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Ways to pay for flight training?
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Vardog
Active member
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- Nov 20, 2002
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- 35
moronic
no sir - not at all,
however, to advise someone they should get in-debt with time rather than money is, in my opinion, foolish at best. you and i both are in debt, as is every living person, 'father time' collects every second of every day. time cannot be beaten, but by getting his flight training as quickly as possible, going into debt financially, he will make the toll that time takes - less.
most in the finacial world will tell you that going into debt is the single most beneficial thing that you can do.
example, you have 20,000.00 to spend on a car. not wanting to be in debt you pay for the car in cash. many people mistakenly think that because they have not incurred any debt this is a good thing to do, many will brag about it.
now lets say another person has 20,000.00 to buy that same car but understands money and how it works. rather than doing what the first guy did he takes a loan for 20,000.00 and buys the car. he takes his 20,000.00 in cash and invests it for the life of the auto loan. do this on any financial calculator to prove what i am telling you is correct.
lets look at how being "in debt" has done compared to being debt free.
the person who bought the vehicle cash has basically taken 20,000 and let it get rained on in his driveway and 5 years after incurring 'no-debt' has managed to turn 20 grand into 5 or 6 thousand dollars. (the worth of the vehicle after 5 years).
the person who 'went into debt' after 5 years, has his original 20,000.00, a vehicle that is worth 5 or 6 thousand dollars, plus the interest he made on his 20,000.00 dollars. which will far exceed the interest paid on his loan--do the math--even though the APR is higher than the savings rate the savings rate compounds. and will yeild more than that paid at a higher APR.
you will have to answer the "moron" question for yourself.
no sir - not at all,
however, to advise someone they should get in-debt with time rather than money is, in my opinion, foolish at best. you and i both are in debt, as is every living person, 'father time' collects every second of every day. time cannot be beaten, but by getting his flight training as quickly as possible, going into debt financially, he will make the toll that time takes - less.
most in the finacial world will tell you that going into debt is the single most beneficial thing that you can do.
example, you have 20,000.00 to spend on a car. not wanting to be in debt you pay for the car in cash. many people mistakenly think that because they have not incurred any debt this is a good thing to do, many will brag about it.
now lets say another person has 20,000.00 to buy that same car but understands money and how it works. rather than doing what the first guy did he takes a loan for 20,000.00 and buys the car. he takes his 20,000.00 in cash and invests it for the life of the auto loan. do this on any financial calculator to prove what i am telling you is correct.
lets look at how being "in debt" has done compared to being debt free.
the person who bought the vehicle cash has basically taken 20,000 and let it get rained on in his driveway and 5 years after incurring 'no-debt' has managed to turn 20 grand into 5 or 6 thousand dollars. (the worth of the vehicle after 5 years).
the person who 'went into debt' after 5 years, has his original 20,000.00, a vehicle that is worth 5 or 6 thousand dollars, plus the interest he made on his 20,000.00 dollars. which will far exceed the interest paid on his loan--do the math--even though the APR is higher than the savings rate the savings rate compounds. and will yeild more than that paid at a higher APR.
you will have to answer the "moron" question for yourself.
Vardog,
you said:
Not necessarily. There are numerous factors that have to be considered when incurring debt. These include your current level of leverage, the amount of risk you're willing to accept and the rates of return you will have to accept according to you willingness to accept risk. Its not as simple as you make it appear and its certainly not the "most beneficial thing you can do."
Certain amounts of debt are beneficial but simply "going into debt" is for the sake of incurring debt is ridiculous. Leverage is a common financial tool but when a company becomes over-leveraged its debt is downgraded, loans are called and the company will often file bankruptcy.
Your example is grossly flawed. You assume that a person has $20,000 to invest - most don't. You assume that the interest rate to be received on a $20,000 investment will be greater than that one would pay on an auto loan - this is not necessarily true. It depends on credit scores and a person's aversion to risk. Investing $20,000 in today's market at a rate higher than a risk free security (a government backed security) means that the principle ould be at risk. Depending on the investment medium, a person may actually lose part or even all of his principle depending on his investment.
You also ignore the tax effect on interest earned on investments. If a person invests $20,000 at 8% he would have to finance a vehicle at around 6% to break even due to the 20% capital gains tax on the interest earned on the investment. Many people's credit doesn't allow them to finance a vehicle for under 12 - 15% which means such a person would have to earn a return on investment ranging fro 15% on up. The fact of the matter is that an investment providing such a return is very high risk and would probably have the same or similar security as a junk bond - junk bond returns (according to Moody's ratings) range from 12% on up. Such an investment has a very high risk of actually losing the principle investment. I don't think a person would feel better off having no principle and a $5,000 vehicle in the driveway. Do you?
