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Steve Scalici
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Steve Scalici is a Certified Financial PlannerTM and Vice President of Treasure Coast Financial.  He is co-host of a daily radio show called “God’s Money” which can be heard at www.oneplace.com.  You can contact Steve at steve@tcfin.com or via telephone at 1-800-728-6342.  His website is www.tcfin.com.

 
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car buying

The Power of Banking at Home

By Steve Scalici
Vice President of Treasure Coast Financial

CBNMoney.comMost of us have heard that debt is bad.  Burkett and others are always counseling us to get out of debt.  Most of us have a basic understanding why: that interest eats up our income, but most of us don’t realize just how enormously interest robs us of financial freedom in our later years.

All of us are going to work basically the rest of our lives.  I want to show you one simple way to have something to show for it, and, if you are currently making car payments, it won’t cost you one cent.

The basic idea is to stop making car payments to a bank downtown, and start to make them to a Bank You Own.

You can still buy a brand new car every 5 years.

You will still make the same monthly payment as right now (we’ll assume $400/month for example)

Of the residual income of the $400 payment you now make to the Bank You Own, you will accumulate Tens of thousands of dollars  by the time you retire.

EXAMPLE

ASSUMPTIONS:

  1. Two friends, Joe and Fred

  2. Both need a new, reliable car every five years

  3. Both figure they can afford a payment of $400/month which is equal to a $20,000 Honda Accord

  4. Both figure, when they stop to think about it, that they will probably get a new car every five years and make payments until they retire.  It’s just a normal part of their family budget.          

JOE

FRED

Year 1
(1) Joe goes out and gets his Accord and finances it at the local National Bank @ 8% for 5 years with a $400/mo payment.

 

Year 1
(2) Fred decides to put the same $400/mo in a mutual fund savings account we’ll call the Bank of Fred until he saves up enough to pay cash.  While it took 5 years for Joe to pay off $20,000 @ 8%, it takes only 3.5 years to save it.  Fred earns 8% in his Bank Fund.

Year 3
(3) Fred pays cash for his new Accord and faithfully continues to make his $400/mo payments to his Bank fund.

Year 5
4) Joe gets a new car, same deal; $400/mo for 5 years to National Bank.  Assume value of old one is zero.  At this point Joe has saved nothing on his car payment plan, but he has a new car

 

 

Year 8
(5) Fred’s Honda is now 5 years old (again assume zero value) and he needs a new one.  But since he has been faithfully making his payments he now has $29,797 in the Bank of Fred.  He pays cash (-$20,000) and now has a new car and $9,700 in residual income left.

Year 10
(6) Joe gets another car: keeps making his $400/mo payments

 

 

Year 13
(7) Fred’s account is now up to $44,393.  He again pays cash (-$20,000) and has a new car and $24,393 residual income!

This is the kind of money you are sacrificing if you finance vehicles.

Both men paid $400/mo to drive a new vehicle every five years.  Yet Fred was able to build over $20,000 just by banking at home.

What’s the catch?  Fred was willing to wait on the loan.  Sacrifice 3.5 years driving an older paid off vehicle.

Let’s play out our example a little further.  Suppose Fred and Joe were 35 years old when they started this.  What happens at retirement?

JOE

FRED

 

Retirement  Age: 65

(8) Joe has made nothing on his $400/mo investment; the National Bank made it all.  Now that he is retiring, he cannot get a new car because he can’t afford the payment he is used to.

 

Retirement  Age: 65

(9) Fred goes and buys himself a brand new car.  He now has left over $198,715 in residual income off his regular car payment by Banking at Home.  You better believe the banks don’t teach you this!!

You can start this kind of money saving bank now.  If you do, below is the savings you can expect at your current age.

Do not let the world keep you in the dark and keep you from reaching financial independence.

 

 

AGE NOW

SAVINGS AT RETIREMENT

 

 

57

$     9,797 + A BRAND NEW CAR @ 65

52

$  24,393 + a new car every 5 years

47

$  46,138 + a new car every 5 years

42

$  78,536 + ditto

37

$126,804 + ditto

32

$198,715 + ditto

27

$305,851 + ditto

22

(this is incredible) $465,468 plus a brand new car

WHAT TO DO

1.  Be sure you understand the principles of what makes this work.  Do the math.

2.  If you’re in a lease or financed car; get out.  Purchase a used, low maintenance vehicle for cash (full size America truck, or anything Honda or Toyota, except ATV’s.  For this to work, you cannot get behind due to maintenance) Spend $3000 - $6000, or more if you need to or can afford it.

3.  Get help choosing a good mutual fund that trades in high quality stocks.  Your goal is 8%.  Don’t use savings accounts, CD’s, annuities or insurance for this program.

 

 

4.  Make your car payments by auto-withdrawal from your paycheck to your mutual fund.  BE DISCIPLINED.  Withdraw money for nothing except buying the five-year car for cash.

5.  This should be viewed as an addition to a main line retirement plan.

 

 

6.  Notice the returns in the later years!  Remember this used to be money you gave to the banks as a car payment.  Consider it already spent and don’t get tempted to “play with it.”

7.  If you want a more expensive car, you must up the monthly payment accordingly, just as if you financed it at the National Bank.

.


Honestly, the best way to get started on this, even if you don’t plan to start until your current car is paid off, is to make that payment by auto withdrawal.  I recommend auto withdrawal out of your regular account to the debtor.  When the debtor is paid off continue to auto withdraw the car payment into a mutual fund.  It’s amazing how easy it is to forgo the whole idea if you wait to set up the logistics until “later”, so be diligent!

Steve Scalici is a Certified Financial PlannerTM and Vice President of Treasure Coast Financial.  He is co-host of a daily radio show called “God’s Money” which can be heard at www.oneplace.com.  You can contact Steve at steve@tcfin.com or via telephone at 1-800-728-6342.  His website is www.tcfin.com.

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