Neat way to save for a new/used car.

[Wyndru]

That first $2000 car might be expensive to upkeep. The only sub $5000 car I ever bought had lots of things wrong with it, and ended up costing me a couple of grand just to keep it on the road.

Pretty standard concept though, just save your pennies and don't pay the bank any interest. I've always paid cash for my vehicles.

 

[PingSpike]

The idea is fairly sound. In your early 20s, save a bunch of money every month and continue to drive a junk like you had in high school or college. Then you take that pile of money you saved, buy a new or newer car outright and repeat the process. Tada, no car payment. Of course, credit is so easy to get most people roll out of college and grab a car payment on a car they may have even been ripped off on and it's a chain reaction in the other direction. And let's face it, not many people who have been driving around new cars for 10 years are going to buy a shit heap and live like a poor student to reverse the trend.

The article had me rolling my eyes though because it was so full of shit with its numbers. Show me a $2000 car you bought that didn't need any work and I'll call you the exception. Old cars are cost effective, but they are also more likely to be a pain in the ass and repairs are just expected. And he never even mentioned those. You'll never get the interest paid towards a new car back, but you aren't going to get the repair costs back either!

He also never mentions buying and selling cars every 10 months is a pain in the ass, doesn't happen instantly and isn't without its own risk of losses. Then the article ends with the classic "how to get rich!" bullshit of investing in a magical tax free risk free mutual fund that always returns 12% over 10 years exactly...which of course never existed but we're suppose to be morons for having not used it.

Not to mention he ignores the existence of 0% financing.

 

[Gibson486]

The idea is fairly sound. In your early 20s, save a bunch of money every month and continue to drive a junk like you had in high school or college. Then you take that pile of money you saved, buy a new or newer car outright and repeat the process. Tada, no car payment. Of course, credit is so easy to get most people roll out of college and grab a car payment on a car they may have even been ripped off on and it's a chain reaction in the other direction. And let's face it, not many people who have been driving around new cars for 10 years are going to buy a shit heap and live like a poor student to reverse the trend.

The article had me rolling my eyes though because it was so full of shit with its numbers. Show me a $2000 car you bought that didn't need any work and I'll call you the exception. Old cars are cost effective, but they are also more likely to be a pain in the ass and repairs are just expected. And he never even mentioned those. You'll never get the interest paid towards a new car back, but you aren't going to get the repair costs back either!

He also never mentions buying and selling cars every 10 months is a pain in the ass, doesn't happen instantly and isn't without its own risk of losses. Then the article ends with the classic "how to get rich!" bullshit of investing in a magical tax free risk free mutual fund that always returns 12% over 10 years exactly...which of course never existed but we're suppose to be morons for having not used it.

Not to mention he ignores the existence of 0% financing.

Also, you are required to pay tax on the car you sold unless you trade it in. To the govt, it's income.

 

[mvbighead]

While I agree that this is pretty obvious for most, I can see where a simple change in one's philosophy on car buying could help them out immensely in terms of making wiser purchasing decisions.

Take for instance the standard person with a car payment now. Once finished, simply transfer your payments to a savings account or interest bearing account of sorts. DO NOT trade in and get a new loan. Once you have saved enough, you can either trade in your old car (that you have maintained and you know what is or is not wrong with it) or you can keep it as your beater (because, again, you have kept it maintained) and pick up your new car with cash. Seems that most people I know get out of one payment and get right in to another one because it's the SOP for a lot of people.

Granted, obvious, but definitely the smarter way to do things.

 

[SP33Demon]

My 90's commuter car agrees with this post. Most anyone who has had a car payment vs not having one almost always goes with not having one (unless you're filthy fcking rich) on the slightly older (but just as good quality) car. Do your research on used car reliability and put that extra cash in the bank for a rainy day. Anandtech's Garage forum is a great place to start finding info on reliable but cost effective vehicles.

If you have to try and impress people with your car then you're probably young or insecure (or filthy fcking rich).

 

[InflatableBuddha]

Driving well-maintained used cars is a more cost-effective strategy, but honestly, you'll probably have a lot fewer headaches with a car valued around $5000-$10,000 than something worth $2k, which may be on its last legs.

What kinds of cars are considered this? This is exactly what I want to do when I get a car but I don't really know where to look. Edmunds? Car forums? I generally don't frequent car forums because gearhead jargon is just too much for me, all I want is a nice car that doesn't cost too much.

Some of the newer Kias and Hyundais are much improved in quality, but still depreciate heavily compared to Hondas and Toyotas, for example. Post in the Garage forum for more specific recommendations.

