email.
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You can even leave us a voicemail, and if you want to remain anonymous, let us know.
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And if it's okay to use your name, you can let us know that as well.
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But we love hearing from you.
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So don't be shy, don't be a stranger, and we will talk to you soon.
