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Dave Ramsey’s site has one of the best money hacks I’ve seen recently. Drive Free, Retire Rich explores the impact of carrying a car payment, and offers ideas on how your money can be used more wisely. Though the sentiment is familiar, I find Ramsey’s approach novel.
You want a brand-new sports car that would normally cost you $475 a month. The car you’re driving now is worth around $1,500. If you take that $475 and pay yourself instead of paying the dealer, you’ll have $4,750 in just ten months. Add that to the $1,500 you can get for your current car, and you can pay cash for a used $6,250 car. That’s a major upgrade in car in just ten months — without owing the bank a dime!
But let’s keep going. If you kept saving at that rate, you’d have another $4,750 in another ten months. Chances are, less than a year later, you could sell your $6,250 car for about what you paid for it. This means that you can step up again — with cash — into an excellent $11,000 used car just twenty months from today. Not bad!
Not bad, indeed. Ramsey goes on to explain how you could actually get “free” cars by investing your $475/month and using the returns to purchase your vehicles. (The assumed 12% return is a stretch, though the overall point is valid.)
How might I make this idea work for me?
- Instead of buying a new car from a dealer, I could set aside the amount I”m willing to spend on a monthly payment. The presentation uses $475/month as an example. I could never pay this much for a car. I’d be willing to go as high as $250/month.
- After a year, I’d have saved $3,000 for a car. According to kbb.com, the trade-in value on my current car is $3700. Using these two sources, I could buy a better used car for $6,700.
- Here’s where it gets interesting. If I kept making $250 payments to myself, I’d have another $3,000 saved at the end of the second year. Let’s say the $6,700 car lost another $1,000 in value and was now worth $5,700. I could trade it in and use my saved money to upgrade to an $8,700 used car.
- I can continue this cycle until I reach the level of car with which I’m comfortable. After that, the amount I need to save each year would decline sharply. I wouldn’t have to save to upgrade my car, simply to maintain the level of quality.
I’ll certainly remember this for the future. As soon as I’ve repaid my home equity loan — by March 2008 — I plan to begin saving for a car!
[Dave Ramsey: Drive Free, Retire Rich]
Note: I’ve never heard Ramsey speak before. Can anyone confirm whether that’s his voice in the presentation?
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January 5th, 2007 at 5:16 am
While that’s not his voice in the presentation, I have heard him give the same exact advice on his radio show. And good advice it is.
January 5th, 2007 at 5:18 am
In answer to your question, no, that’s not Dave’s voice. I’ve listened to some of his podcasts and seen him on Movie and a Makeover on TBS of all places. It’s definitely one of the messages he presents a lot and relates to his catchphrase, “Live like no one else so that one day you can live like no one else.”
January 5th, 2007 at 5:32 am
Excellent post. After attending a 13-week Dave Ramsey course a couple years ago, we just paid off our last credit card and are now aimed at our final car payment and student loan. Good stuff. (Also per your note, that is not Ramsey’s voice in the presentation.)
January 5th, 2007 at 5:58 am
Great post! I find stuff like this fascinating.
To address your question about it being his voice: I’m a professional freelance writer who has done a lot of ghostwriting. I’ve also taken Ramsey’s course. Ramsey’s a very busy guy and I’d highly doubt he sat down and wrote that himself. That said, usually clients like this give you stacks of CDs and transcripts and you write their material in their “voice.” So, I’d say that it’s definitely Ramsey’s idea and execution, but probably written by a freelance writer.
January 5th, 2007 at 6:06 am
It seems that Dave Ramsey assumes these cars won’t have any mechanical problems crop up — always a risk with any car, increasing in probability with age. One major mechanical problem would throw this plan out of whack, because you’d be forced to use the savings to pay for the repairs. And if you’re really unlucky, like I was a few years ago, you could end up with a $1500 car that needs about $3000 worth of repairs in the first year!
January 5th, 2007 at 6:14 am
Ben, this is only a small part of Dave Ramsey’s overall plan. You would not even BEGIN to save to upgrade in car until after you’ve saved a $1,000 emergency fund, paid off all consumer debt except the mortgage, and then saved 3-6 months of an emergency fund. You would also have working “sinking funds” for car repairs and maintenance (as well as other recurring expenses). Dave also outlines ways to find great deals on low-mileage cars while you’re trading up and how to make sure you don’t get a lemon.