 

[KCfromNC]

Wow, so if I buy a beater, I can save my money for a better car or something else?

Money can be exchanged for goods and services! - http://www.youtube.com/watch?v=VQpc0QfBaMc

People don't understand opportunity cost. If you're making 5% on your money, it makes lots of sense to buy a car with a 1.9% loan, for example. Even better if you can do it on a 2 year old car that's already lost 25% of the new car value.

 

[JeffreyLebowski]

Instead of paying 300 a mo for a car, I can put 300a mo into an account and then use the money in the account to pay for the car? Brilliant!

My last 2 cars were all financed at a rate lower than what i was getting at an fdic insured savings account.

Exactly. If you have excellent credit, it makes more financial sense to finance a car, than to save up for one. When 0% -1.9% financing is available, jump on that.

As far as buying a home, When you buy now, your mortgage payment stays the same for the life of the loan (if you're not a dumb ass and don't get an ARM).
I'll pay out 2.5X the purchase price over the life of the loan, but if you try and save up money for a significant down payment or an outright purchase, the home values will be increasing over that time AND you are paying rent where you are at now, essentially throwing away money.

 

[JeffreyLebowski]

My 90's commuter car agrees with this post. Most anyone who has had a car payment vs not having one almost always goes with not having one (unless you're filthy fcking rich) on the slightly older (but just as good quality) car. Do your research on used car reliability and put that extra cash in the bank for a rainy day. Anandtech's Garage forum is a great place to start finding info on reliable but cost effective vehicles.

If you have to try and impress people with your car then you're probably young or insecure (or filthy fcking rich).

Have you actually been in the garage? Most of the posts are about how to fix broken mid 90's commuters, or the newest Ferrari or Porsche.

 

[MotionMan]

It is sad that this seems like a revolutionary idea to some people.

I blame the schools.

MotionMan

 

[bignateyk]

I was young and dumb fresh out of college with a nice new paycheck, and I leased a $30K+ car. I won't ever be buying/leasing a new car again... just not worth it. I'll stick with paying cash for a low mileage used car from now on.

 

[F1N3ST]

Oh, nice. I thought someone would bash me, general consensus is that he is pointing out the fucking obvious.

My advice is, learn to do some math, and pull your head out of your ass before you make important purchases.

I don't know, my uncle kept bragging up Dave Ramsey, and I was just like oh cool, well if it helped you, good for you. He basically just cut down his living expenses. Why the fuck do you need some supposed money philosopher to tell you to do that? It seems like common fucking sense.

That is all.

Comments? Questions? Concerns? Too vulgar?

 

[HardcoreRobot]

plz show me this 12% mutual fund

 

[Ns1]

Used to be into cars. Spent tons of money on mods + maintenance

Now, 11 years later, selling car, bought a bike.

No more insurance/gas/maintenance. If I need to use a car I'll just rent.

 

[Kelemvor]

I agree with everyone that this SHOULD BE commons sense for most people. Problem is it's not and it sometimes takes someone to point it out to people. Common Sense hasn't been very common since the 80s. If it were, we wouldn't always hear about how so many people are in debt and going bankrupt all the time.

Notice this post wasn't made in the Finance section for the people good at finances, it was made in the Off Topic section for anyone who happens upon it.

And the same thing goes for Dave Ramey's overall strategies. If people are smart enough to not get into debt in the first place, then obviously you aren't his target audience. However, for people who do get into debt and can't figure out how to get out of it, then following his advice can turn your life and money matters around 180 degrees.

 

[rcpratt]

plz show me this 12% mutual fund

 

[Sho'Nuff]

Wait. So you're telling me that if . . . [flabergasted expression]. . . . If .. . no wait . . . let me get this straight. You are saying that if I SAVE my money, I can do anything I want with it later!?!?!?!?! OH REAAAAAALLLLLY!?!?!?!?!!?!? Well I don't believe you Mr. Smart Guy. Your not gonna get me with that foolish commie talk. Oh no siree. So there!

 

[Sluggo]

Oh, nice. I thought someone would bash me, general consensus is that he is pointing out the fucking obvious.

It's a much sadder commentary on society and our government schools, that Dave Ramsey has become a multi-millionaire just by getting on the radio and saying "fucking obvious" things into a microphone.

 

[F1N3ST]

I am going to shine my TFP beacon, it's in the shape of a giant piece of bacon.

 

[edro]

I have never understood how people can afford car payments.
I have bought all of my cars ~5-7 years old and paid with cash.

