Economics of new cars

[HeiferRichter]

I've never understood the economics of new cars and how they can be 'affordable' to the common person.

From my lowly point of view, my used vehicle costs, on average, $150 per month to drive, I'm not sure a new car could be had for that.

How are the majority of new vehicles introduced into the market? Who purchases them? How are they 'afforded'?

 

[Bobby_M]

Most people who buy them can't afford them but that's not what I think you're asking. A lot of them are leased too. I think a lot of people put way too much priority on having a brand new car like they're entitled just because they have a job. Don't forget all the spoiled high school and college kids who's parents buy them. One advantage to buying new though is that you know the entire maintenance history and if it was beat on, at least you did the beating.

 

[brewkinger]

Yeah, a new car is something that is more of a status symbol for Americans than it is a necessity.
Your thought process is exactly what the car industry realized about 15 yrs ago. People could not afford the price tag on a new and reliable car.
Those that could "afford" a new car did (and still do so). The hitch is that they can afford more than a basic car, so the more "economical" cars (that are mass produced) sat unsold.
The car industry solution??? LEASE

I am of a VERY firm belief that a lease deal (a.k.a FLEECE DEAL) is the absolute worst choice a consumer can make. I have the mathematics and numbers to prove it.

It allows a person to "afford" an otherwise unaffordable car, just so that they can have the status symbol of having a new car.
You are basically renting the use of a new car and then having absolutely nothing to show for it after the deal ends. (other than all your friends and neighbors thinking that you can afford it OR knowing that you cannot.)

 

[mb82]

Yeah, a new car is something that is more of a status symbol for Americans than it is a necessity.
Your thought process is exactly what the car industry realized about 15 yrs ago. People could not afford the price tag on a new and reliable car.
Those that could "afford" a new car did (and still do so). The hitch is that they can afford more than a basic car, so the more "economical" cars (that are mass produced) sat unsold.
The car industry solution??? LEASE

I am of a VERY firm belief that a lease deal (a.k.a FLEECE DEAL) is the absolute worst choice a consumer can make. I have the mathematics and numbers to prove it.

It allows a person to "afford" an otherwise unaffordable car, just so that they can have the status symbol of having a new car.
You are basically renting the use of a new car and then having absolutely nothing to show for it after the deal ends. (other than all your friends and neighbors thinking that you can afford it OR knowing that you cannot.)

The nice thing about a Lease is those of us who have figured out it is not worth it to purchase new get a gently used car with fairly low miles for way less then the price of a new car. It is what I did with my car 10 years ago, bought it with 28K on the odometer and now at 184K I am starting to think what I want next. I think I got my $8K out of the car.

 

[dryboroughbrewing]

I have to admit I buy my cars new, my 14 year old Altima is still running like a champ. When it dies I'll buy a new car, and drive that one to death.

 

[TyTanium]

I've never understood the economics of new cars and how they can be 'affordable' to the common person.

Simple. You sell financing vehicles too.

 

[manoaction]

This has always befuddled me as well. A Kia Rio can retail at $18,000 and I just don't know who out there really needs a Kia Rio and can't wait to spend $18,000 on it.

 

[TyTanium]

This has always befuddled me as well. A Kia Rio can retail at $18,000 and I just don't know who out there really needs a Kia Rio and can't wait to spend $18,000 on it.

Because they're not spending $18,000. They're spending $300 per month.

 

[cooldood]

Some of us need very dependable cars and new fits the bill
Besides where do you think all the used cars come from? LOL

 

[Xpertskir]

One advantage to buying new though is that you know the entire maintenance history and if it was beat on, at least you did the beating.

This is true, another thing about a new car(under warranty) is that you have a known cost of operation and any outlier events are not your responsibility.

My current car was a new purchase. Previously I have only purchased used cars. My last used car cost me more to operate than a new one due to repeated mechanical complications. The worst part about one of those situations is you then get on a slippery slope and every issue that comes up you have to figure out if its worth fixing. Its also terribly difficult to view your prior investments as sunk costs, and the more you put in the more you think "well, half the car is basically new, this will be the last major thing for a while." The recent bad experience and my car finally blowing up at an inopportune time basically drove me to buying new.