January 5th, 2007 at 6:27 am
Yeah, after I paid off my last car, I wanted to do something similar, though maybe not to that extreme. So, 8 hours after I received my title in the mail, a deer runs into my car and totals it. After that, I have to buy a used car. Sigh.
January 5th, 2007 at 6:28 am
If you live someplace where you can commute by train or bus (and look, first, don’t just assume - I’m always visiting friends who were shocked to discover their city has a perfectly good bus system), it’s worth at least running the numbers to see whether you would come out ahead ditching the car entirely, saving your insurance money, and just taking taxi’s / renting cars when you need them. As extravegant as taxi’s and renting sound, it can be shocking how often you can use them and still come out way ahead…. (plus, of course, on the bus you can read a book; with a rental, someone else pays for the repairs; in a taxi, noone has to be DD…)
January 5th, 2007 at 6:56 am
I have a friend who came to this country with very little. He bought a super crappy Honda and changed cars every six months using this strategy. In five years’ time he had a new BMW 3-series. No payments.
January 5th, 2007 at 6:56 am
Try living without your car for a while before selling it for good. When I went without a car I rarely took a taxi but I did rent a car a couple of weekends a year for 200-mile trips and for buying large things.
Now I do a compromise between Rebecca’s no-car approach and Ramsey’s good-car approach.
I like to buy ten-year-old cars in reliable models and drive them for ten years. This gives me a lot of time to save, so I only save $50 per month toward my next car. The first car I bought using this approach cost me $1850, the second, $3000. After one good car, you can have enough saved up so that if you buy a lemon, it’s no big deal because you still have enough money to buy another car instead.
You definitely want to use Lemon Busters or a similar car inspection service–it’s amazing what they can find. On my first car they found two problems which allowed me to talk down the price and which didn’t actually need replacing for a full year after I bought the car.
I save a lot on insurance, too, because I don’t get collision insurance. I figure if I wreck the car and it’s my own fault, I’m willing to pay. Also, even the tiniest little thing is considered “totalling” your car when you have a cheapo car like mine, so the insurance wouldn’t help much anyway.
In all it costs me about $175/month to own a car including gas, insurance, taxes, maintenance, repairs, and saving for the next one. That’s significant money, but much less than most people pay.
January 5th, 2007 at 6:57 am
Go to daveramsey.com and use the “Find a Station” or subscribe to his podcast now. He could change your life. Personal finance is 90% behavior, and that is exactly what he helps you change.
A while back, I was about to drop 32k on a brand new car, but I decided to keep my Corolla and drive it into the ground instead. That saved me about $500 per month for 4+ years (and counting). My Corolla has 193,000 miles on it and it’s still going. I used to hate this car, but now I love it because it has helped us turn our financial lives around. We now have no credit card debt, a 6 month emergency fund, a substantial college fund for our kids, significant retirement funds and we paid off the line of credit on our house ($41,500 worth).
Not having any car payments (my wife’s car is paid off as well) has played a huge part in our financial makeover.
When this Corolla dies, I’m going to buy another used Corolla with cash and we’re going to put the $350 payment we would have used on a new car towards our mortgage. That extra $350 per month is going to cut the 26 years left on our mortgage down to 17 years and it will save us $157,000 in interest.
January 5th, 2007 at 7:01 am
Rebecca,
You make an excellent point. It seems to be human nature to accept a fixed monthly cost which is way above actual usage instead of incremental costs which end up being much less.
You can see this same behavior when people purchase a gadget based on ‘features’ they will never use instead of focusing on its performance on the task it will actually do 99% of the time.
I use a pre-paid cell phone because I use very few minutes. This makes most people nuts. I hear “But costs $0.10 a minute!” and “Don’t those minutes expire?”. They can’t get off the per minute rate. There’s that clock in the sky just TICKING away and BILLING them.
My cell phone bill for two phones went from $860/year to ~ $350/year. Who cares what the per minute rate is if the annual cost is less…
This is the same concept as you suggest. Taking cabs can be cheaper than a car depending on your usage and destination. It is probably counter-intuitive to most people.
