Dave Says

Wednesday, April 2, 2008 at 2:18am

Dear Dave,

Is there anything wrong with buying large ticket items using 12 months same as cash financing? It seems like an easy way to buy expensive items.

You use their money, and if you pay it off early or on time you’ll incur no fees or interest.

—Bud

Dear Bud,

Bad idea! To start with, 12 months is not the same as cash.

If I walk into a store with cash up front I’ll get a better deal than you will. It’s called negotiating, and that doesn’t happen when you just sign up for their deal.

Let’s say you’re buying $2,000 worth of stuff. If you’ve got $2,000 sitting in a savings account for 12 months making four percent, you’re looking at about $80. We’re not talking about a bunch of money here. Do you think I can walk in and negotiate at least $80 off the price? You bet I can!

Here’s another problem. What if that company messes up on one little thing? What if they record a payment wrong and it ends up being late? They’ll back charge you through the entire period at finance company rates, that’s what. I’m talking 24 to 38 percent! And this is even if you do everything right and abide by all the terms.

Stay away from snakes, Bud, and you won’t have to worry about being bitten!

— Dave

Dear Dave,

I’m a senior in college, and I’ll be doing my student teaching next semester. The tuition for student teaching has dropped, so I just got a $2,300 refund on my university loan.

An economics professor told me I should invest the money in the stock market, let it grow and then use it to pay off my student loan. What do you think?

— Brett

Dear Brett,

That’s really bad advice, especially coming from an economics teacher. You should never invest money in the stock market unless you’re going to stick it in there and leave it alone for at least five years. The market is just too volatile to play around like that for a shorter period of time.

Now, the stock market is a great place to invest over the long haul. But I don’t want you stay in student loan debt for five years or more. I want you to get out of school, get your teaching career in gear and get this loan paid off as fast as you can.

If I were, you, Brett, I’d apply this money directly to the student loan principal now. If you stick it in your checking or savings account you’ll probably end up blowing it on something you’ll wish later you hadn’t bought in the first place!

— Dave

Dear Dave,

How do you save up cash to buy a commercial building without getting killed by taxes? Our accountant keeps telling us that’s what’s going to happen if we just let the money we’re saving sit there, instead of borrowing to make the purchase.

What do you think?

— Jill

Dear Jill,

I think I’ve got two words for your accountant — you’re fired!

If you buy a building, you’re going to get killed with taxes. You can depreciate the building and even write off the interest, but none of this creates a tax-free situation. This is America. If you make a profit, you get taxed.

Sure, you’re going to get taxed on the money as you save up to buy a building. But here’s the situation. If you pay out $10,000 a month in interest, that’s $120,000 a year. If you write off the interest, it’s only going to save you about $30,000 in taxes. A $120,000 tax deduction doesn’t save you $120,000 in taxes. It only saves you the taxes on the $120,000.

Saving up to buy the building is a great idea, Jill. Going into debt just to get a tax deduction is a really bad idea!

— Dave

For more financial advice plus special offers to our readers, please visit davesays.org or call 1-888-22-PEACE.

Filed under: City Business
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By: Magnum on 12/31/69 at 6:00

As usual, I completely disagree with Dave on the 12 month no interest thing. Even if I have the $2,000 in the bank, I am depleting my safety net over $80 that he will negotiate off the price. That $2,000 can pay the bills for a month if I get in a crunch. The only big ticket item I refuse to finance is an electronic item due to the fact that in six months you could buy double the technology with half the money.

By: Magnum on 12/31/69 at 6:00

I certainly agree with Dave that as a society we are stretched too thin due to seemingly unlimited credit, but most people would have to live in dump in a bad part of town, worry that their car won't start or walk to work, shop at Goodwill, cut their own hair, etc. until they retire. I'll die broke if that is my only other alternative. I think most sensible people can find a balance between the two extremes even though Dave says this is crazzzzy!I am however glad to see that they didn't post one of their seemingly weekly brag letters. Dear Dave, I have no debt and a $425k house that is paid-off and no children and a vault full of gold. Can I afford to buy a Kia?Dear letter writer, let me tell you what...why don't you buy a reliable used Honda Accord with cash for $3,500 to hold you over until you die of old age or boredom.

By: courier37027 on 12/31/69 at 6:00

Hey Dave,Love the show. Forst time, long time. Dave, I have an extra $20 burning a hole in my pocket. I want to invest. Should I invest $10 on Trailer Park Trillionaire scratch and win lot-tree game, and the other $10 on Lucky Sevens? Down at the plant, ol' Stinky won $2 on scratch and win with the American Pride game. He spent $20 but that good ol' boy was sure happy. I think he is addicted to the graphite on the lot-tree cards.

By: NewYorker1 on 12/31/69 at 6:00

Magnum, I love your name. Your name just makes me smile for some strange reason.

By: jwk6179 on 12/31/69 at 6:00

Walking into Best Buy, HH Gregg, Electonic Express, etc., with a pocketful of cash doesn't get you discount anymore like it did 20 or 30 years ago. You can't negotiate a deal at a CHAIN retailer for any BIG TICKET ITEM like you could at a Mom and Pop store years ago. About the only places left where you can haggle a lower deal with the salesman are at car lots and locally owned furniture stores that are going out of business. Hey Dave, join the rest of us in the 21st century and update your informantion.

By: BigPapa on 12/31/69 at 6:00

Most people live pay check to pay check and are drowning in debt. Dave is a bit extream, but then some people need that. Just like some people have to go to AA to deal with drinking and can not be trusted to touch one drop, while a great number of us can have a beer or glass of wine and never suffer for it.