Anyways, the long and short of it is with the current cheap or free financing, a long enough amortization schedule, proper maintenance intervals, and avoiding some bad luck, owning a new car can make financial sense.

As for leases, their are many contracts that are pretty terrible but every once in a while the numbers for leasing can make sense. I have yet to lease a car but sometimes due to overproduction of a certain model or some internal corporate issue the pricing gets out of whack between leasing and buying.

 

[HeiferRichter]

So those buying new must have a secure job or feel secure in their job *and make enough money* to pay $300+ per month plus mortgage payments etc...

How are those of you advocating new cars determining that you can afford it and that it will pay for itself (above and beyond simple math)? How do you determine that it makes financial sense for you?

Besides where do you think all the used cars come from? LOL

Seriously?

 

[rharvey]

I had the same view on used cars until the last two cars I owned turned out to be headaches. They booth seemed mechanically sound at the time of purchase, but both lasted only one year, and averaged about $300/month.

With the interest rate the way it is, as well as buying at the right time, it made too much sense to not buy new. Why pay 300/month for a 10 year old car, and deal with the headache of repairs (I do all of the repairs myself) when for the same price I can drive a brand new vehicle, not have to worry about repairs, and be left with some value (as little as it may be) after it is paid off?

 

[Yooper]

So those buying new must have a secure job or feel secure in their job *and make enough money* to pay $300+ per month plus mortgage payments etc...

How are those of you advocating new cars determining that you can afford it and that it will pay for itself (above and beyond simple math)? How do you determine that it makes financial sense for you?



Seriously?

The people that "need" new cars are the same ones who "need" cool smartphones and pay only $350 a month for the car and only $100 a month for the phone. We have a "payments" society.

Same with a house. It's "only" $1300/month. It's not like it's really $300,000.

 

[SpentGrains]

I had the same view on used cars until the last two cars I owned turned out to be headaches. They booth seemed mechanically sound at the time of purchase, but both lasted only one year, and averaged about $300/month.

With the interest rate the way it is, as well as buying at the right time, it made too much sense to not buy new. Why pay 300/month for a 10 year old car, and deal with the headache of repairs (I do all of the repairs myself) when for the same price I can drive a brand new vehicle, not have to worry about repairs, and be left with some value (as little as it may be) after it is paid off?

I came to the same conclusion when I was car shopping, here is what i saw for commuter cars:
1. Well used cars (80k+ miles) under $10,000
2. Lease returns (usually upgraded models) ~$15,000
3. New basic model ~$15,000

They all would of had to be financed so I went with a new small car.

 

[andycr]

Reliable used is always going to make more sense than new. A 3-year-old used car is statistically more reliable than a brand new car, and doesn't lose 20% of its value the second you drive it off the lot. It's best if you're strategic on what brand you buy, and not get attached to any specific car, though.

I will admit I see people with brand new cars and get a little twinge of "I could have had that!" But I really do believe it's worth it. Cars are liabilities, not assets. So much of our trouble comes from holding things we believe to be assets, but are really just liabilities.

If you make sure it's reliable, you won't believe how much cheaper used is. Buying a car with cash is fun, too. (No seriously, actual cash. The look on the sellers face is priceless. )

You really do have to put on your negotiation hat, though, and some people aren't comfortable with that. If you won't let me take it to my personal mechanic to do a thorough inspection, no deal. If you think blue book value is a good way to measure what a car is really worth and refuse to budge, no deal.

This video, while a little 'flashy', is full of good advice.

 

[reverendj1]

I bought my current car (2008 Honda Fit) new for ~$17,000. When I was looking at used cars (this was also during the cash for clunkers rebates), I couldn't find one under $10,000 that had less than 100,000 miles on it. I figured with the extra $7,000 up front, it would more than pay for the extra 100,000 miles I would get out of it. I also liked the thought of not having to do any maintenance for a long time. I think you are also assuming that everyone who buys a new car sells it after a few years. That is definitely not money-smart, no. It does make sense when you plan on keeping the car for several years after you pay it off. I plan on keeping my car until I run it into the ground, which is why I bought one that is so dependable.

