Pastor Dave:
I love this advice:
Never borrow money on something that goes down in value.
Now obviously, sometimes as you’re starting out, you may have to. A car payment gets a great ROI (return on investment) if your options are either sit at home or drive to work. (Actually, I’ll post later on how to say goodbye to car payments.)
But American culture has taught us that cars are status symbols and car payments are normal and lifelong. The money we waste (yeah, I said it) is huge in itself, but when you think of the opportunity cost (where that car paymnent money could have gone plus the interest it could have made), making payments on a car is one of the costliest lifestyle decisions you can make.
And frankly, to me, once that smell is gone, the first grocery cart hits it, and a model comes out with a little more style and cool stuff on it, you realize a car with no car payment gets you from point A to point B just as well and lets you do bigger and better things with that money.
Check out some great food for thought from Dave Ramsey on car payments.
Play the video at this link:
http://www.daveramsey.com/etc/lms/drive_free/
And see this one.
Tags: Best Practices
November 16, 2008 at 4:17 am
Get Dave to tell you about sharing one car for seven years. It’s not as hard or as bad as it sounds!
November 18, 2008 at 10:49 am
Another benefit of not having a car payment is that you can decrease your insurance coverage. Collision coverage is one of the most expensive insurance coverages to buy and all lenders require it. If you leased a car, the lessor will typically require higher liability limits as well. When you pay off your car, you can reduce these coverages to save money.
To be safe, don’t blow your savings on eating out and CDs. Save it for you next car or for car repairs. And definitely drive safely!
November 18, 2008 at 1:43 pm
I basically agree with Dave Ramsey that buying a new car is a bad idea but I disagree with some things that were said. First that most cars depreciate about 70% in four years, my findings thru the internet showed about 50%. Secondly any time you buy a used car your gambling, You may do all the research you want but its still a gamble, you may hit the jackpot or you may go bust. Third he says to save x-amount for 10 months and put that with you car that’s worth x-amount to buy a newer car. He doesn’t say that your used car worth x-amount is now 10 months older and has probably 10,000 more miles on the odometer. Lastly his assessment of mutual fund percentage rate is a probably a little off during these times. Finally I think it would be wise to buy a 2-3 year old used car (less of a gamble) with appx 20-30 thousand miles with a factory warranty remaining.
November 18, 2008 at 2:57 pm
David, great to see you posting! You are right on about the lower cost of insurance! I haven’t had collision insurance ever.
Also, I generally buy my cars about at 80,000 miles and 8 years old (I buy Nissans and Toyotas…I’m for American made, but I’m also for longevity and value for the money. (I’ve had great fortune with Nissan). Buying the older car generally makes the insurance very low (If you drive safely and once you get over that age 25 barrier…insurance is pretty low.)
Yeah, saving the “found money” is key. Great post! Keep ‘em coming!
November 18, 2008 at 3:05 pm
rglmc,
I agree Dave milks 12% return as a comparison. I don’t do that well. If you do half as well as he says in the video, it’s still pretty amazing.
I am all about used cars, though, even older than you suggest. Part of it for me is trusting God that if I’m seeking Him (and part of buying a used car is about being the best steward I can be), then He will protect me in the purchase.
I do get cars checked out before I buy, and I’m pretty much of the opinion that it’s just a machine that if the right combination of parts and labor are applied to it, then it can totally be fixed, and you can do a TON of repairs to a car before it approaches anywhere near a study car payment.
Like your reasoning above, and I’m very glad you posted. Keep it up!
- Pastor Dave