Warm up your keyboards...Dave Ramsey

Thanks jhinton for another perspective on this debate. There is nothing at all wrong with the above 7 milestones and in truth I would bet most people wish they did not have to suffer buying a heavily depreciating "asset" as a motor vehicle, the newer the vehicle, the heavier the depreciation cost.

All the above points are save, save and save. ALL motor car purchases are the exact opposite in nearly all scenarios - spend, spend and more spend. Using this as an argument, then ANY vehicle, no matter whether a hybrid or "straight" vehicle should not be bought new.

I think there is a balance in understanding his target audience and the rationale of his argument - don't buy new (spend) and don't be fooled by "but it's a hybrid" in justifying the purchase. Fair comment.

However, for the Prius owners on this site - well we didn't give a hoot about Dave Ramseys advice of save and don't spend - we just spent and are living happily ever after, knowing that in some instances his arguments don't hold water (but mainly it does).

Personally, I justified the purchase on a number of different things, but one consideration was cost. I receive a car allowance and I just compared the Prius and fuel costs with other cars and their running costs, then narrowed down all those that came in my budget and then selected the Prius anyway, because its cost of ownership was within my allowance AND included gas for the month, whereas other cars didn't make that hurdle.... and anyway, justified or not, I just wanted one after a test drive, so there

 

Just goes to show not all experts have it together.

First, just with the hybrid issue... there aren't any serious hybrids that get 25 mpg. A couple of "mild" hybrids yes. But even if you use that figure, there aren't too many Americans (outside of Manhattan) who drive only 100 miles a week. The national average is closer to 300 miles a week. And that doesn't factor in repair costs for an aging vehicle vs a new hybrid under warranty. And first generation... does Dave know the Prius is 12 years old? And that a 5 year old Prius is worth more than a 5 year old SUV?

Then there's the part about getting a home-based job which is going to save you more money than buyig a hybrid. Pretty unlikely. Possible but not likely that your new home-based job is going to pay the same as your office/factory job. Sell your house and move closer to work? In today's market? I could buy a Prius with the amount of money that would cost me (in addition to going from a 2000 sq ft house to a 1000 sq ft fixer-upper) just to get out of my current mortgage!

 

LOL!!! Why work for someone else when you can stuff envelopes 30 hours out of every 24 hour day and make $20k a year from the luxury of your own home?

 

Point certainly taken. If the only priority you have with an automobile is reliable transportation, then touche. I'd venture a guess and say the majority of car buyers are looking for more than the most basic of transportation.

Let's say you can find a Corolla for $9k without A/C with the same amount of miles (as the example), that will too be cheaper to operate. If you can buy a Corolla for $8,750 with the same miles, and no A/C or RADIO, then that's cheaper STILL to operate. If you can find a Corolla for $8,000, with the same miles, no A/C, no radio, and two broken side windows (better cooling without A/C) then that vehicle is cheaper to operate. Heck, we can go even further and buy a beat up Corolla with not a straight body panel anywhere on the car. A Corolla with a green hood, red doors, and a confederate flag painted on the roof. This Corolla also cannot be shifted into 4th or 5th gear but that won't be a problem because you're entire trip to work is in a 35mph zone.... this Corolla only costs $500. Doesn't get more basic then that... and that Corolla would serve yours needs just fine for basic transportation... after all, that's all that's important? Basic transportation.

It goes on and on... Where does one draw the line? At some point one will justify to themselves "luxuries". What those luxuries are (and what you can afford) is a very individual thing. Once you start adding these luxuries, it obviously throws off the equation because to most they'll live with a more expensive car if it means they won't get wet when it rains, they don't have to strip down to their undies because it's too hot (without A/C), they can listen to their favorite tunes at the end of the day when commuting back home, and aren't offending anyone when they pass by with their giant confederate flag on the roof.

