“Nothing Gold Can Stay” | Brad’s Carvana Experience | What Is A Heloc
Episode 261
Episode Guide
Episode Summary:
Episode Timestamps
ChooseFI Podcast Episode Show Notes
Episode Summary
In this episode, hosts Jonathan Mendonsa and Brad Barrett reflect on the emotional farewell to a beloved car, "golden boy," which accompanied them for 18 years. They delve into the psychological impacts of car ownership, financial independence as a mindset, and vital financial decision lessons for vehicle ownership. The discussion expands to highlight home equity lines of credit (HELOCs), their benefits, and how to employ them wisely.
Key Takeaways
- Financial independence is not merely about financial figures; it encompasses a mindset and lifestyle choice.
- The emotional aspects of car ownership can affect financial decisions, such as when to replace a vehicle.
- HELOCs can provide flexible financing options at lower rates compared to credit cards.
- Planning and preparing financial tools ahead of time is crucial for handling emergencies effectively.
Timestamps & Discussion Points
- Podcast Intro:
- Emotional farewell to "golden boy," an 18-year-old Honda Civic.
- Financial insights on car ownership and the emotional attachment to vehicles.
- Introduction to HELOCs and their basic definitions.
- Discussion on home equity strategies and how HELOCs serve as a backup financial tool.
- Controversial HELOC strategies and the myths surrounding them.
- Community wins segment, showcasing listeners' successes and milestones.
Actionable Takeaways
- Make extra payments on your mortgage to reduce outstanding debt quicker.
- Secure a HELOC before emergencies arise to have peace of mind and more options.
- Educate yourself on available financial tools to effectively manage potential future emergencies.
Important Quotes
- "The anxiety from my daughter about the car breaking down highlighted a deprivation lifestyle we were living."
- "Understanding the basics of money management lays the foundation for financial independence."
- "Planning ahead provides options and alleviates financial stress during emergencies."
- "Accessing lines of credit strategically can enhance your financial safety net."
- "Make extra payments on your mortgage anytime to accelerate your debt payoff."
FAQs
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What is a HELOC? A HELOC is a revolving line of credit that allows homeowners to borrow against their home equity, typically at lower interest rates than credit cards.
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How does owning a car impact financial independence? Owning a dependable vehicle can lead to significant savings by avoiding monthly payments and reducing anxiety related to reliability.
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What are the benefits of planning ahead financially? It helps manage finances calmly during emergencies and avoids scrambling for credit in times of need.
Related Resources
Speaker Highlights
- Jonathan Mendonsa: Co-host and commentator on financial topics, emphasizing the mental aspects of finance.
- Brad Barrett: Shares personal stories and insights that resonate with listeners.
- MK: Brings in community wins and real-life applications of financial strategies.
Discussion Questions
- What role does car ownership play in your journey to financial independence?
- How do you prepare for financial emergencies?
Episode Mentions
- Episode #22: "The True Cost of Car Ownership"
- Episode #009: "Travel Rewards"
Conclusion
Reflecting on the intertwined nature of psychological and financial decisions, this episode brings forth valuable insights into car ownership, the utility of HELOCs, and the importance of foresight in financial planning.
Note: The above content summarizes the complete episode and is catered to provide listeners with essential takeaways and insights into financial independence.
The Emotional Impact of Car Ownership on Financial Independence
Car ownership can significantly influence your journey toward financial independence. The recent heartfelt discussion on the ChooseFI podcast surrounding the farewell to "golden boy," an aging Honda Civic, highlights how the psychological elements of car ownership intersect with financial decisions. This article will explore how to make informed choices about vehicle financing, the long-term implications of car ownership, and practical financial strategies to consider.
Understanding the Psychological Aspect of Car Ownership
When evaluating your automobile choices, it's vital to consider more than just the numbers. As discussed by the hosts, the emotional toll that a simple vehicle can take can be profound. For example, the host’s daughter developed anxiety over the possibility of their aging car breaking down. This scenario reflects a broader theme in financial independence—being more than just frugal; it’s about living a life that does not put unnecessary strain on your mental health.
