So as I noted yesterday in my post on Gold, I breezed through Dave Ramsey\’s book. I\’m also pretty familiar with his other financial advice due to members of my family also being very financially acclimated. Dave and Clark Howard both have a group of every day expenditures that they like to call the stupid tax.
I drive a fancy 20 year old Mazda RX-7, it\’s stylish and I paid for it in full in high school, and I come to the somewhat painful realization on road trips that maybe 1 in 10 cars is close to the age or older than mine. I think that the truth that reflects on societies is that my car is noticeably one of the oldest daily driven cars at most colleges and high schools, where it is typically safe to assume that the driver did not pay for the car outright and probably does not pay for the insurance.
In his book, Ramsey has done the research that suggests that the average person with a car loan pays $376 a month, every month of their lives. I don\’t know about you, but that is absolutely shocking what people will do for luxury.
In addition to this loan cost, consider your costs of insurance, especially if it\’s an almost dead car worth hardly its value in steel, you will save a ton in not having (your fault) collision insurance. For teens, that can double the insurance premium.
Furthermore, when you finance your brand new car, it loses 60% of its value in the first 4 years as a depreciating asset that is likely to suffer damage and wear.
Dave Ramsey goes on to suggest that you should look at cars that are 2-4 years old and that the majority of millionaires own these older cars as their \”new\” cars. That warranty tends to not be worth it either. As an example, I was looking at cars this December and ran into a premium edition Infiniti G-35 with 50k miles for only $15k (the new ones were right around $30k.) Bringing me to a small and optional point Learn to Drive a stick… you might enjoy it and you will save about $2k on many cars.
The 14-20 year loans that some financing arms offer is the most ridiculous part though! I can\’t think of anybody who buys a new car and plans on driving it for 10 years… and you would still owe most of the loan amount at the point anyway. So when you sell your car 5 years later without GAP insurance you would still be paying for your own car. (By the way, at the Atlanta Boat Show this year there were $200/month terms for $35k boats over 20 years — which is equally as appalling – especially at the 7% interest they wanted to charge)
Market Wise we all know that GM, Chrysler, and Ford (U.S. companies) are having dreadful sales and I think that a lot of it has to do with the car industry overselling their products. The SUV has changed America, but people don\’t need or want to buy a new Suburban, Escalade every two years. And then thing about work trucks, like the F150, most companies keep these trucks for just over four years. But what this means is that there is a limit. GM Sold More cars than they had every sold before in 2007 barely beating Toyota. But there are limits to the driving need, and unless GM can get that marginal cost down and stop depending on selling infinite cars in the future then it will never survive in the long run.
I added this to the Environmental category as well because, well, getting more use out of the same 4000lb piece of metal is environmental. My car may not get 35mpg, but it gets slightly above 20 (very comparable to the RX-8), but by not buying another car, I\’m reducing the parts and minerals being used in a new one. I\’m also saving junk yard space. Reemember – Reduce comes before recycle, so I\’m reducing and encouraging you to do the same.
Finally, I\’m going to make your kids hate me. Don\’t buy them a brand new car. Don\’t give them a car that is worth much or amazingly appealing. I used my dad\’s 1991 pickup form 2002-2005 that was won at auction from a company for a reduced price. It got me around just fine. It was pretty safe, reasonable looking, and I had my first off-roading experiences among with other in it. So, get that junker like they suggest in Transformers and let your kids figure out what kind of car is for them. And remind them not to complain about something that they\’re getting for free (or on discount.)