I saw this boat down a Harvey's Marina and I want to buy it. We can get a five year loan at the bank and pay it off monthly. But, I do not want to wait ten years. Ok, let put emotion aside and look at some financial matters.
Wealth accumulation is a fancy word for saving money.
This is a combination of earnings from the account you're putting the savings into and monthly contribution from your paycheck. Savings is divided into two different types, retirement (before tax) and all other (after tax).
As part of the decision on purchasing a boat let say for $15,000, with a monthly payment of $304.15 for 60 months the cost of the boat and trailer is $1,824.00. In addition, there is the boat registration fee, the trailer license, boat insurance, storage fee, and property taxes, payable on an annual basis. The boat will depreciate in value around $ 2000.00 a year and will be used maybe a half a dozen nights after work and on 8-10 weekends a year. Then there are the operating expenses like gas, engine tune up, and boat maintenance.
Let's take a look at the order of spending priority in the family budget.
A vehicle is a necessity for getting to work, taking the kids to school, and for running errands. A car or truck depreciates in value each year you own them. Most loans on new car and used cars are for five years. At the end of the loan the value has declined to about 40% of original value. If you buy a car for $20,000 with payments of $386.66 a month for 60 month at 6% interest rate the cost of the car is $26,942.11. If you pay cash, the saving is 34% over 60 installment payments.
Then you can put the $386.66 into the accumulation account to repay the fund for the car payment eliminating interest expense. Housing is of equally important with transportation. To start out most of us rented an apartment. The largest purchase you make in your lifetime is a home. This is when you go from paying rent which usually covers all the expenses except utilities and personal property insurance.
Several things change in home ownership such as real estate taxes, insurance changes from renters to homeowner�s coverage, and repairs to the roof or replacement of the water heater. The net cost can be close to your rent but the cash flow is different. The best way to buy a home is to be able to put 20% down for conventional loan. There are many ways to finance mortgage but the loan cost increases as the down payment decreases. The accumulation account could be used to pay the down payment and help with cash flow.
Saving money in advance for a major purchase provides several options and will reduce cost of the purchase. If your dollars are limited do you want to use you savings for a boat, a car or your first home?
To your financial success,
Martin Braddock
P.S. If you have any friends or family that may be interested in making money work harder have them contact my website:� www.financialtechnician.com for more information.
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Martin Braddock with 25 years of financial planning experience can give you expert advice and the best plans for your financial future in one shot. With the commission selling removed, you get honesty advice and the best financial coaching that you can possibly have.
