3 Strategies for Buying a Car. Spender, Saver or Wealth Creator Strategies

 

Click on diagram to enlarge.
(Craig Floyd acknowledged for this illustration.)

This story will illustrate the difference between how a spender, a saver and a wealth creator purchase stuff.

Joe Blow Spender just completed college and has a great job he has been hired for. He has no savings so he is beginning his career with zero in his bank account. But he needs to buy a chick magnet (car) to get to work.

He goes to his local bank where his dad is buddies with the manager and after they check his credit, and make sure he does have a job, they lend him money for his car. Even though it is his first loan, because his dad is a well known customer, the rate will be 6% (The national average is actually 8%).

Looking at the diagram we see Joe Blow Spender immediately dropped off the top of the table and landed on the floor, in debt, paying the bank back $23,199.35 all the while hoping he could make his payment on time for those 5 years.

He now has to get back to the top of the table where he began. At zero.

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Sally the Saver also just completed college and has been hired as well. She is also beginning with zero but she is not looking for a chick magnet because she is a chick. She is looking to look good for Joe Blow Spender instead so she decides to buy a bicycle and ride to work while keeping trim and saving her money so she can buy a car with cash later.

After 4 years she has saved $20,000 and added $2,082.00 of interest (before she has to minus taxes) earned at 4% and so then empties her account back to zero and purchases the car. She started on top of the table, rose above it for a while as she saved but then dropped back down to where she started. At zero.

She wanted to avoid paying interest but never considered the effect of spending down the savings and restarting the compounding effect on those savings every time she depletes them.

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William the Wealth Creator had a different plan of action after he completed  college. He understood the Private Reserve Strategy. He also started at the top of the table with zero, but his strategy kept him moving up. He understood collateralization.

Willie, like Sally the Saver, was disciplined and saved his money for four years. He rode the train or bus or walked or rode a bike, just like Sally the Saver. But then, instead of spending down his own savings, he kept it growing in his account while borrowing from someone else. ( I have not added into the starting balance in the diagram below, the interest of $2,082 accumulated over the four years it took to save up the $20,000 so you can see, even without that, the effect is substantial.)

Why would he merge both Joe Blow Spender and Sally Saver’s strategies together and to what benefit?

 

 

Click on diagram to enlarge.

Both Sally the Saver and the Willie the Wealth Builder earned $4,333.06 over 5 years.

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Click on diagram to enlarge.

Both Joe Blow Spender and Willie the Wealth Builder paid $3,199.35 0ver 5 years.

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Willie the Wealth Creator understands the difference between compounded interest earned and amortized interest paid.

So by keeping his money compounding in his savings account at 4% he is not ending up back at zero on the table top.

By collateralizing his savings and then borrowing the $20,000 for the chick magnet using someone else’s money, he will be ahead $1,133.71 after five years, the difference between what he earned and what he paid.

Here is a question – Even though Willie borrowed money for the car, is he really in debt in this scenario?

Can he pay off his car loan when ever he wants to? Yes, but by choosing not to interrupt the growth of his own money which is compounding in a financial vehicle keeping it safe, protected and tax advantaged, along with multiple other benefits isn’t he keeping his money liquid and in his control and growing?.

Do you know the financial effect of emptying your account every time you spend money?

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Now…

See below for the captured opportunity savings over 40 years, of just that interest saved by purchasing the car using the Private Reserve Strategy.

Please remember, this is ONE car purchase. How much cash have you spent so far in this lifetime? And the difference between the interest earned and interest paid is not the only benefit of Willie’s method of buying the things of life.

Click on diagram to enlarge.

The question to ask now is, what type of financial instrument is the most efficient way to make the most of this Private Reserve Strategy, both as the savings vehicle and the borrowing vehicle? You can perform this tactic in multiple ways but there is a definite BEST way.

The answer is, Call me if you want to learn more about Private Reserve Strategy.

There is a lot more to understand about this strategy. This is just to awaken your curiosity and prompt you to call me.

Jennifer Hansen

845-649-7487

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September 6, 2011 · Jennifer · 3 Comments
Tags: , , , , , , , , ,  · Posted in: Car Loan Comparison, WEALTH CREATOR

3 Responses

  1. John Osborne - November 11, 2014

    How no I start a wealth builder account and how much must I start with?

  2. John Osborne - November 11, 2014

    How do I start a wealth builder account and how much will it cost?

  3. Jennifer - November 11, 2014

    Hi John,

    Thanks for contacting me via my blog. Please reply to the email I just sent you with a date and time that suits you for a webinar so we can discuss this further. There is no HAVE TO start with. We look over your current financial position and after discussing it with you along with your financial goals, we ask you what you would be comfortable with.

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