Using Other People's Money to Buy That Car

Other People's Money

The idea is an old idea. People used it in the past, to grow their wealth and increase their net-worth. Today, it's what the rich uses it to do the same. It's the concept of other people's money, known in finance as OPM.

No, I'm not talking about the Danny DeVito movie. I'm talking about finding a way to get other people to pay off your car for you.

Using the OPM method preserves your capital. It doesn't dip into your traditional income.

It can even make you more money over time.

The OPM method can be less stressful once you get the hang of it.

Does it sound too good to be true?

Don't worry, by the end of this blog post, you will understand what it is.

You'll have a practical example of how to do it. And you will even understand why it's better than the traditional way.

I'll walk you through an example of how you can do it. An example that's down to earth and very relatable to you.

But before we get into that, let's examine the traditional way of doing it first.

The My Money Way

Since last week I convinced you that a car loan is a bad idea.

You changed your approach. Now, you decide to save the money and buy the car using your savings. So for the next few years, you follow the 20% rule I talked about here.

You manage to save up enough money, to pay for that car in cash.

The problem is, that again, you aren't buying an asset.

So the minute you pay for that $35,000 car, and drive it out of the parking lot, its value drops by $10,500. Everyone knows that a new car loses 30% of its value the minute it leaves the shop.

It continues to fall over the next few years by 20% a year. It's the ultimate loss and decline in the value of your hard earned money.

Doesn't sound like the wisest way to spend your money. Right?

Yet, this is common knowledge that we aren't taught. So what's the alternative way of doing it?

The Other People's Money Way- A Simplified Example

This way assumes that you take the route of saving up the money that you need to buy the car. You have the intention of paying for the car in cash.

Yet, instead of paying for the car, you take a different approach.

You find a property. That's valued about the same as the car. You fix it up and rent it out.

The tenants of the property, pay you rental income for the property every month.

Then you go to the bank, and get a loan, to buy the car.

Except that this time, instead of paying for the car from your income. You pay for it, from the money the tenant pays you every month (Other People's Money).

This new form of income pays for the car that you wanted. Your paycheck is not affected. The money that you had managed to save hasn't reduced in value.

Investing the money in real estate now increases the likelihood of an increase in value.

When you finish paying off the car loan to the bank, you will still have the $35,000 value of the rental property. Value that would have likely increased.

You will have the car you wanted. Valued somewhere around $7,000 by the time you finish paying off the loan. (Taking into account the 20% per year decrease in value)

You will also have the money that your tenant pays you. This is monthly income added to the money you already work for.

A Different way of Thinking

This is a simple example. I put it together to show you that there are many ways to skin a cat. Except, society doesn't take the time out to teach you the other ways.

I'm sure that we can agree that the second way of buying the car is slower and requires more work.

But let's examine the accumulated difference.

As you can see, the original way leaves you with $7,000 of the initial $35,000 at the end of the day.

Using the Other People's money alternative, your net worth increases. It increases even after paying off a loan and buying an asset that's actually a liability.

It increases and leaves you with more money to buy other things or invest after you finish paying off the car. Your rental income is now free for you to use as you please.

It's one of the simplest examples of how to use other people's money to get what you want. Yet, unless exposed to the idea, and building off it. It won't cross your mind.

The challenge

This week, take some time to find opportunities around you that can help you to take advantage of this. Try to come up with three other way's you can apply the OPM method. And shoot me a message. I'm curious to find out what you come up with.