My last car was a 95 (I think) Buick Regal with ~130,000 miles on it. I think I paid like $2,000. Between the average monthly repairs being ~$100, time missed from work/fun fixing it, and the savings in gas, it was almost a wash buying a brand new car. I drove that until (almost literally) the wheels fell off.

 

[baulz]

I am of a VERY firm belief that a lease deal (a.k.a FLEECE DEAL) is the absolute worst choice a consumer can make. I have the mathematics and numbers to prove it.

I lease, but always thought it was a crazy idea. As a business owner and salesman I can write-off the majority of the costs. Plus a low lease rate, high residual value, and the ability to beat the **** out of the car for 3 years then give it back all makes sense to me.

 

[JeepDiver]

It doesn't make financial sense, but I like having a car I know I can depend on to drive cross country and not worry about. Issue with a low mileage used car, is why was it traded in. Could be someone couldn't afford it so got rid of it, or it could be that it was a lemon and they kept having problems with it. So you are taking a gamble.

That being said, now that my current Jeep is pushing 66,000 miles (and been paid off for 3 years) and I am thinking about getting something new, the prices of a nicer new vehcile have gotten crazy. Not sure I will be doing it this time. 300 a month is for a lower end car, start looking at a mid-level towards luxury and you are looking at 400-500 a month at least for 60 months and a lot of the loans are going to 72 months. Just no way I can justify that

 

[Darwin18]

So those buying new must have a secure job or feel secure in their job *and make enough money* to pay $300+ per month plus mortgage payments etc...

How are those of you advocating new cars determining that you can afford it and that it will pay for itself (above and beyond simple math)? How do you determine that it makes financial sense for you?



Seriously?

Hmm...I was able to make my monthly payments of my Honda Civic ($450 a month...) and split the payment for the mortgage with utilities with my wife on $36K a year. I certainly was poor as hell and couldn't afford to do anything fun but it's not rich people who always buy new.

My parents talked me into buying a new car after college and the day I paid it off was a great, great day! I certainly would not do it again - I would go back in time and buy a pre-owned vehicle that came with a warranttee. My previous car, a Buick LeSabre, that belonged to my grandfather before he passed away decided the brake lines were going to fail as I was commuting home at night. I had to pull over to the crest of Storm King Mountain, otherwise I would gone down the mountain with no brakes.

 

[Yooper]

That being said, now that my current Jeep is pushing 66,000 miles (and been paid off for 3 years) and I am thinking about getting something new, the prices of a nicer new vehcile have gotten crazy. Not sure I will be doing it this time. 300 a month is for a lower end car, start looking at a mid-level towards luxury and you are looking at 400-500 a month at least for 60 months and a lot of the loans are going to 72 months. Just no way I can justify that

One thing I do is make car payments to myself. I started about 20 years ago. I paid off my car, and then continued to make payments to myself by putting the same amount into a bank account. When I paid off my 1987 truck in 1990, I kept putting $300 a month into the bank. It was hard, but I did it.

Then, just by making car payments to myself, I've paid cash for my last three vehicles! Trust me, even with 0% interest and all that, you get far more for your dollar when you don't finance. One, you get the interest when you put money in your own account (although for the last 5 years, rates have been abysmal, before that they were pretty good!). Two, you can take advance of all rebates and cash incentives when you don't finance.

I first bought a 2004 Chevy truck, for cash. Then, during 'cash for clunkers' I traded in an old Suburban and bought a 2009 Hyundai for a total of $9,000 after the clunker/rebates deal.

So then, I had two vehicles that were paid for. Last summer, I sold that Chevy for $15,000 and paid cash for a 2012 Toyota Tundra for the balance (about $14,000).

I still put my "car payment" into my bank account every month, but I have two vehicles, paid for.

It takes discipline but once you get out of the mentality that car payments are a given, it makes sense to pay cash.

 

[SpentGrains]

Reliable used is always going to make more sense than new. A 3-year-old used car is statistically more reliable than a brand new car, and doesn't lose 20% of its value the second you drive it off the lot. It's best if you're strategic on what brand you buy, and not get attached to any specific car, though.