January 5th, 2007 at 7:39 am
I don’t know about you guys but I live in a relatively small city (Kalamazoo, MI) there’s an adequate mass transit system, and the cabs are costly, but there are several very, very good bicycle paths.
January 5th, 2007 at 8:05 am
My wife and I bought two eGo electric bicycles last April and used them to buy groceries, go shopping, and go the movies. Cost $1300 each. Later in the summer, I started taking it to work and charging it back up in the office. The thing runs at 25 MPH and has a range of 25 miles. It was fun to whiz by the traffic every morning! I had computed that in bad traffic, my car was making 15 MPG and it took me 30 minutes to go to work. Using the eGo, it took me 35 minutes to go to work and I saved all that gas and polar bears (one would hope)…
Although it did not pay for itself in those first 4 months, it definitely helped cut down on paying for $4 gasoline (who wants to bet we’ll have $5/gal gas this summer???).
January 5th, 2007 at 8:11 am
Other than the savings on interest for the loan, I don’t see how this is any different then starting out with the high-end car and making payments.
The only difference is your making the payments to yourself, and then handing the money over all at once instead of making the payments over time to someone else.
If you had a 0% car loan, it seems to me that the only difference would be if you are earning interest on the money as your saving it up.
January 5th, 2007 at 8:59 am
You’re forgetting one thing Rob - depreciation. You lose a ton of money in the first 2-3 years of new car ownership. Some people say that if you keep your car ’till the wheels fall off then depreciation doesn’t matter - but it does. You still have asset that lost a tremendous amount of value. Doing it Dave’s way you don’t get bitten by the depreciation bug.
How many people actually qualify for 0% loans anyway?
January 5th, 2007 at 9:04 am
This makes sense for older cars. But there are two things that may not make it a great of a payoff as you continually upgrade.
First, as others have mentioned, is repairs. On newer cars the warranty covers you, but on a 10 year old car a major repair is more likely. A costly repair could set you back a year of savings easily.
Second, Saying your car is worth the same after a year is not true. Sure on a car that is 10 years old this is probably viable, but as the saving and trading up progresses and you buy newer cars, one needs to think of the depreciation costs. Lets say you are now driving a car that is less about 3 years old. If you have saved cash for the year, and try to sell your current car most likely it will be worth less than you purchased it for. Your upgrade for the year would not be as substantial as prior years.
I think the sweet spot would be buying up to cars 4-5 years and maintaining that level.
Just me thoughts.
January 5th, 2007 at 9:11 am
As usual, Mr. Ramsey’s advice is very sound. It works. The key is knowing when to stop. If you keep using this strategy year after year and end up with a high value luxury car, you have gone too far. All a smart money person needs is a reliable, simple, economical car. Once the upgrading goes beyond that, you are starting to receive rapidly diminishing returns for your investment. The money would be better saved (spent) elsewhere.
January 5th, 2007 at 10:06 am
I say invest in a really good car, and drive it until it dies. I am driving my Honda that is 10 years old, and it is a truly great car. Many makes aren’t made to last or have very costly repairs, but if you get a good make that is common (so if you need repair it won’t be costly), you should be able to drive it until it gives up. So, imagine if you were setting aside your “car payment” for 10 years or more!! I sure wish I had done that, I would have lots of money for either a newer car when the time comes, or anything else for that matter.
January 5th, 2007 at 10:52 am
Rob, it’s not just saving interest on a loan that this method helps with. It also allows you to make some money with the interest on the money you are saving up. Maybe not a lot if you keep the money in a simple savings account. However, as a previous post on GRS pointed out, little things add up.
January 5th, 2007 at 10:55 am
Rob, the difference is that if you lose your job and can’t afford your payments, your paid-for car doesn’t get repossessed the night before your next job interview. You just quit adding to your savings for a while.
January 5th, 2007 at 11:14 am
DC, sometimes even though you (me/us) are a smart money person, you want a nice toy or car, because it is a hobby and even though it depreciates it is an good “investment” in ones personal life. Am i making any sense?
January 5th, 2007 at 11:35 am
Only in very rare cases (e.g., collector’s cars or antiques) will you ever sell a car for more than you paid for it, so people should never consider a car an “investment.” The goal is just to limit your losses.