What's the tipping point when weighing this additional cost? For example, if the Corolla is $10k and the used Prius is $15k (assuming an older Prius) you'd have to make up $5k of fuel savings in order to have this decision make sense in the cost to operate argument. $5k is 1,250 gallons of fuel at $4 per gallon. However, let's say the Prius has VSC, a 6 disk changer, a more comfortable interior, a larger back seat (for the times you're car pooling), and has side airbags. Perhaps now you can shift the balance and say, "well, that's worth a $2500 premium for this car". By that I mean, everything else being equal, I'd pay $2500 more for a car that has these luxuries. Now you only have $2500 worth of difference. Now we're up to 625 gallons of fuel at $4 to make up over the remaining lifetime of the car.

I of course know I'm preaching a bit to the choir here... Keep in mind this is a rant and isn't directly picking on the person I quoted here.

 

One reason I bought the Prius? The car payment is a fixed cost. Fuel is not. If you live on a tight budget, the Prius doesn't look like such a bad idea after all. Paying more on the fuel and less on the car just feels wrong. At the end of your payments, you're left with either a Prius or a POS SUV that isn't worth anything.

In general I agree with his advice about financial matters, but sometimes you have to do what you feel is best for you and your family.

 

I've used this argument before for people. With some people it's easier to handle a fixed cost they can count on each month rather than a variable unknown such as fuel cost.... even if that cost is actually higher.

 

Exactly. Hedging fuel cost with high MPG. Also, I paid MSRP, got a $1,500 tax credit, and a year and a half later I could sell it and clear about $3K over my loan payoff. That leaves me with a nice little profit of $4,500. I have considered selling it and getting a Yaris. But then again, I'd be driving a Yaris.

 

NO, NO, NO! That is why you make a budget at the start of the month. You then separate your expenses into categories and label a envelope for each. You put your budgeted amount in cash into the envelope. You only spend money for the appropriate envelope and when the money is gone, it is gone not be replaced until the next paycheck. One must be proactive about money management if you are ever going to be financially secure.

Dave Ramsey would be very proud. He would also tell you to sell your Prius and take that $4500 and buy a $4500 car. One should never purchase anything that they can't pay for.

So the only choice is a Prius or SUV? In his example you have a $10,000 SUV to sell and use the proceeds to buy $10,000 car. You couldn't buy a reasonably nice car for $10,000? I can think of dozens of good reliable cars that can be had for half that. If you are living on a tight budget you need to reduce your expenses. Most people have a lot of room to cut they just don't want to.

 

Let me start off by saying that there is some good Dave does. I've adopted most of his techniques and have turned my financial habits around in a relatively short amount of time. However, I've learned to ignore some of what he says also. Dave tends to see everything in black & white. It's his way or the highway and he tends to be pretty heavy-handed and not very realistic about certain things.

My job requires me to do a lot of driving from location to location throughout our county. I have to have reliable transportation and comfort and "bells & whistles" are important to me because I am in the car so much. Driving a "beater" as he calls it is not really an option for me.

Yes, I am paying a little more than what I did on my truck, but it's worth it to me because I love the Prius, I am only having to gas up every 7-9 days (4-5 days in my truck) and I am spending maybe $150 a month on gas as opposed to the $300+ I was spending with my truck. So I'm sorry, but if Dave does not approve...I don't give a damn!

 

True, but most Americans are also broke and live paycheck to paycheck.

It depends on where you are in your financial path. If you are not even living paycheck to paycheck and are in danger of losing you house you buy the $500 car. Not the one in your description but one of the many mechanically sound cars that can be had for $500. If you are further along you may buy the $8,000 car. How much cash do you have in your pocket?

Some interesting facts from "The Millionaire Next Door":

• 37% of surveyed 1st generation millionaires purchased an used vehicle the last time they purchased a car.
• 25% are driving a car that is 4 or more years old.
• They spent on average $24,800 on their last car compared to $21,000 for the general public.

Now the numbers are a little dated since the book was first published in 1995 but the theme remains. It seems that millionaires are not nearly as interested in what they drive as the general public.

 

I'm not sure about your conclusion, there. Those numbers tell me that the wide majority (~70%) of millionaires buy new and trade every 2-3 years. So apparently they do care about what they drive. You don't even have statistics on non-millionaires to make a comparison. I just don't think there is anything to learn from those numbers.