I like Dave Ramsey's style (I have his book) but that video was WAY too optimistic. It assumes you have a reliable $1500-$6000 car that requires no maintenance or breakdowns FOR YEARS, and are making 12% ROI on your money?

A used car certainly still loses 20% when it goes off the lot, just try to sell it back to the dealer or put an ad out and see how much you can get for it.

I thought about the $1500 well used car option btw, but certain government programs have scrapped them all...

 

[Xpertskir]

The people that "need" new cars are the same ones who "need" cool smartphones and pay only $350 a month for the car and only $100 a month for the phone. We have a "payments" society.

Same with a house. It's "only" $1300/month. It's not like it's really $300,000.

I didn't see anyone in here saying that they needed a new car, merely that financially speaking it's more equivalent to the cost of owning a used car that a lot of people think. This main driving force is the increased maintenance costs and decreased efficiency of many older cars and that doesn't take into account the hassles of dealing with increased vehicle maintenance and downtime without a car. Another part of this equation is the more attractive financing available for new cars and the impact of TVM over the life of ownership.


I'd be interested to see the financial argument made for people who "need" an electric 3 vessel set up with a control panel and pumps to make a quality of beer that can be made on a more basic system at 1/10 the cost. You cant finance that at 0% and pay it back with less valuable money over time either.


Instead of making blanket statements, I will simply say that it's a case by case situation, and there are situations in which all three car ownership possibilities will make sense from a bottom line financial cost standpoint.

 

[Xpertskir]

Dave Ramsey has done more harm to middle America than most.

Some debt is a healthy thing, especially at low interest rates. Clearly, credit cards and other forms of high interest rate debt for items you don't need are unwise. Everyone needs a place of residence and in most cases a car, both of which have some of the most favorable interest rates available. To be clear I'm not advocating overspending your means for these two items. The long and short of what I disagree with Ramsey is this: If you spend all your time paying down your debt you will miss out on a lot of years of building wealth(through compound interest), which is actually what allows financial freedom and retirement.

 

[andycr]

A used car certainly still loses 20% when it goes off the lot, just try to sell it back to the dealer or put an ad out and see how much you can get for it.

Certainly not 20%, but that's why you don't buy used cars on a lot. Buying from the owner is the way to go, and make sure you negotiate aggressively. Buy when you're in a position of strength, sell to someone in a position of weakness. You can save money buying, make money selling, and offset a large amount of depreciation if you do this right - but it is hard to do right, which is why most don't do it.

Dave Ramsey has done more harm to middle America than most.

Some debt is a healthy thing, especially at low interest rates. Clearly, credit cards and other forms of high interest rate debt for items you don't need are unwise. Everyone needs a place of residence and in most cases a car, both of which have some of the most favorable interest rates available. To be clear I'm not advocating overspending your means for these two items. The long and short of what I disagree with Ramsey is this: If you spend all your time paying down your debt you will miss out on a lot of years of building wealth(through compound interest), which is actually what allows financial freedom and retirement.

I went through that phase. You end up feeling like a monk stoically sacrificing to pay off debt to the detriment of the rest of your life.

That said, I don't want to build assets that may get taken away if my position in life changes. It's great that your investments are growing at 8% while your debts are growing at 6%, but if there is a disaster, your investments wither, your income dwindles, your debts feel like immovable objects, and you're utterly screwed. I feel better if I just don't have debt, and while Ramsey's way is aggressive and headstrong to an extreme I find hard to take (only $1000 on hand while paying off debt? I'm self-employed, my risk tolerance would send me into a heart attack if I followed that), it certainly sends you in the right direction.

I can't say any debt is a healthy thing, but foaming Ramsian evangelism isn't great either. It's all about balance...

 

[TyTanium]

Dave Ramsey has done more harm to middle America than most.

...The long and short of what I disagree with Ramsey is this: If you spend all your time paying down your debt you will miss out on a lot of years of building wealth(through compound interest), which is actually what allows financial freedom and retirement.