I agree with the strategy of buying a fairly new reliable car and hanging onto it. In the 1980s I went through a string of 6 or 7 Subarus (they weren’t as well made back then as they are now), and after sinking thousands of dollars into repairs plus the cost of the cars themselves I realized that I would have done better financially by buying a reliable newer car. In 1990 I bought a Honda Civic and drove it for more than a decade with no major repairs necessary, putting 250,000 miles on it. I sold it and the new owner put another 100,000 miles on it before he sold it to someone else.
Everytime I’m tempted to get a high-end car, I look at the price difference between a simple utilitarian car and the more expensive one and think of all the cool things I could do with that money. For my last car purchase I thought about getting a Toyota Prius but got a Matrix instead; the $10,000 I saved by doing that enabled me to take three unforgettable vacations in Arizona, Vancouver, and France. And I’m happy with the Matrix, it’s a great car and is very fuel-efficient for a conventional vehicle.
January 5th, 2007 at 11:53 am
Andrew, I have owned 4 Lexus vehicles in my life. I thought that they were good personal “investments” because they helped me to feel good about myself. I have come to recognize that these luxuries, particularly those tied to trying to impress others, have been the greatest hinderance in my ability to achieve financial stability and overall happiness. The rush of a fancy luxury car wears off rapidly, and you are left feeling like a fool.
January 5th, 2007 at 12:20 pm
Their are many other costs associate with an expensive car that you don’t have to worry about with a less expensive car (like my used Corolla). You get hit hard on all of the following:
o Insurance
o Registration cost (in NH it costs me $25 to register my Corolla, but my friend pays $600 for his $35k SUV).
o Gas (if your car requires premium).
o Tires (I paid $45 each for my replacement tires, while a friend with a Nissan Maxima paid $130 each for his)
If you are trying to get ahead of the game financially, your car can seriously hold you back.
January 5th, 2007 at 12:45 pm
I have always been of the same mindset as Aimee (#19 above), but this has made me reconsider. I am currently driving a ‘96 Honda Civic, and since I don’t drive much, it only has 62K miles on it. A quick search on our local craigslist reveals many 1-2 year-old models of Honda Civics with typical mileage for about $4000 lower than the 2007 model, with similar features. I plan to drive my current car until the repairs start to annoy me (it has only needed 2 repairs in 10 years, both with the exhaust system), but next time I’m in the car market I think I’ll shed my “never-a-used-car” philosophy.
Interestingly enough, it appears the most common reason for people to sell relatively new Civics is that they need a car with more kid-room.
January 5th, 2007 at 1:12 pm
I wish I could access his site, but it seems to use Flash or something. Overall, this is an interesting hack, but one needs to realize it’s just that. The 12% is a huge stretch because after inflation and taxes you are doing well to get more than 4% growth.
I’m still not sure how it counts as a “free” car if you are using the $475 that you would pay the dealer to someone else for a used car in a year or two years. It seems like either way you are paying someone the money. The only thing I can think of is if that 4% compounds enough to buy you the car. It might, but it’s going to take some time.
I think GRS Slowly has it right with his example. It’s always good to have a growing car fund and it makes sense to trade in your previous car when you get a new-to-you car. Unless, I’m missing something this is something fairly common.
I guess I’m not a big fan of these psychological hacks.
January 5th, 2007 at 1:15 pm
Sorry, I fail to see the novelty in this plan suggested by Dave Ramsey.
The way I see it you can take two routes:
1. If you save $250 a month, you can upgrade every year to a car that is $3,000 more expensive. By year five you would be driving a car that costs more than $15,000.
or
2. You can drive your beater car for 5 years and save $250 every month. At the end of the five years you will have $15,000 to spend plus your beater to trade-in.
In both scenarios you end up with the same car you wanted, except in case 2 you didn’t have to pay sales tax FIVE TIMES.
Of course I bet most people who have the discipline to save for a new car for five years will probably realize that their savings they’ve accumulated is more valuable to them than blowing all of it on a single purchase.
January 5th, 2007 at 2:07 pm
Why not just buy a decent used car and invest the rest instead of trying keeping up with the cycle of buying a car. It’s not an asset.