You said:
Just to be clear, there is no guarantee that this person would indeed have his $20,000. As I mentioned above, at certain levels of risk he could indeed lose his principle and be left with a $5,000 vehicle and no interest or principle. At lower levels of risk, the taxes on the interest earned could erode any benefit of investing as opposed to financing the vehicle.
Remember ENRON? This was considered a very stable investment and now an investment in Enron is almost worthless. You can not ignore risk when you speak of debt.
In my opinion, it is better to avoid personal debt as much as possible. If one can work and put ones self through college (or flight school) then that person will be much better off in the long-run. The interest paid on student loans often will be be as much as half or more of the original loan over the life of the loan (assuming the loan is not paid off early.) Its better to earn interest than pay it in the long run.
However, if you can not find a way to pay for your education I advocate debt as opposed to not receiving the education at all.
you said:
Not necessarily. There are numerous factors that have to be considered when incurring debt. These include your current level of leverage, the amount of risk you're willing to accept and the rates of return you will have to accept according to you willingness to accept risk. Its not as simple as you make it appear and its certainly not the "most beneficial thing you can do."
Certain amounts of debt are beneficial but simply "going into debt" is for the sake of incurring debt is ridiculous. Leverage is a common financial tool but when a company becomes over-leveraged its debt is downgraded, loans are called and the company will often file bankruptcy.
Your example is grossly flawed. You assume that a person has $20,000 to invest - most don't. You assume that the interest rate to be received on a $20,000 investment will be greater than that one would pay on an auto loan - this is not necessarily true. It depends on credit scores and a person's aversion to risk. Investing $20,000 in today's market at a rate higher than a risk free security (a government backed security) means that the principle ould be at risk. Depending on the investment medium, a person may actually lose part or even all of his principle depending on his investment.
You also ignore the tax effect on interest earned on investments. If a person invests $20,000 at 8% he would have to finance a vehicle at around 6% to break even due to the 20% capital gains tax on the interest earned on the investment. Many people's credit doesn't allow them to finance a vehicle for under 12 - 15% which means such a person would have to earn a return on investment ranging fro 15% on up. The fact of the matter is that an investment providing such a return is very high risk and would probably have the same or similar security as a junk bond - junk bond returns (according to Moody's ratings) range from 12% on up. Such an investment has a very high risk of actually losing the principle investment. I don't think a person would feel better off having no principle and a $5,000 vehicle in the driveway. Do you?
You said:
Just to be clear, there is no guarantee that this person would indeed have his $20,000. As I mentioned above, at certain levels of risk he could indeed lose his principle and be left with a $5,000 vehicle and no interest or principle. At lower levels of risk, the taxes on the interest earned could erode any benefit of investing as opposed to financing the vehicle.
Remember ENRON? This was considered a very stable investment and now an investment in Enron is almost worthless. You can not ignore risk when you speak of debt.
In my opinion, it is better to avoid personal debt as much as possible. If one can work and put ones self through college (or flight school) then that person will be much better off in the long-run. The interest paid on student loans often will be be as much as half or more of the original loan over the life of the loan (assuming the loan is not paid off early.) Its better to earn interest than pay it in the long run.
However, if you can not find a way to pay for your education I advocate debt as opposed to not receiving the education at all.
Last edited:
Vardog
Active member
- Joined
- Nov 20, 2002
- Posts
- 35
Econ
it is most certainly as simple as i make it appear and of course going into debt for the sake of going into debt is rediculous. i never said that going into debt for the sake of going into debt was a good idea. you must have missed it - we were concidering going into debt to pay for flight training, not for the sake of going into debt. great point though!
my point is flawed? if someone is debt free and plans to remain that way, a reasonable person would assume that he has the money to pay for what ever he is about to purchase, short of stealing this car, which would be the only other way to get it and remain debt free. or am i missing the fourth option - you let me know?
rather than cloud this "discussion" with the effects of captial gains taxes, lets assume that most people would rather take a chance of getting a return on their money than losing the 14,000 or 15,000 right off the bat like you seem to suggest by not investing. how bad could the capital gains tax be?
