Before you sign the papers on that new car...

[AZhitman]

You should be watching this quick video...

Let me know what you think.

[hitbychance]

after my car loan is paid off i may start this just as a retirement fund, considering that im 21 and have an 08 ram paid in full that'll last and should have my 08 350 paid for in full next year

[Encryptshun]

Video is solid advice. Built on some pretty broad assumptions (like 9.8% interest rate, current vehicle only being worth $1500, future vehicles costing x amount, no risk of high-cost repairs, etc. etc.) but still solid.

[IanS]

Too bad 95% of people dont have enough foresight, or mental control to keep themselves on a plan like that.

[Encryptshun]

Exactly. Not making your car payment has tangible and nearly-immediate detrimental effects. Not making your mutual fund contribution does not. Savings for most people needs to be something outside their control (myself included). My paycheck is direct-deposited and automatically splits out between my checking and savings accounts as well as my investment funds. I don't have to do anything and the savings just happens. So I "forget" about everything other than my checking account and that becomes my total income.

By the end of 2011, I will have saved more at age 38 than both my parents combined did throughout their entire lives.

[AZhitman]

^ THIS.

I'll never buy new again.

There's a reason I have cool stuff on a comparatively weak salary.

[BusyBadger]

Video is solid advice. Built on some pretty broad assumptions (like 9.8% interest rate, current vehicle only being worth $1500, future vehicles costing x amount, no risk of high-cost repairs, etc. etc.) but still solid.

You (and the video) also left out depreciation...

Starting at slide 7 with the "Let's Think Differently" section it's stated that you're driving a $1500 car. Save for 10 months and the car is surprisingly still worth $1500...where's the depreciation for the 10 months of use the car has seen? Depreciation is absent again on slide 9 when another $4750 in savings is added to the original purchase price of the $6250 car to equal $11,000.

It also leaves out some things like a bumper to bumper warranty on a new car that and as Crypt stated "some broad assumptions", this time...how much would you be spending to keep your $1500/$6250/$11000 non-depreciating car operating? What about increased fuel efficiency from a newer car?

It's good advice about saving (for anything, not just a car), but a little absent-minded about some very real conditions.

[AZhitman]

Once a car hits "bottmo dollar", it really doesn't continue to depreciate much.

Look at old Datsun 720's. Not collectible, but still selling for $1500-$2500.

The depreciation curve levels off into a long run before it decides whether to go into Chevy Cavalier territory or Datsun 240Z territory.

[BusyBadger]

Is "bottmo" some Arizona slang? Maybe the C5 should be the Bottmobile! Sorry, I'm a little slap-happy...need some sleep.

I considered the bottom price, but I think there's still some room under the $1500 mark, and certainly some under the $6250 pricetag. With a few exceptions (Supra, or NSX anyone?), the more a car costs the bigger toll depreciation takes.

[Encryptshun]

I went to look at a CTS4 last week, and when the sales associate asked me why I was considering used rather than new, my response was "I don't want the depreciation hit, and besides if the vehicle isn't reliable enough to buy 3 years old with 30K on the clock, then why would I want to buy it new?"

The dealership is located in a very affluent suburb, and I could tell he wasn't used to hearing that. But right away he stopped trying to sell me a car and started educating me on the car.

[AppleBonker]

But why buy 3 years old when you can buy <2 years old with under 9k on the clock?

And I like this idea, but one first needs to have a car that can last without a ton of money tossed into upkeep.

[Encryptshun]

Price differential at <2 years, <9k miles is <$10k from new MSRP. Differential at 3 years with ~30K miles is >$20k under MSRP.

And Adam, you are correct. For this to work you either need a very reliable car or the time/ability to do all your maintenance and repairs yourself.

[Jesda]

Or do it my way:
Buy old luxury cars, spend the repair and maintenance equivalent of $800/mo on them, and... lose a ton of money.


Ramsey's plan makes perfect sense but it assumes that folks will buy standard used cars with standard features rather than something interesting or exotic. Luxury and performance cars depreciate heavily and become attractive to used buyers who would otherwise drive something modest if they had to buy new [ask me how I know]. A shopper might see a newer Accord for $20k or a slightly older but MUCH nicer Range Rover for $27k. Some would buy the Rover.

If his plan is applied to a run-of-the-mill Malibu, Camry, or Accord, it makes financial sense. Anything higher on the ladder in terms of luxury or performance will require a generous aftermarket warranty or extended factory coverage, otherwise you could spend as much on repairs as you would on new car payments.


In my case, Cadillac and Saab stopped building my favorite cars years ago (I've owned four Sevilles and I'm waiting for GM to build a modern equivalent), so regardless of what's available new, the cars I really want to own tend to be 10-20 years old. That's also true for Mazda (NA and NB Miata are the best), Nissan (anything before 2002), and Toyota (90s or earlier). The new stuff is mostly bland and ugly.



Among brand new cars that I can actually afford, a CTS with the FE3 package would be pretty sharp, or a BMW 3-series coupe, but they aren't compelling enough to draw me away from my old vehicles. The XLR is no longer in production so it also becomes an expensive-to-maintain used car, and the ones I can afford to buy are out of their warranty period. There's a retired guy I know in Virgina who owns three Sevilles. Despite having owned new Italian exotics and European luxury cars, he prefers his older Cadillacs. They just feel right. I can't explain it or quantify it. Same goes for 90s Nissans.