January 5th, 2007 at 2:45 pm
New cars are for suckers, but there is a huge segment of the population who “have” to buy them. Most people who buy new cars do not “run them into the ground,” they trade them in on another new car in two to three years.
Especially on luxury cars, which generally have much less frequent styling changes, you can buy a nice condition five-year-old car for a fraction of the cost of a new one, and still feel like you’re living it up.
Or, buy a good used machine that’s a few years old from a make you like.
One other thing to consider: If you’re the type to run over curbs, accumulate door dings, never wash your car and spill lattes all over the interior, your new car is going to be worth a fraction of what it otherwise would have been worth on resale, which should further prod you to consider a used car where your lax habits won’t mean taking such a financial hit.
January 5th, 2007 at 3:01 pm
This assumes a car valued at $25k plus ($475/mon) is equally satisfying as a $6,250 used car?
This assumes your original car is WORTH $1,500 and the dealer will actually give you that much as a trade in?
After 10 months of saving, a $1,500 car is not even worth $1,500 anymore.
If you think so, it assumes you will actually sell it for that much if you decide to do a private sell yourself?
If you sell it yourself, do you SUBTRACT the expense of advertising it or fixing it up to make it presentable? I’m sure a $1,500 car is crappy looking.
Then, as you go through this UPGRADE process, does the car depreciate in value AT ALL? This example assumes it doesn’t.
Further, if someone has dreams of driving a BRAND NEW SPORTS car, then an $11,000 USED car after 20 months of delayed gratification just aint gonna cut it.
I like DR, but this piece of advice sounds silly to me.
January 5th, 2007 at 3:46 pm
I like point #28. Saving $50/week for 5 years means roughly $15000. Put that money into a high savings account during that time and you’ll earn decent interest too.
hmmm 2012, can’t wait to get a newer car :p
January 5th, 2007 at 8:56 pm
Though this is a very good idea, i doubt many people out there can keep the big picture in their mind for THAT long of a time; probably, they would end up using the saved money on something else, like a vacation or an over-priced, anniversary gift for their significant other.
It’s all about keeping the big picture, which I doubt many of us can accomplish.
January 6th, 2007 at 7:28 am
I too question the logic of this method.
As others have said, you simply cannot sell a car a year later for anything close to what you paid for it.
Another option would be to just buy the car you want and just keep it. Sure, your payments might be high in first 3-5 years, but in years 7-10 your payments are $0. With Ramsey’s method you are making “payments” either to the bank or yourself forever. That’s’ not a whole lot different from leasing, except his payment is lower and the car is crappier.
Where I live public transportation isn’t a viable option. I need my car to be reliable and available every day, so buying a good quality new car every 10-12 years has worked well.
Also, buying new, you can frequently get better financing that you can buying used.
January 7th, 2007 at 10:06 am
Why not save even more money and go car free or as family go to one car? Here is an interesting post on the subject.
January 8th, 2007 at 2:06 pm
[...] I am being a devil’s advocate here, and just nitpicking on JD of Get Rich Slowly’s endorsement of a Dave Ramsey concept of “Drive Free, Retire Rich“. I will always have the utmost respect for JD and his Get Rich Slowly blog, so please view this post purely in terms of numbers…there is nothing personal against anyone here. [...]
January 9th, 2007 at 9:18 am
IU agree with Single Ma “After 10 months of saving, a $1,500 car is not even worth $1,500 anymore”
exactly I think DR forgot to tell us that.
I also agree with Rob “Other than the savings on interest for the loan, I don’t see how this is any different then starting out with the high-end car and making payments.”
Either way you are putting aside the same amount of money. So where is the Drive Free, Retire Rich comes from.
Cars do not last a lifetime. You will always put money into cars whether used or new.
January 14th, 2007 at 5:56 pm
[...] Dave Ramsey Says “Drive Free, Retire Rich” (tags: car finance money) [...]
January 29th, 2007 at 7:29 pm
Pardon.my.lack.of.spacebar.
My.other.computer.is.being.fixed.
1.Somewhere.along.the.line,I’m.getting.that.people.are.thinking.that.you.are.paying.yourself.$475.a.month.for.car.payments.forever.