I just couldn't imagine paying $300+ a month for a car.
Buying a brand new car is the worst investment you can make.

 

[ichy]

I got a used Ford Focus for $4,000 about six years ago. So far I've put about 80,000 miles on it, insurance is dirt cheap since it's worth so little that I only carry liability, and I never, ever have to worry about a car payment.

Getting a cheapish car is always a gamble though. I've been relatively lucky with mine, but I still have to count on spending a few hundreds bucks on non-scheduled repairs a couple times per year. So far this year I've had to replace an engine mount, a broken coolant hose, my rear brakes and the assembly that holds my rear tag lights. The aforementioned issues also cost me two days of leave from work. Some people will say "oh just get an ultra-reliable old Civic for a couple thousands bucks." There's no such thing as a reliable car that costs $2,000.

 

[TheLonelyPhoenix]

OMG, you mean new cars are horrible investments and typical car loan APRs verge on the ridiculous? Unprecedented!

 

[TridenT]

He has the right idea, but his numbers are pretty half baked.

edit...if not full on erroneous. Show me a mutal fund that pulls 12%. At 10 years. And at 20. And after you pay the capital gains on it.

This...

I don't plan on ever having car payments regardless of this article.

 

[PrinceofWands]

Same here. So the trick to having a bunch of money later in life, is to live like a fucking bum now???

Screw that. If we follow his advice, we would all be driving 20 year old cars, no one would buy new cars, and thus, when our 20 year old junkers die, there will be no more cars to buy.
Amazingly enough some people are happy to pay a car payment on a vehicle that still has a warranty. Sure it costs more than buying a $2000 beater, but like someone said, if that beater blows a transmission, or the engine goes, you're screwed, because either way you're either dropping $2k into a worthless vehicle, or you're going to go out and spend another $2k on a beater. OR your new vehicle still under warranty goes in, you get a loaner, and then get your car back fixed.
I'm sick of Dave Ramsey trying to tell us how to pay cash for everything. That's easy when you have his kind of money. When you work a real 9-5 and have kids, and other obligations, it just doesn't work.
Especially with a house. That pisses me off the most. He says you should pay cash for a house. Who really is going to have $150K+ in cash to buy a house? I'll gladly pay a mortgage to NOT live in an apt. Dave only cares about one thing. Money and how much he can accumulate. I care more about having nice things and not living like a peasant trying to save up to buy myself out of servitude.

I've never made over $30,000/yr in my life, with many years between 0 and $15,000. I have a kid, paid for a HORRID divorce, paid for some college, saved for my daughters college, bought cars, have toys, and traveled some of the world. ALL on cash only.

The keys are: no credit unless unavoidable (house, small portions of a reasonable car or student loans), pay only what things are worth for their utility and not what they appear to cost (ie, buy cheaper but quality items rather than for convenience or status). That's really all there is to it. Well, that and, live in a reasonably priced area.

 

[DrPizza]

His advice is for smart, energetic people. Because smart, energetic people are willing to learn how to make to do routine repairs and maintenance to their vehicles. If you can't handle that, then a new vehicle with a bumper to bumper warranty is for you.

Also, I noticed the word "investment" used regarding vehicles, as in they are a poor investment. *Some* vehicles are investments. i.e. a 1965 Mustang. I'm not sure how quickly something like a 65 Mustang appreciates in value, thus THAT is probably a poor investment. If the car is less than 20 years old, it is NOT an investment. It's a display of exchanging income for a commodity that serves as transportation and a display of your probable socioeconomic status in society.

Or, you may simply choose to purchase a much more expensive vehicle because it's fun to drive. (from another thread.)
<George Carlin voice>
Look! I'm having fun! I'm commuting to work. Isn't this fun! I'm in rush hour traffic. Wheeeeee. Driving to work is fun! Now..., I'm driving HOME from work! I'm going hoooooome. Ain't it funnnnn! I think I'll even drive it around the block so the Joneses can see what a funnn car I'm driving. Oh no! The Joneses just bought a newer fun car than my fun car to drive. I think I'll have to go trade my fun car in for another even more fun car to drive. </George Carlin voice.>

Personally, I accept that people are happy to throw their money away on rapidly depreciating assets such as cars. They'd rather own something nice. I'm not sure why a car with a body in almost the exact same condition and an interior in almost the exact same condition isn't as nice because the odometer has a higher number. But, if someone can rationalize that, more power to them. I'd rather spend the money on things that are more fun to me and my family. Some people are happy being house poor or car poor. I wouldn't be.