Anyway, it seems to me that if you can afford it (i.e. do so without taking on a large, high interest loan) then the best idea is to buy new, take good care of the vehicle, and drive it into the ground over 20 years and 300,000 miles. That's my plan.

As I mentioned earlier on this thread, in my first car buying experience I saw very little truth to "conventional wisdom" that there are all these low-mileage, two year-old Corollas out there for the taking at huge discounts because they lost 30% of their value when the previous owners drove them off the lot. I just don't think it works that way. Reliable cars aren't depreciating like that and most people aren't getting rid of them until they have well over 100,000 miles and half the accessories have stopped working.

I understand, however, that many people (especially Dave Ramsey's clients) are not in a position to make a large down-payment and get a low interest rate. And in that case I agree that financing a new Prius is a bad idea.

Tim

 

Mr. Ramsey (after he lost millions), after his realty dealings basically became a motivation speaker. "Financial Planner" ?? Sadly, there is no degree for that. Someone uses their publisher software to make their own plaque, then boom, your off & running. Don't get me wrong, many FP's have stock broker's licenses, CPA credentials, etc, but a bunch don't. If they want to to play FP w/ OUR $$$ then they can do it off yearly commissions, when they earn us more than inflation plus 3%. No? You mean whether they loose it all or make just a little, I still have to pay them? There you go. Still, I give him a gold star for finding a nitch telling folks the obvious.

 

even then it's not really the obvious. and some of it is just plain stupid advice IMO.

if you pay down your debts from smallest amount to largest...
say then you're paying off a $3000 student loan at 3% interest before directing your focus to a $25000 credit card balance defaulted and at 30%. how many thousands is it going to cost in interest to NOT focus on the huge interest debt right away?
...Wth, i say.

 

No, that's just what I did. Extricated myself from a SUV. I cut my payments in half and my fuel budget by 75%. Not quite up to Dave Ramsey standards, but a nice start. I only learned about the increased resale of my Prius a few weeks ago. Still deciding what to do... I might do exactly as you suggested above. I admit to being spoiled by having a vehicle under warranty with a loaner agreement. Being a two-income family and commuting in a large urban area, well... it makes it easier. That and the fact that my OCD makes me cringe at used cars. It's like putting on someone else's underwear.

 

That would 62% that purchase new cars, not ~70%. What meaningful conclusion can be drawn? That a significant number of millionaires that easily could afford to spend lots of money on new cars don't. They instead buy used cars and save significant amounts of money.

Here is a nice comparison of millionaires to non-millionaires.
Remember that the average millionaire spent $24,800 on their last vehicle while the non-millionaire spent $21,000? That $24,800 the millionaires spend represented less than 1% of their net worth. On the other hand, the $21,000 that the average non-millionaire spent represented 30% of their net worth! 30% of net worth on a car, something that will be worthless within a decade!

Sounds like a good plan. If you only replace cars every 20 years, I see no reason to even bother with a loan.

You have forgotten about the joy of leasing and the pull of the new car smell. Lots of people replace cars with well less than 100K miles.

I bought my Prius used in November of 2007. It was two years old and just off lease with 32K miles. HID headlights, foglights, smart key, side airbags, stability control. I paid $19K at an independent dealership that only deals in late-model cars. An identical car with 5K more miles was listed for $23,900 or about $100 less than new at a Toyota dealership 4 miles away. The Toyota saleman tried to tell me his car was "Certified Used" and better than new because it had a 100K mile warranty.

You need to look at dealerships like this one just down the road from me: Donohooauto in Pelham, AL Dealer Used Cars - Home They specialize in 3-5 year old luxury cars. Most cars they have are listed at 50-60% of the original MSRP. Lots of $50000 to $60000 Lexus cars for $30000.

They have a 2007 Camry LE with 40K miles for $17,650. That is $5,000 or 22% less than new. They also have a 1997 Camry with 157K miles for $4475. That would be an example of one of those cheap but reliable used cars that can be had for less than $5000.