Recommendation:
- Evaluate Your Vehicle's Reliability: Prioritize vehicles that provide peace of mind. A reliable car reduces stress and supports a positive mental framework essential for long-term financial planning.
The Economics of Car Ownership
The hosts also delve into the economic implications of holding onto an older vehicle for too long. While it may seem financially advantageous to avoid monthly car payments, the true cost of ownership encompasses more than just purchase price. Factors such as maintenance, repairs, and the opportunity cost of not investing that money elsewhere must be taken into account.
Actionable Takeaway:
- Consider Your Total Cost of Ownership: Calculate not just the purchase price but all ongoing costs associated with the vehicle. Consider selling older vehicles with high maintenance costs and investing in reliable transportation that aligns with your lifestyle.
Strategic Use of Home Equity Lines of Credit (HELOC)
Transitioning to financial tools, the podcast discusses Home Equity Lines of Credit (HELOCs) as smart options for financial planning. A HELOC allows homeowners to tap into their home’s equity for various financial needs, providing a lower interest rate than credit cards. This is particularly valuable for emergencies or significant purchases.
Key Benefits of a HELOC:
- Lower Interest Rates: Unlike credit cards with interest rates averaging 15-30%, a HELOC typically offers a variable rate that is significantly lower.
- Access to Funds When Needed: Having a HELOC in place can serve as an emergency fund, allowing you to draw on it when required without selling investments at a loss.
- Strategic Financial Planning: Utilizing a HELOC smartly provides options you can leverage without incurring immediate costs.
Planning Ahead: The Key to Financial Resiliency
The hosts emphasize the importance of strategic planning. By obtaining a HELOC before an emergency arises, you have a financial safety net without scrambling for funds at the last minute. This foresight can alleviate stress during financial crises.
Recommendation:
- Establish a HELOC While in a Stable Position: Secure this financial tool when you don’t need it. Research and compare options to get the best rates and terms available.
Navigating Mortgage Payoff Strategies
Discussions about paying off mortgages and the myths surrounding advanced strategies are common topics in personal finance. The podcast references various tactics that markets complex mortgage payments while encouraging straightforward practices instead. For instance, consistently making extra payments on your mortgage can yield significant savings over time.
Action Item:
- Make Extra Payments on Your Mortgage: Regularly contribute extra amounts to your principal. This strategy can shorten the duration of your loan and minimize the total interest paid.
Conclusion: Balance Frugality with Mental Well-being
Pursuing financial independence does not mean sacrificing your quality of life. As illustrated through the journey of saying goodbye to "golden boy," it is essential to balance financial decisions with their impact on your mental well-being. Equip yourself with the right financial tools, plan for the future, and make informed choices about long-term investments like transportation and housing.
By approaching financial independence thoughtfully and strategically, you can create a solid foundation that enhances your overall quality of life, allowing you to thrive both mentally and financially.
What You'll Get Out Of Today's Show
- After 18 years of ownership, Brad says goodbye to his beloved Honda Civic, Golden Boy.
- When it comes to car ownership, ChooseFI often talks about only buying a new car every 15 years. Over a 45 year adult lifetime, the savings, when invested, can amount to almost $750,000 when compared to someone who leases or just manages a constant car payment.
- Although Brad wanted to keep the car, it had been having some mechanical issues and his family was no longer comfortable riding in it anymore. The impact it was having on Brad's family was not worth it.
- For his next vehicle, Brad opted for a 2013 Honda Civic rather than a brand new car. He purchased his new Civic through Caravana, the car vending machine business, who was selling Civics for roughly $3,000 less than CarMax.
- The buying process through Caravan was quick and streamlined. The car was delivered to his home and he spent approximately one-hour signing paperwork and finalizing documents.
