Save, Pay Down, or Buy?

[Lost_in_the_HTTP]

Mine is considered a small garage. Many are twice or more that size. I see several 3, 4 or more car garages not too far from me. Some neighbors have barns the size of small warehouses ... 40'x 60' is not uncommon.

 

[Exterous]

The issue with parking the car in the garage is it will rust faster, even if it's an unheated garage the heat from the engine will cause the snow and salt to melt and the salt will eat at the car faster than if it's in the driveway and stays frozen.

This isn't true for any typical amount of car ownership timeline. I had a 2005 Civic for 11 years, garaged for all but two, that I put 240,000 miles on and just a tiny amount of rust on a single window frame after all that time and Michigan uses salt frequently and has shitty roads to make sure everything is nice and splashed with salt. Zero rust issues with another 7 year old car and 8 year old car

Residential garages also tend to be very tiny so if you do park in it, you have no room for absolutely nothing else, not even a workbench. Garages are better suited as a workshop area so you get more useful use out of the space. After all these years of living here I'm finally getting around to converting mine as it was mostly used for storage and required lot of work to get it into a state that I can start to convert it. Needed new floor etc.

In Michigan its common to have a concrete step up to the garage floor for several feet at the front of the garage - plenty of space for a workbench, fridge and numerous tool chests while still getting your car into it. Sure I need to back my full sized car out if I want to actually do anything major on the workbench but its not a reason to not park in the garage

 

[dank69]

While I agree the difference between holding 3-6 months in savings vs 3-6 months in a principle conserving portfolio won't be that significant over even a 20 year scenario. You'd probably get ~3-4% ROI at best (You don't want to be too risky with your emergency fund. It would kinda suck if you figured out $10k was what you'd need but the market tanked at the same time you lost your job so now you only have $6500) so running through the math with a $15,000 emergency fund as an example after 20 years that would only turn into $27,000 - or ~$1,000 a year in retirement with a 4% SWR.



...

$15K->$27K is still much better than $15K->$15.00069K that a typical savings account will provide. For the younger fellas that difference gets even larger over a 40 year career.

 

[Exterous]

$15K->$27K is still much better than $15K->$15.00069K that a typical savings account will provide. For the younger fellas that difference gets even larger over a 40 year career.

I'm not saying its not better - just that it's not that much better in the grand scheme of things. So lets take your 40 year timeline. A 20 year old builds up to $15k over 5 years by putting aside $3k per year. He invests that and then keeps an eye on his emergency fund portfolio over the next 40 years to get ~$49,000. If he then does the right thing and invests that $3k after building up the emergency fund he'd have $685,000 of investments as well after 40 years. Assuming he still needs the $15k as an emergency fund the added retirement value of investing the emergency fund is less than 5% of his portfolio. That isn't nothing but, based on his emergency fund and average SS payout at 65 he's still short on funds annually with a 4% SWR (Example numbers: 4 month emergency fund of $15k = $60k annual spending. 4% of 68500 + average SS payout of $18000 = $45,000. Median household income suggests a 6 month emergency fund of just $15,000 is unlikely). So he needs to generate $42,000 a year to add to SS to accommodate his $60k a year spending which means he needs a $1,050,000 portfolio. Again the emergency fund investment isn't nothing but not exactly a big chunk when compared with that. Finding another $200/year to invest over that time horizon is going to bring more of a benefit. If people have the time and attention to min\max everything sure do both. Most Americans don't behave that way though so if a choice has to be made just let the funds sit in a savings account, leave it alone and focus the limited time and attention on capturing that extra $200/year to invest

 

[dank69]