Are you advocating a form of interest rate arbitrage? Borrow for 5% and invest at 10%?

 

[brewkinger]

The long and short of what I disagree with Ramsey is this: If you spend all your time paying down your debt you will miss out on a lot of years of building wealth(through compound interest), which is actually what allows financial freedom and retirement.

Those of us that have never been in debt and have never spent all my time paying it off would strongly disagree.
I have spent the last 24 years raising a family of 3, buying used cars and investing everything else into wealth and college funds for the kids.
My wealth is due to corporate greed and in no way shape or form has my middle class America been harmed.

 

[fbold1]

I've never understood the economics of new cars and how they can be 'affordable' to the common person.

From my lowly point of view, my used vehicle costs, on average, $150 per month to drive, I'm not sure a new car could be had for that.

How are the majority of new vehicles introduced into the market? Who purchases them? How are they 'afforded'?

Because buying a used car is like buying something that someone couldn't wait to get rid of, get a good warranty.

 

[PapsD]

I'd also say affordable is relative. Atleast from the prices I've seen in the Chicagoland area, a used car costs almost as much as a new car. Because of the body rot from salt and the beating cars take on the roads here, I'd say a new car is the better value compared to a used car.

Any car you buy is a losing proposition money wise anyway. You're basically blowing that money out of your ass on a vehicle every month.

Which is why I drive beaters.

 

[andycr]

Because buying a used car is like buying something that someone couldn't wait to get rid of, get a good warranty.

Buying a warrantee on a used car is gambling - to stay in business, the only way they can offer them is if most people don't get their money out of them. The trick is to not buy so far out of your price range that you can't afford the maintenance, and you'll statistically save money.

The only time you should do something like that is on something like car insurance for collision, or health insurance - something where, in the unlikely case you need it, you simply wouldn't be able to afford paying cash.

On anything else, you're just gambling on yourself having bad luck.

 

[fbold1]

Buying a warrantee on a used car is gambling - to stay in business, the only way they can offer them is if most people don't get their money out of them. The trick is to not buy so far out of your price range that you can't afford the maintenance, and you'll statistically save money.

The only time you should do something like that is on something like car insurance for collision, or health insurance - something where, in the unlikely case you need it, you simply wouldn't be able to afford paying cash.

On anything else, you're just gambling on yourself having bad luck.

We are not talking maintenance cost here, we're talking catastrophic failure!

 

[Jon73]

I think it also worth noting that our society, and parental upbringing, train us to spend to our limit. The concept of saving money is long gone as we are too used to be able to get what we want, right now. No saving up for things. Easy financing and low monthly payments are the new phrases that are beat into our heads either through commercials, banners on the side of buildings, or reader boards. Hell, they even pay guys to stand on the side of the road to attract us in. I hate to draw a parallel from such a cheesy movie, but watch "They Live" with Roddy Piper, the subliminal effect of these slogans and phrases are constantly in front of us and some of it has to sink in without us really knowing it.

That said. Just bought a '13 Tacoma.

 

[andycr]

We are not talking maintenance cost here, we're talking catastrophic failure!

Very unlikely. You have to balance risk against reward. Bottom line is, as a company who does this every day, their money is on you not needing their product. That says it all, for me. You're statistically far better off without it.

Try not to buy cars that are known to spectacularly fail on a regular basis, of course. Gotta do your homework!

If you're buying peace of mind, and it's worth it for you, go for it. If you actually want something that makes financial sense, a used car warrantee isn't it.

 

[Xpertskir]

I can't say any debt is a healthy thing, but foaming Ramsian evangelism isn't great either. It's all about balance...

Yes. That's the biggest problem with Ramsey its financial absolutism.

"Are you advocating a form of interest rate arbitrage? Borrow for 5% and invest at 10%? "



Not really. Here is what I am saying, in a nut shell.

Givens:
Mortgage rates are 3.25-4%
20-35% of your interest payment on a mortgage is tax deductable(depending on tax bracket)
Conservative historic growth rates for an average portfolio of stocks and bonds is 6% a year

The government allows many different forms of tax deferred savings through IRA's, 401k's, ect.