- There are sweet spots when purchasing used vehicles. Although Brad's car is seven years old, after five years, cars have generally already depreciated at the fastest rate. If you are going to buy new, keep it forever. If you buy used, target 5-7 years old.
- Listener Oscar wrote into the show asking about Home Equity Line of Credit (HELOC) which hasn't been something that ChooseFI has discussed much in previous episodes.
- A HELOC is a revolving line of credit on your home where the equity you have in your home is used to secure it. For instance, a home worth $300,000 with a mortgage balance of $100,000 has $200,000 worth of equity. A HELOC allows homeowners to tap into the equity locked up in their homes.
- An advantage of using a home equity loan over other options for access to cash, like credit cards, is that the interest rate is often much lower, although it is a variable rate and can change. The interest rate on a HELOC may be in the 3-5% range versus 15-30% with credit cards.
- For homeowners who placed a sizable down payment on their home, whose home has appreciated, made extra payments, etc., a HELOC becomes a potential source of low-interest revolving credit.
- A HELOC is different from a home equity loan in that with a loan, the loan amount is deposited into your bank account and interest begins accruing immediately. A HELOC provides you with the ability to tap into the equity at any time, such as in the case of an emergency. No interest accrues until you decide to access the money. It gives you options if ever needed.
- Occasionally, HELOCs can be had for no closing costs. Considering that the process to apply and be approved for a HELOC can take weeks, it can be useful to have one in place so that it is already available if and when it is needed.
- Frequent guest and friend of ChooseFI, Big ERN, does not have an emergency fund. He believes that there is an opportunity cost to keeping 6 months of expenses in a liquid account that is likely earning every little in interest. In a thought experiment, he tried to envision a true emergency that he could not cover with credit cards or a HELOC.
- Those working to build an emergency fund before beginning to invest are potentially missing out on higher interest rates earned from investments. They might be better off investing their savings and using money from a HELOC to cover monthly expenses in an emergency rather than selling off investments or using high-interest credit cards.
- Jonathan mentioned that there are schemes to paying off a mortgage early using HELOCs and credit cards that people can learn about for a fee. Brad doesn't doubt that these might work, but it's too complex. There's no insider knowledge worth paying for. He doesn't believe these methods are any more beneficial than making additional principal payments to a traditional mortgage.
- Rather than a HELOC, Jonathan uses a margin loan through M1 Finance for a line of credit. He can borrow up to 40% of his invested assets with an interest rate of 2.75-3.5% and have the money in his account in minutes. Margin loans on investment accounts are lines of credit options for renters.
- Listener Alex wrote in with his win with a High Deductible Health Plan (HDHP) and Health Savings Account (HSA).
- Listener Rachael wrote in saying that she has reached FI and didn't even know it. As a result, she was able to leave a toxic work environment in the middle of a pandemic and spend more time with her nice and nephew.
- FI wins read on the show win their choice of one of ChooseFI's books so keep them coming!
- Listeners Brian and Deb maxed out their 401Ks this week before their contracts ended to take full advantage of the company's match and on Oct 23 will officially be financially independent.
Resources Mentioned In Today's Conversation
- Learn about ChooseFi's 3-card $1,000 cashback credit card strategy
- ChooseFI Episode 022 The Ultimate Guide to the True Cost of Car Ownership
- Get a fantastic term life insurance policy at a fantastic price with PolicyGenius
- Earn a high-interest rate on your savings account with CIT Bank
- ChooseFI Episode 066 The Emergency Fund...Is It a Bad Idea?
- Read DoughRoller's article, Can You Really Pay Off Your Mortgage Early with a HELOC?
- ChooseFI Episode 009 Travel Rewards: How to Travel the World for Almost Free (The Easy Way)
- Sign up for ChooseFI's FREE travel rewards course
- Check out ChooseFI's review of M1 Finance
- Sign up to receive Brad's newsletter, The FI Weekly