concider for a second this is not Donald Trump investing in the securities market and is just one of us regular stiffs and his form of investment of his 20,000.00 is a CD at his local bank. High risk stuff there! he will still do better than if he stupidly pays cash for the car. his compounded interest even at a significantly lower rate than his loan rate will pay him more interest than he will pay on his loan. a person who thinks that they are as intelligent as you obviously do - must know how significant compounding interst is? you do not need, nor will you ever get a higher pecentage rate on your savings than you will get on your loan. this would collapse our banking system. you are the only person who is talking about a high risk investment. in my eyes, a high risk investment is still better than lighting 14 or 15 thousand dollars on fire - which is what you are doing if you plop it sown on an automobile. you will certainly turn that 20,000.00 into 5 or 6,000. this is your advise for this person.
maybe at 17 years old he can save the money for flight training. how old will he be when he finally has the money? way older than he needs to be. talking a loan also gives him some protection from inflation - there has been some of that in aviation in case you haven't noticed. if it takes him 10 years to pay for his training with money that is worth less than it is now. another great reason to save 100.00 a week for flight lessons. not to mention that during that time he is working in some field that he does not want to be in - again, i make a huge assumption that he wants to take flight lessons so that he can work in aviation.
as far as guarentees of his 20,000, my friend there are few if any guarentees in life - you must know this. there are some though, and this is not a comprehensive list -1. you will not get younger- 2. you will die. and 3. aviation will never get cheaper. there is no guarentee that in 5 years the bank that he invests his money in will become insolvant, or that he will not be killed in a training accident, though the latter is more likely.
your responce to my statement may seem intellegent at first glance but all of the "points" that you make are made totally out of context. each is true in some situation, unfortunately not in this one.
it is most certainly as simple as i make it appear and of course going into debt for the sake of going into debt is rediculous. i never said that going into debt for the sake of going into debt was a good idea. you must have missed it - we were concidering going into debt to pay for flight training, not for the sake of going into debt. great point though!
my point is flawed? if someone is debt free and plans to remain that way, a reasonable person would assume that he has the money to pay for what ever he is about to purchase, short of stealing this car, which would be the only other way to get it and remain debt free. or am i missing the fourth option - you let me know?
rather than cloud this "discussion" with the effects of captial gains taxes, lets assume that most people would rather take a chance of getting a return on their money than losing the 14,000 or 15,000 right off the bat like you seem to suggest by not investing. how bad could the capital gains tax be?
concider for a second this is not Donald Trump investing in the securities market and is just one of us regular stiffs and his form of investment of his 20,000.00 is a CD at his local bank. High risk stuff there! he will still do better than if he stupidly pays cash for the car. his compounded interest even at a significantly lower rate than his loan rate will pay him more interest than he will pay on his loan. a person who thinks that they are as intelligent as you obviously do - must know how significant compounding interst is? you do not need, nor will you ever get a higher pecentage rate on your savings than you will get on your loan. this would collapse our banking system. you are the only person who is talking about a high risk investment. in my eyes, a high risk investment is still better than lighting 14 or 15 thousand dollars on fire - which is what you are doing if you plop it sown on an automobile. you will certainly turn that 20,000.00 into 5 or 6,000. this is your advise for this person.
maybe at 17 years old he can save the money for flight training. how old will he be when he finally has the money? way older than he needs to be. talking a loan also gives him some protection from inflation - there has been some of that in aviation in case you haven't noticed. if it takes him 10 years to pay for his training with money that is worth less than it is now. another great reason to save 100.00 a week for flight lessons. not to mention that during that time he is working in some field that he does not want to be in - again, i make a huge assumption that he wants to take flight lessons so that he can work in aviation.
as far as guarentees of his 20,000, my friend there are few if any guarentees in life - you must know this. there are some though, and this is not a comprehensive list -1. you will not get younger- 2. you will die. and 3. aviation will never get cheaper. there is no guarentee that in 5 years the bank that he invests his money in will become insolvant, or that he will not be killed in a training accident, though the latter is more likely.
your responce to my statement may seem intellegent at first glance but all of the "points" that you make are made totally out of context. each is true in some situation, unfortunately not in this one.
Last edited:
You're missing quite a bit. Why exactly would a reasonable person "assume that a debt free person has the money to pay for whatever he is about to purchase?" Do you think this high school student we're talking about is debt free? I suspect he is but if your assumption were correct we wouldn't even be having this discussion. He would already have a large portion of that needed for flight training.
Yes, let's not cloud the discussion with relevant facts which refute your position - which facts you clearly don't understand. I did not say or imply that a person would lose $14,000 to $15,000 dollars. I clearly said that the purchase of the vehicle would provide value in whatever form. That, my economically challenged friend is not a loss.