Most people are unable to buy big ticket items like cars and especially houses with cash and need some sort of a loan. Lets assume that is the case in this example.

Ramsey would then say you are better off putting down as much as possible and pay as much extra per month on your mortgage as possible. Paying towards a mortgage that is in the mid 3% range(20-30% of which is tax deductible) with after tax dollars.



The alternative is investing the extra money pre tax(starting out of the gate with 20-30% more than if you were paying down your debt), typically with some sort of company match, tax deferred growth, and compounded at ~6% a year. Those numbers are difficult to argue with, and over the period of a decade or two the divergence in actual wealth between the two is astounding.

Also, god forbid, if there is some sort of emergency you have access to the funds, in certain cases without penalty. You cant call your bank and ask them for mortgage prepayments back.

Assume that both people in this situation put down 20% to avoid PMI, although the math can make sense for putting less down even flying in the face of PMI.


I'll put some numbers to it.

Tax rate 25%

200,000 mortgage at 3.5% interest

30 year 718 per month
15 year 1143 per month

Stock/Bond portfolio growth rate is 6%


Couple A takes the 30 year mortgage and saves the extra 425 per month(566 pre tax).

Couple B takes the 15 year mortgage, and saves nothing until year 15, then saves the entire 1143 per month(1524 pre tax).

At the end of 30 years, couple A has house and $536,963

At the end of 30 years couple B has the house and $425,670


That doesn't take into account the tax deduction on the interest payment side. Also, like some people said the market doesn't necessarily return 6% per year, there are bad years. Incremental investment helps to decrease the portfolio volatility(since you have more purchase points, some lower some higher), since Couple B is saving for a shorter time period they are more at risk of a bad year or two hurting their portfolio than couple A who spreads their purchases over the course of the 30 years. Another issue is that the government places limits on how much you can invest per year in a tax advantaged account, so in some case Couple B would be prevented from investing all of the extra money in one of these accounts. Yet another thing in play is that with inflation you are continually paying your debt down with "cheaper" future dollars and over the course of 30 years this effect is not to be overlooked.

Obviously every situation is different and this oversimplifies the situation, but the above illustrates a common misconception about saving and debt.

 

[Zuljin]

We bought our truck new. Three miles on it. Paid off and
237,000 miles later, all the times it gets me to work, the camping trips, hunting trips, fishing trips, moves and just all around daily use; we got our money's worth and continue to do so.

My bike is used. 20 something thousand miles later and I'm still on it. Paid.

Our car was bought new and was paid for in 4 years. We'll trade it soon on another new car because we want the car we want. If everything goes to crap and they come get it, we'll buy one cash from the paper.

About that last new car. We had nothing when we bought it. The dealer fudged a lot to get it for us and we paid the rate for it. We gambled on making things better and did. We used that car to do it. The only way we were going to have it to use to our advantage was a few hundred bucks a month at a time. Like someone said, it's case by case. In our case, we made it work.

 

[brewkinger]

Because buying a used car is like buying something that someone couldn't wait to get rid of, get a good warranty.

The counterpoint which coincidentally happens to address the OP is this:

A reliable beater is truly the way to go, but alas there are very few guarantees with this option.

Having said that, the reason that a used car is the better deal is because most of Americans feel the need to update their status every 2-3 years with the purchase (and usually finance) of a car that they cannot afford, but WANT!
Even worse option is the need to sign a "fleece" deal and rent a car for 2-3 years.

Statistically speaking, major design flaws and critical issues with newer model vehicles from reliable manufacturers become apparent within the first 24 to 30 months in the life of a vehicle. Well within the warranty or lease deal term.
Owner #1 is pleased with the vehicle warranty and/or displeased if the warrantied issues caused them any undue stress.
They have essentially paid an inflated rate for the "use" of a vehicle. Sounds very similar to a lease.

Owner #2 in either of the previous financed or leased deals, gets a reliable vehicle that has 90% of the major issues all taken care of AND they get the remainder of a factory warranty, which are remarkable in their coverage!

