Monthly Archives: December 2014

I bought a used car with cash, this is why

2007 Chevrolet Malibu. $6000
2007 Chevrolet Malibu. $6000

It has been about four years since I last had a vehicle. I have been very happy using my bicycle, borrowing vehicles from my car sharing community and using public transportation, and yes, walking from time to time. But new circumstances created a need for a vehicle.

In some of my previous posts I contended that one way to save money is to buy a used vehicle and to pay cash for it.

Paycheck to Paycheck

I have read many reports which claim that many North Americans live from paycheck to paycheck. Yet, when I walk down the streets, I can not help but to notice all the shining vehicles rolling along the streets. I will never understand why, if someone is living from paycheck to paycheck, they would get a brand new vehicle.

Recently, I spoke to a salesperson who insisted in having a luxurious vehicle because she had to give an appearance of wealth to her clients. Really? to me this  is sign of waste. I believe that the one way a salesperson can differentiate herself is by providing excellent service, not by wasting money in a luxury vehicle.

According to another study which I read some time ago, most North Americans have most of their wealth tied up in their house and their vehicle. A house can appreciate at a rate of 2% per year and a vehicle depreciate in about 5 years. Both of those choices are less than optimal refuge for your wealth.

Reasons to buy used

  • I bought a 2007 Chevrolet Malibu for $6,000. A 2015 Malibu costs about $27,000. I saved $21,000.
  • My car will be parked most of the time. If my car is not been used, it doesn’t make a difference whether it is new or used.
  • The speed limit in Montreal is 100 km/hour. I could have the most powerful vehicle and still I would not be able to drive past the speed limit, so why would I waste my money paying for speed and performance?
  • Many luxury cars come with MP3 players, GPS systems, and many other gadgets. I carry all those gadgets on my Android phone. I don’t need to pay extra for the latest state of the art technology.
  • I saved money on sales taxes.
  • Since the vehicle is less expensive, I save money on car insurance.
  • I save lots of money on  opportunity cost. The price of the vehicle brand new is $27,000 and I paid $6,000. This means that I saved $21,000. $21,000 invested at 8% for one year is $1680. Think about this for a second. If I buy a new Malibu, on the first year I lose about $2,000 in depreciation. By buying a used Malibu and investing the difference, the first year I gain about $1680.
  • When I sit in traffic, I am stuck in the middle of a highway and it is equally annoying whether the car is new or used.

Reasons to pay cash.

  • If I buy a vehicle on credit, I will have to pay interest.
  • If I buy the car on credit, I don’t really own the car until it is completely paid off. If I were to fall into financial difficulties and miss a couple of payments, the car can be taken away from me.
  • By paying cash, I have peace of mind. I don’t have to worry about monthly payments, about credit ratings, I just wrote one check and I don’t have to think about it ever again.

As our society continues to evolve, technology continues to improve and cities become overcrowded, we search for other transportation alternatives. Technology has become so advance that a vehicles can easily be driven for 200,000 kilometers before they start to break down. Car Sharing communities such as Communauto in Montreal and Zipcars in the United States are making vehicle ownership obsolete. Public transportation and services such as Uber are allowing us to get the best public transportation one can imagine. And the future where we will be able to summon a Google driverless car with our smart phones is just around the corner.

When you go shopping for a vehicle, do you buy used or do you buy new? Do you pay cash or do you finance?

My Services:

I am happy to be your life coach, money coach, or public speaking coach. I am new in this business, so my fees are low, $20/hour. If you need a friend to talk to, someone who knows about life, money or public speaking, let’s book a session. Send me a message and we will take it from there.

Selling your property? Be aware of mortgage prepayment fees.

Last party at my condo
Last party at my condo

How TD Bank screwed me out of $5,000

I just did it. I sold my condominium for $235,000. There was only one problem. I never bother to read the fine print and found out that I had a mortgage prepayment penalty. Yes, there was a big penalty of almost $5,000. This got me upset and resentful with my bank but it was my fault. I did not take the time to read the contract and to negotiate better conditions for me.

This is how it happened.

When I first got my mortgage, about three years ago, I got a one year mortgage and my plan was to renew it every year. Then, about one year later, while doing some unrelated banking transaction the banker told me: “Hey if you renew your mortgage for five years, we will give you this amazing lower rate.” He gave me a stack of papers to sign and of course, I didn’t see that there was a penalty for early payment of the mortgage.

What will I do with all that cash?

$235, 000 sounds like a lot of money, but after paying back the mortgage and the many other debts that I have, I am left with very little. With anything left over, I will buy a car to become an Uber driver (more on these on future blogs) and put some money into the stock market.

How to avoid prepayment charges.

  1. Read the contract. Usually, when you are looking for a mortgage, many banks are competing against each other to lend you the money. Remember, traditionally banks make money when they lend money. Look for the part which says “Prepayment disclosure” or something similar. You might see a small check-box which you will be asked to initial to show that you read the paragraph.
  2. Negotiate: Once you find the offending paragraph, ask them to take it out. If the representative don’t have the authority to do it, ask to talk to the manager. If the manager refuses, tell them that you will take your business elsewhere and shop for other lending institution who will be more hungry for your business. Remember, the bank staff get commission or bonus points after you sign that contract, so they will be eager to do business with you.

Other things to consider

  • Consider one year mortgage. Usually, when you get a one year mortgage, you are getting the lowest possible mortgage in the market. My gamble is that if the central bank increases interest rates for the following year, they will do it gradually, so even if the raise interest rates by 0.25%, you will still be in a great position. This was my original plan, but the banker tricked me into getting a 5 years mortgage instead. Now I know better, and you do too.
  • Weekly payments. One way to reduce the number of years you pay your mortgage is by making weekly payments as opposed to monthly payments. Two great benefits will surface from this adjustment: a. you will pay less interest throughout the life of your mortgage and b. you will pay back your mortgage sooner.
  • Increase monthly payments. Imagine that you are a tenant in a house or an apartment. Your landlord will probably increase rent every year. Why not do the same with your mortgage payments? Let’s say that you increase your payments by one percent per year. If your salary increases at the rate of inflation (about 2%), then to increase your mortgage payments by 1% should not be a big sacrifice.
  • Advance payments. Many people obtain bonuses from work. Why not give a bonus to your mortgage? Imagine that at the end of the year, you get a $1,000 bonus. You could use $500 to prepay your mortgage. Over, a 20 year mortgage, your $500 could go a long way.

Owning a property is a big responsibility, full of expenses and pitfalls. I would love to hear about some of your mistakes.

My Services:

I am happy to be your life coach, money coach, or public speaking coach. I am new in this business, so my fees are low, $20/hour. If you need a friend to talk to, someone who knows about life, money or public speaking, let’s book a session. Send me a message and we will take it from there.