I'm not saying its not better - just that it's not that much better in the grand scheme of things. So lets take your 40 year timeline. A 20 year old builds up to $15k over 5 years by putting aside $3k per year. He invests that and then keeps an eye on his emergency fund portfolio over the next 40 years to get ~$49,000. If he then does the right thing and invests that $3k after building up the emergency fund he'd have $685,000 of investments as well after 40 years. Assuming he still needs the $15k as an emergency fund the added retirement value of investing the emergency fund is less than 5% of his portfolio. That isn't nothing but, based on his emergency fund and average SS payout at 65 he's still short on funds annually with a 4% SWR (Example numbers: 4 month emergency fund of $15k = $60k annual spending. 4% of 68500 + average SS payout of $18000 = $45,000. Median household income suggests a 6 month emergency fund of just $15,000 is unlikely). So he needs to generate $42,000 a year to add to SS to accommodate his $60k a year spending which means he needs a $1,050,000 portfolio. Again the emergency fund investment isn't nothing but not exactly a big chunk when compared with that. Finding another $200/year to invest over that time horizon is going to bring more of a benefit. If people have the time and attention to min\max everything sure do both. Most Americans don't behave that way though so if a choice has to be made just let the funds sit in a savings account, leave it alone and focus the limited time and attention on capturing that extra $200/year to invest

What if he takes the interest earned every year and pushes that into his non-emergency investment fund?

 

[Exterous]

What if he takes the interest earned every year and pushes that into his non-emergency investment fund?

That would likely be a taxable event so its get's a bit more complicated. Assuming it's realized as income and not long term capital gains and the tax bracket matches the annual spending that would generate an extra $13,000 over 40 years assuming no state or city taxes

I guess he could use a Roth account for this and which would preclude the taxable event nature but you'd be sacrificing tax advantaged space to avoid taxes on investments likely to generate a lower ROI than risker investments more likely to pay off in higher percentages over 40 years. Might be ok if leveraging other vehicles to save for retirement (or not otherwise saving at all for retirement) at the same time but potentially a concern

Hmm...municipal bonds that are tax exempt might be an option but I'm not sure how easy those are to liquidate (kinda important and maybe they are\maybe they aren't)

 

[dank69]

That would likely be a taxable event so its get's a bit more complicated. Assuming it's realized as income and not long term capital gains and the tax bracket matches the annual spending that would generate an extra $13,000 over 40 years assuming no state or city taxes

I guess he could use a Roth account for this and which would preclude the taxable event nature but you'd be sacrificing tax advantaged space to avoid taxes on investments likely to generate a lower ROI than risker investments more likely to pay off in higher percentages over 40 years. Might be ok if leveraging other vehicles to save for retirement (or not otherwise saving at all for retirement) at the same time but potentially a concern

Hmm...municipal bonds that are tax exempt might be an option but I'm not sure how easy those are to liquidate (kinda important and maybe they are\maybe they aren't)

Also consider that as total investments grow, the need for an "emergency investment account" evaporates assuming at least some of the "normal" portfolio can be liquidated when needed. A $1-200K diversified portfolio isn't going to go to zero no matter what the market does.

 

[Torn Mind]

I used to live in a lower-middle class neighborhood.

It's the only place I've ever seen an absolute ton of people parking their vehicles always in the drive-way - and a good number of them even parking on the street every day/night so that I have to weave left and right to avoid them daily to get back home. So you just generally would think - oh maybe they have a bunch of vehicles from kids 16+ living there or something.

Nope. Catch them with the garage open. It's filled to the brim with shit. Complete and utter shit that they would be FAR better off simply throwing in a dumpster than ever holding on to. It won't return any real sum of money. It would actually cost you more in time than it is worth to try and sell DVDs for $0.50 each.

Nevermind important shit like protecting a motor vehicle that costs $20k+




You can call it ignorance - uneducated - blah blah blah. There's really no excuse - it's something a normal person would say "Hey, we bought all these toys and the kids played with it for 3 days - maybe we should stop buying so much fucking shit?" but they just keep repeating it over and over and over and over.

I got a brother in law that has a kid - and every birthday and Christmas it's just a huge pile of presents for him of action figures, multiple nerf guns, race cars, and other shit. Year after year.

I don't believe poor habits are limited to just lower income folks. Better wage earners simply adjust their spending on more expensive goods.

Some money drains are mostly not tangible, i.e alcohol.

 

[Lost_in_the_HTTP]

I don't believe poor habits are limited to just lower income folks. Better wage earners simply adjust their spending on more expensive goods.

My goal was always to spend no more than half of my income each month. Most months I could do it, but not all.