Imagine you want to buy a new car. A car will lose value annually according to the amortization tables because it loses all its value in at least 6.25 years and at most 14 years, so we will renew our car every 10 years.
For this example:
- We will decide to purchase a new car every 10 years.
- Now imagine that you want to buy a good car for € 30,000.
- By not having a financial advisor, they convince you to finance it at the lower monthly installments. For this you need a loan for the smallest number of years possible, in this case 10 years
- The current interest rate for this loan is 9-10% per year.
- According to our simulator, the monthly cost will be € 380.
- If we multiply that amount by 10 years, we will end up paying € 45,600 instead of € 30,000. That is, you will pay interest of € 15,600.
On the other hand, another individual consults his financial advisor. This person recommends the following: – Save € 200 / month for ten years, in a savings plan that generates an annualized return of 5%.
Within 10 years, you will have € 31,000. You can use this money to pay for your car and buy a new one as well.
What are the 3 differences?
- Paying is mandatory and saving is optional. In addition, it is much easier to save € 200 than to pay € 380 / month.
- How much money has come out of your pocket? Without an advisor € 45,600, with an advisor € 24,000, that is, the difference between one and the other is € 21,600, more than 70% of another car.
- In an emergency, you can always withdraw part of the money saved, but if you have a debt, you are obliged to pay it.
Thanks to this strategy, you can reduce the number of liabilities in your column by saving and investing at mathematically higher rates than conventional financial advisors may allow.
For these reasons, I recommend meeting with us or any member of my team at Crawford Mulholland.