Not.so.
After.a.certain.amount.of.time,you.will.have.enough.saved.to.draw.for.a.12000.used.car.and.even.if.you.never.make.another.payment.you.can.draw.
another.12000.five.years.later.without.affecting.the.principal.
Say.you.do.continue.to.make.payments.of.$475.to.yourself(while.simultaneously.upgrading.to.a.reasonable.used.car.every.five.years)for.40.years.instead.of.to.the.car.companies.
You.will.have.over.5.million.
2.Even.if.you.got.a.zero.rate.of.return.instead.of.the.12%(the.stock.market.average.over.the.last.75.years…but.I.think.6.or.7.percent.is.more.reasonable)used.in.the.illustration,there.are.benefits.to.buying.in.cash.
For.instance,if.you.total.the.car,
you.may.actually.owe.more.than.the.car.is.worth.
Leaving.you.with.remaining.car.payments(unless.you.carry.gap.insurance).and.no.down.payment.and.no.car.
How.much.better.to.save,pay.cash,continue.saving,and.at.least.if.something.happens,you.can.afford.SOMETHING.to.drive.
3.Repairs.on.older.cars,even.in.worst-case.scenarios,don’t.equal.large.car.payments.
We’ve.”sunk”.two.tranmissions.and.a.refurb.engine.into.my.husband’s.pickup.over.the.last.three.years.
Pretty.unlucky,don’tcha.think?
Total.for.all.three.MAJOR.repairs?
2800.over.36.months.
Less.than.100.a.month,
leaving.us.plenty.to.save.toward.a.better.car
in.the.future.
Just.my.two.cents
(and.a.whole.lot.of.periods!)
February 14th, 2007 at 5:37 pm
Five years ago I bought a repossed, 6 year old Olds with 45,000 mi. from a finance company for $3,000. My wife has put 100,000 miles on it commuting to work. I’ve spent maybe $300 on repairs - Exhaust, brakes, water pump (preventative). People should learn to do some things for themselves to really save money. I could sell the car today for $1,000. 100,000 miles for $2,300! Buy a new car and it costs you that much to drive it off the lot. I’m watching now for that 5-6 year old car with similar low miles so we can do the same thing again. The bigger GM cars get almost as good of milage as the Toyotas and Hondas, have a lot more room, and can be purchased used for 1/3 the price, but they won’t go the 300,000 miles. Get rid of them before they hit 200,000!
February 26th, 2007 at 10:05 am
The one thing that is wrong in this article is the words “trade in”.
Dave NEVER says to trade in. You always SELL your old vehicle to maximize the $$ you get out of it.
Case in point, I traded a paid-for 97 Jeep wrangler in on a 6 year old BMW 3 series. Private party value on the Jeep was $7700, the dealer gave me $6000, and then they put it out on the lot for $10900.
$1700, heck even $1000 more would have helped, but I did that because I can’t sell a thing to anyone, and I would have had to wait longer.
If I hadn’t got that nice paying job 55 miles away, I would still have the Jeep (18 mpg would run me 4-500 a month in gas alone).
I’m glad the Saturn Vue was redesigned, and made more powerful in 2006. I plan to get one of those in about 4 years
March 6th, 2007 at 12:52 am
[...] Source: Dave Ramsey Says ‘Drive Free, Retire Rich’ ? Get Rich Slowly [...]
April 18th, 2007 at 10:46 am
Paul, regarding the “selling” comment you made. This is not an issue with selling your car outright. I am not a seller by any stretch of the imagination. Two years ago I sold my 2004 Camry to get rid of the payment. I wrote up an honest description of the car with a couple of pictures, set the price according to Kelly Blue Book private party sale (kbb.com) and listed it on craigslist.org (free advertising site). I told friends and family, and parked the car with the for sale sign prominently displayed when I had a garage sale. It didn’t take long to start getting calls. On a Saturday about 2 weeks later, a guy whose wife had her car totaled in an accident and needed a car, looked at it, drove it, and an hour later we exchanged a cashier’s check for the title.
You can do it!!
I also recently sold an 88 Jeep Cherokee to a relative’s coworker. Again, I set the price according to KBB, and negotiated the price fairly. The KBB was @ $2000, guy offered me $1600, but I just put $200 worth of repairs into it, so we settled on $1800.