Owner #2 has more flexibility to barter a price because the manufacturer has already gotten more than the depreciation of the vehicle (otherwise it would cost the previous owner MORE)
They have offered a low ball on the trade in value (and made more money)
They have sold/financed or leased a new vehicle (disguised with the "lure" of same monthly payment) for more than it was worth again (and made more money)
They are willing to take a small loss on the showroom floor if they can still come out ahead. Make space and sell another car.

I have owned 3 certified pre-used vehicles with a total value new of over $70 grand and have paid a little less than 30 grand, all in a period of 8 years.
30K/8K = 3750 per year to drive a good looking, reliable vehicle. These vehicles have had issues, all of which were covered completely by factory warranties. In total on all 3 vehicles I have spent 2000 more on non warranty issues (not including routine maintenance), so an additional $250 per year. Grand total of 4 grand per year for a car.
Small fee to pay when you consider the options.

 

[andycr]

Absolutely. I don't understand the whole "buy new, drive into ground for 20 years, leave in a ditch somewhere, repeat" thing. Do you really want to take the insane depreciation hit of a new car every 20 years, only to be stuck with it for a quarter of your life? Or do you want to buy smart, negotiate, and patiently and intelligently buy and sell every few years and stay in a 3 year old "used" car with fewer mechanical issues than a new one? Park your money in a 3 year old car temporarily, sell it a few years later for a little less than you paid for it, and do it again?

I'm not the kind of guy who can commit to one car for 20 years...

Most people are strangling themselves with the value that disappears the moment you drive it off the car lot, on top of depreciation, on top of debt interest.

I stay the heck away from the first 2 years on this chart... They're a killer.

 

[TyTanium]

Not really. Here is what I am saying, in a nut shell.

< a bunch of stuff>

Yeah, so that's essentially rate arbitrage. If you have debt and are investing at the same time, it's implicitly saying you're borrowing at a lower rate and investing at a higher one. And as you pointed out, that often is the rational thing to do. Tax-advantaged investing, company match, dollar cost averaging, etc...definitely agree with you there. It makes sense. I'm not gonna forego tax-free equity returns + match to pay down a 3% mortgage.

AFAIK, Ramsey doesn't advocate stopping investing to pay off your house. You stop investing/401k etc while you have crazy 20% consumer debt...pound that out, then build up cash and continue investing w/company match etc. Only after you've maxed your retirement that you start working on the house. I think.

Again, we're saying the same thing here, and sorry for the massive off-topic. I'm a finance guy and can talk about this stuff for hours.

Happy returns!

 

[OrdinaryAvgGuy]

This is my type of thread.

The answer to the question who buys new cars is simple. Misinformed suckers. There's one born every minute and in America, there has to be 10 born every min.

That being said, I purchased my first car 16 years ago - a 1988 Chevy with 110k miles on it. Paid a whopping $800 cash for it.

Drove this bad boy for 9 years (another 110k miles) and it never left me on the side of the road. Sold it for $1,000 - $200 profit.

Sold it, bought a 1997 Chevy with 130k. Paid $1,300 for it and it never left me stranded. Drove it 40k, painted it myself and sold it 3 years later for $4,500 to some sucker. Cha-ching.

Bought another Chevy for you guessed it $4,500 with 145k, been driving it ever since and have it for sale now on Craigslist. I love tax season because there is no shortage of suckers with a big wad of cash to blow.

So if you missed that, I purchased one car for $800 16 years ago. No car payments and have a vehicle that I am now driving and selling for $5,500 on Craigslist.

I have a tracfone 450 mins that cost me $15 per month, and have never paid more than the introductory price for cable and internet. I even found a way to provide myself with free shelter for life. I could go on and on but who's listening?

My friends who are always broke think I have some sort of magical powers because I rarely pay for anything and always have a dollar in my pocket.

I tell them its simple. Resist the temptation of doing what everyone else is doing and put your money in the right places.

 

[brewkinger]

+1

Live like no one else, so that one day you can live like no one else.

 

[OrdinaryAvgGuy]

+1

Live like no one else, so that one day you can live like no one else.

Never heard this one but has a very nice ring to it.