The point concerning the capital gains tax is relevant. If a person invests $20,000 and finances a vehicle the relevant issue is the difference between interest earned on the investment and interest paid on the financing. Because interest on capital investments are generally taxable at 20% that effectively decreases any savings the person may have. If the person is risk averse (such as a retired person who can not afford to lose any of his principle) investing funds in an instrument that would provide a return high enough to offset the interest paid on the auto financing would not be readily attainable in this market if at all. Hopefully, you can see that these issues are relevant to "us regular stiffs."
I wonder if you think this response is intelligent? Donalds Trump is not the only person who pays capital gains taxes. If you invest and have positive returns you will also pay capital gains taxes.
CDs are currently getting no better than approximately 3% at the very best. An auto loan for a person with reasonably good credit at a credit union ranges from 4.5% to to 6%. When you add the tax effect to the 3% returns on the CD you're returns are even less than the interest rate on your auto loan. The simple fact is, assuming a $20,000 auto loan and a $20,000 investment, is that you are losing money even when you consider the time value of money (compounding).
You said to run the numbers. Here they are:
Total interest paid on an auto loan over 5 years = $2,6445.48 at 5% interest.
Total interest earned on a 2.5% CD, net of tax, over the same 5 year period = $2,170.01.
Hmmmm. Are you starting to get it? Financing the vehicle and investing the funds in the CD has in effect cost $475.47. If the person had simply paid cash for the car, he would have paid no interest at all. The CD interest did not completely off-set the loan interest which does mean a loss.
Impressive mind-reading!!
And how exactly is relevant to our discussion?
Huh?
You're still missing the point. Purchasing an automobile which provides utility (economic term for usefulness - don't want to let your beliefs concerning my intelligence waver) which means you're not "lighting" money on fire. You are receiving value for value. Perhaps you've not been wise in your automobile purchases and have received less than given. Even so, a purchase is an exchange of values.
No, you turn the $20,000 into a vehicle which provides utility or value for 5 years. You also have the remaing value of the vehicle.
Well, we agree on this one. If he is unable to pay for flight training with current resources or if he is unable to earn the funds then I am all for financing.
Yep. It also exposes him to market risk. That is the risk that the cost of his financing will decrease over time and that he will be paying more for his money than another. Just in case you haven't noticed, money today is much cheaper than it was 2 years ago.
That was a very nice list. I don't see its relevance but thanks all the same! Oh, by the way, you do remember that the person we're speaking of doesn't have $20,000, don't you?
I'm glad to see that you think I'm intelligent!! I think I've demonstrated how my points are relevant. I've "run the numbers" as you sugested. Perhaps you would care to respond to each of my points and demonstrate how they are not relevant? That will be interesting indeed.
TXCAP4228
Well-known member
- Joined
- Sep 10, 2002
- Posts
- 426
A little math...
A "CD" Type time deposit for 60 months with monthly compounding and an initial principal value (present value) of $10,000 will yield a total of $2,838.59 in interest at a 5% SIMPLE INTEREST RATE.
A Loan for $10,000 repaid over 60 months with an APR of 10% will accrue $2,748.22 in interest.
Bottom line:
If you put your money into the bank, even at a lower rate of interest, you will earn more interest than you would PAY OUT IN INTEREST for a loan with similar attributes. Notice too that the loan in my example has twice the interest accrual rate of the CD.
Interesting.
A "CD" Type time deposit for 60 months with monthly compounding and an initial principal value (present value) of $10,000 will yield a total of $2,838.59 in interest at a 5% SIMPLE INTEREST RATE.
A Loan for $10,000 repaid over 60 months with an APR of 10% will accrue $2,748.22 in interest.
Bottom line:
If you put your money into the bank, even at a lower rate of interest, you will earn more interest than you would PAY OUT IN INTEREST for a loan with similar attributes. Notice too that the loan in my example has twice the interest accrual rate of the CD.
Interesting.
Vardog
Active member
- Joined
- Nov 20, 2002
- Posts
- 35
Vardog
Active member
- Joined
- Nov 20, 2002
- Posts
- 35
siding with econ
he did use a lot more important sounding words didn't he? he was just kidding though-don't you see it. his math used totally bogus numbers. remember this isn't about our student buying a car, rather it is about whether or not he should finance his training. Good job on the company car!!!!!
he did use a lot more important sounding words didn't he? he was just kidding though-don't you see it. his math used totally bogus numbers. remember this isn't about our student buying a car, rather it is about whether or not he should finance his training. Good job on the company car!!!!!
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