In most states all you need is a Bill of Sale you both sign, and sign as the seller the title over to the buyer. Don’t accept anything other than hard cash (not a personal check) or cashier’s check drawn on a local bank. Don’t be afraid to call the bank to verify funds before you give up your car.
Finally, I believe in the drive free theory as well as many other ideas Dave talk about. The idea is to not be slave to the bank or accept debt in your life anymore. With this new outlook comes power over your financial decisions. Stop asking for a loan and start getting exactly what you want because you have cash to back it up. One thing that was not touched on was this:
Dave is not totally against new cars. If you have no debt and the cash lying around and you choose a crappy investment such as a brand new car, then do it. But be aware, that doesn’t change the fact that you lose 60% of the value in the first four years.
I plan to take God’s and Grandma’s plan a step further. Rather than upgrading in car every year, buy a good used car you really like and drive it until you have to replace it. I don’t know about you, but growing up, my grandparents only had 3-4 cars their whole adult life. They drove it til it wouldn’t go no more! Take a look around, do you see a lot of junk car lots and cars being processed for disposal? The simple fact is that we go through way too many cars. It is very wasteful and keeps us in debt all our lives.
Debt is normal! Do you want to be normal???
April 24th, 2007 at 7:52 pm
You speak up what people needs to hear, although I try they don’t listen. I have saved thousands since listening to you. I have become a published author: Free Of Me
Self-marketing is the only bad thing. So please I need all the help I can get to get my book out there. Thanks and keep the great work up.
Dari Carroll
August 2nd, 2007 at 11:05 am
This is not the Dave Ramsey Plan. Go to his web site to see his actual plan. The author took a couple ideas that he liked and changed it a bit.
Before putting it down, go to the source. everyone who put it down sounds like idiots.
March 6th, 2008 at 1:55 pm
There is another problem with this plan and it is common to all those who jump on the (older) used car bandwagon.
The problem is risk. As a vehicle gets older, the chance that it is going to break down becomes greater. Yes, the make and model have a huge effect on this but it is universally true. So what is the problem with breaking down?
Well, if you are in less than excellent financial straits, the unexpected repair bills can throw you back into debt quickly. But this is probably not a big deal for those reading this.
The bigger problem is when and how a vehicle breaks down. What if you are on the way to work? Being late might not get you fired, but the damage to the trust between you and your boss/co-workers could lower your future earning potential. If you think that is far fetched (and it may be depending on your job) how about something like an engine failure happening in a dangerous place such as a highway. Would you endanger you and your family to save money?
March 16th, 2008 at 6:54 pm
I agree with #45… Listen to the source. Dave Ramsey has a very good system to “change” the way you think about your money.
It’s more than just driving an old car and saving money….It’s about faceing the person in the mirror, You!
I’ve listened to Dave’s radio program for years and he is very motivational!
Life is short, take control of your finances!!
April 16th, 2008 at 3:54 pm
I think #46 has a good point - some people can not afford any extra risk. Breaking down *should* be a consideration.
However, I don’t think the message should be, “Don’t buy older used cars.” I think the message should be, “Be selective about risk, and recognize the risk.” Our family opted for a high-risk old car with known issues because we could buy 9 or more used cars just like it for the price of a new car *and* we could afford the risks. I have a car-free commute, we drive on mostly quiet roads at relatively slow speeds, we had the money for our next used car saved when we bought the first, and we could go without our car indefinitely with only minor inconvenience.
Our friends made a very different decision for all the right reasons. They bought a much newer used car for their main vehicle, and are even going to buy a second car that is nicer than our only car. However, they cannot afford the risk that we can. Their schedule is much busier, and they have many more important reasons to travel and will be in trouble if their car breaks down. They take whatever risk they can afford, and pay for reliability up-front.
But what we do have in common is that we aren’t paying more than we need to for a status symbol. I think *that* is mostly the point of the whole “buy used!” movement. The “beware of breakdowns” caution is a good one. However, the risk might be worth it for some families. But risk needs to be a factor in the equation, that’s true, and it’s also true than many people don’t give risk enough weight.