They have (7) 2004-2005 Volvo V70's with less than 50K miles for $15K to $22K. That is for a car that started at $32,000 new.

Yes, there are lots of deals to be found in the used car market. Either you can buy a Camry for less or a 3-4 year old Lexus for the price of a new Camry.

 

Millionaire? *scratches head*

Was the 24G average for millionaires the entire purchase price or just what they paid at signing? If you trade your Ranger Rover every year or two you're going to shell out 24G just to cover the depreciation. And those used cars they are buying. I'm thinking it's for their kids to drive.

 

[FONT=&quot]That was total purchase price, again the book was written in 1995 so you could expect some inflation. $24,000 in 1995 is equivalent to $33,000 today.

However, the main point of the book is that millionaires don't live the high life that most of us think the do. The average millionaire wouldn't buy a Range Rover or a Lexus or a Mercedes but instead drives a F150, Taurus, Accord, Camry, etc. They don't buy Rolex watches or Armani suits; they buy Timex watches and Stafford suites from JC Penny. It is because they are not caught up with brands and consumerism that they are millionaires. Millionaires focus their time and money towards activities that help them accumulate wealth.

Status brands are generally purchased by the super wealthy and what the author calls Under Accumulators of Wealth (UAW). UAW's are usually highly paid professionals that earn large salaries but spend it without actually accumulating wealth. These people spend their time and money on things that make them appear wealthy even though they are not. Being from Texas you should be familiar with an expression for these people: Big Hat, No Cattle.

The book focuses on the difference between the activities of the 'Balance Sheet Affluent' (those with actual wealth, or high net-worth) and the 'Income Affluent' (those with a high income, but little actual wealth, or low net-worth).[/FONT]

 

Being a millionaire is not what it used to be. There are a LOT of millionaires running around, and most of them look just like your next door neighbor. It's pretty easy to be a millionaire and not have lots of surplus cash floating about. Many of the farmers in our county are land rich and cash poor. It's a common thing. You don't see them driving fancy cars, but they do have nice farm equipment.

If you want to talk about wretched excess, let's set a realistic threshold; perhaps $100 million and up.

Tom

 

I'm not talking about wretched access. To me, accumulating wealth is about financial security and the freedom from the daily grind. It is not about being able to throw money around.

Even if you put the threshold at $1M in net worth that represents only 7% of US Households. Yes, the average millionaire looks like your next door neighbor. That was my point and the point of the book "The Millionaire Next Door"

 

I typically see people in two categories. Those that make a lot of money, and those that have a lot of money.

Those that make a lot of money, over-extend themselves just like most of us. They still live paycheck to paycheck, they just have more expensive toys. Reminds me of high school (1990-1994). I dated a girl when I was 16 that babysat for a couple whose husband was the VP of a major company that every one of us has not only heard of, but I'm sure 98% of us have their product in our homes. On occasion the wife would tell my girlfriend not to cash her check for a couple of days until they got paid. We're only talking $20 checks here. I thought this was odd for a guy that obviously made a lot of money. They lived in a 5k sq/ft minimum house, both had brand new luxury cars, etc.

Then there are those that have a lot of money (or are "of" money). My wife's uncle is one of them. They got rich in the copper mining business years ago. In addition he employs hundreds of people in a construction company, he builds schools, shopping malls, freeways, etc. In between large jobs he has his crew build car washes, which he also operates. He has 10's of such car washes. When my brother in law (who owns a century 21) wanted to build some properties, my wife's uncle agreed to build (and finance) an entire housing project in Southern AZ. We're talking hundreds of homes, on his dime. Well, his wife drives a (approximately) 1994 Suburban (hey, they're mormon) and he has a 6 or 7 year old pickup truck. Nothing fancy. They live on a good piece of land in Utah, but their house is pretty basic. They're not flashy at all and you'd never know they were worth millions when passing them walking down the street.

I believe those that make a lot of money feel they have to prove it and show it off.... where those that are "of" money, are secure with what they have and feel they have nothing to prove to anyone.