Taking Out a Car Loan, Good Idea or Bad Idea? The Surprising Answer..

Hey what’s up everyone. Davey Pockets here, man of the financial frontier. Ready to help you increase your financial IQ, increase your net worth and show you how and where to invest.

For today’s topic we are going to discuss taking out a car loan.

Is taking out a car loan a good idea?

The funny thing is the answer will vary based on your experience with money.

Let’s say for an example someone where to ask you the question- should I do 300lb dead lifts for my workout routine?

Well the answer depends on the person and their experience. If the person is a body building man who has worked out for 5 days a week for 10 years or more then the answer might be YES.

However if the person is a 40 year old mother who just had her 3rd child and has not lifted since high school then the answer is most likely a NO. In this case we might suggest a cardio class to best fit her unique situation.

The one thing I can’t stand is when an infomercial comes on and says something like “cut-up your credit cards and get out of debt? You hear financial advisors such as Suze Orman and Dave Ramsey support this school of thought in their books and programs.

To them the best way to get a cheap car loan, is to pay it off entirely! 100% with cash and have no interest to pay so that you are supposedly at peace financially.

Although this is sound advice to someone who struggles with money or someone who is a beginner. It does not take into effect people who are beyond this beginner level of financial IQ.

You see there is good debt and bad debt. A car can actually be either one depending on your level of financial IQ and what you do with the money.

If you want a big Ford F150 to show off to the guys at work and you have no money to put down on the truck so you are searching for a cheap car loan, this is DEFINITELY bad debt!!

If you are at this level of financial IQ please read and follow the advice of Dave Ramsey. The last thing you want is to take out a loan on something you do not need. Basically you are borrowing money to buy something that takes even more money away from you, also know as a liability.

On the other hand lets say there is an investment opportunity for you with a foreclosed home in your neighborhood. You know that the home is worth $100,000 but it could be had for $50,000 due to seller foreclosure. Let’s also say that you have $10,000 dollars to put down for a down payment, but you already have a lot of your money invested in other things that are making you even more money, also known as assets.

With your current car on it’s last leg, you decide to go out shopping. Rather than buy the truck that you don’t need you find a used economy car with low miles and pick it up for a nice $10,000.

Now you are asked the same question should you take out a car loan?

In this case I say yes. Take out a cheap car loan at 3% and take 100% of the loaned money towards buying a cash flowing asset! Note you must take th money and put it towards an asset. This is the only way the math works.

So let’s say you take money buy the foreclosed home and within a month you have it rented out. After paying your taxes, loan, and property manager to deal with all maintenance and headaches you see a monthly return of 20% on your money!

This is actually a great investment idea because you are now paying back your cheap car loan at 2% and earning 20%, a net gain of 18% on your money without doing any work or even having the money in the first place!

This is one of the best ways to increase your net worth. You can repeat this process in many forms. Using car loans, home loans, rental loans, business loans, private lender loans, etc. The most important thing is that you always make sure the numbers work and that you more than have enough cash to cover it in case the deal goes bad on you. Someone with a high financial IQ will recognize an opportunity like this and totally take advantage of it.

So as you can see the answer of taking out a car loan just really depends on what level of investor you are currently at.

If the thought of more money equals shiny new cars, vacations, and a new watch then the answer is no! Pay cash and stay out of debt!

If the thought of more money equals an opportunity to pick up another cash flowing asset to add to your portfolio then the answer is yes! Bring on the good debt and hello payday!

Agree? Disagree? We love hearing from you in the comments!

Also check out your financial thermostat setting to see more ways to increase your net worth and financial IQ.

Thanks for reading!




Difference between asset and liability.

Hey what’s up everyone. Davey Pockets here, man of the financial frontier. Ready to help you increase your financial IQ, increase your net worth and show you how and where to invest.

For today’s topic we are going to talk about the difference between asset and liability.

Understanding the difference between an asset and liability can make a huge impact in your financial future and drastically increase your net worth.

Just a few short years ago I used to believe that I knew the difference between asset and liability. I was getting along just fine financially. However it seemed like the harder I worked the more I stayed about right where I was. I was not increasing my net worth and I did not understand why. I had always been taught that hard work would put me in a better position financially. Once I realized that my hard work was not going towards the right things then I realized why I was not getting ahead.

You see sometimes it is better to work smarter before you work harder. If all of your hard work is going towards buying liabilities instead of assets then you will not get ahead financially!

To begin with let’s start by defining a liability and an asset.

A liability is something that takes money out of your checking account, out of your net worth, and out of your pocket whether you go to work or not.

An asset it’s something that puts money in your checking account, in your net worth, and in your pocket whether you go to work or not.

So is a house in asset?

I used to think that a house is an asset and in some cases it actually can be. However in most cases a primary home is not an asset.

Let’s go back to the definition- does it take money from my pocket or does it put money does it or does it put money in my pocket?

If I am NOT renting out my primary home and I have to pay the bills on it such as taxes, insurance, electricity, water, heating, natural gas, etc. then my house takes money from my pocket every month whether I go to work or not.

Therefore my house is a liability and in terms of wanting to increase my net worth I would want to find the cheapest, most affordable, most low-cost, most cost efficient home that I could find.

The only way my house could be considered an asset is if I rented out some of the rooms and my renters paid enough monthly rent to cover my taxes, insurance, heating, water, gas and all my bills.

Another item I made a huge mistake on was a motor vehicle. Is it an asset or a liability? Once again it can be both. But in my case my red Dodge Ram was taking money from my pocket every month in the form of maintenance, tires, gas, and oil changes whether I worked or not.

The only way for my truck to have been considered an asset would have been if I was renting it out for others to use and the rent I was being paid was putting more money in my pocket than the expenses were costing me.

So once again if you are wanting to increase your net worth it is ideal to have a low price, very cost efficient, and low maintenance vehicle.

So now you may ask what is an asset? If a house and a car are not assets then what are?

An asset can come in many different forms- dividend paying stocks, a mutual fund, a certificate of deposit, a rental home, a business, intellectual property- such as books, CDs, DVDs, an ebook, a blog, etc. These items require a bit of work in the beginning but once they are setup properly they will put money in your pocket over and over again whether you work or not!

Hopefully after reading this you now have a better feel of the difference between asset and liability. If you understand the difference between asset and liability you will have a much higher financial IQ and a lot better chance of increasing your net worth!

Thank you for reading and subscribing!