Buying a new car the year out of college, dumb or not?

[suaveflooder]

Originally Posted by thill

The Millionaire Next Door: Thomas J. Stanley, William D. Danko: 9780671015206: Amazon.com: Books
The book was really interesting when it covered automobiles and self made millionaires:

- Millionaire next door type do not buy a new car. They buy gently used, and they look for a deal. - Millionaire next door does not finance, they pay cash. Whether you can argue they should have invested the money at a higher return is neither here nor there, the book was pretty clear these types of people are not taking out loans for things like cars.

- Millionaire next door does not lease, they buy their vehicles as I mentioned above (gently used, with cash) and then they maintain them properly and drive them 7-10 years). It was an interesting read for me. I also read Dave Ramsey, and he has some great advice on how to get out of debt, but IMHO, I don't 100% agree with him on investing and I think (as you mention above) there is something to be said for low interest loans, but it is very shaky ground. As was outlined in the book, there are people that make millions a year and are living paycheck to paycheck due to their lifestyle.
I think it really comes down to what you are comfortable paying each month, ensuring that you have at least a years worth of savings to live off of first in case something happened, and ensuring that you are investing a good portion of your income, and have a low debt to income ratio. 2006-2009 were a wake-up call for me. I watched my home (that I had always been told was a great investment/asset) lose about 25-30% of it's value in less than two short years. I watched most of my investments drop by 20-50%. I was concerned about my job even though I am in a growing job field (IT security).

I was really thankful I had money in the bank to live off of, that I had more than 30% equity in my house, and that I owned both my vehicles outright. We could have lived at least 2 years in our house without me or my wife having a job and been able to make all bills without taking out loans on our retirement accounts. Rude awakening. I am actually quite confident that it could and will happen again in my lifetime.

THANK YOU! AMAZING example!! This is actually the next book I want to pick up! I'm in the middle of Secrets of the Millionaire Mind at the moment.

[zipfizz]

Originally Posted by suaveflooder

I've made my mistakes with debt (one of them is in my signature)

So do as I say, not as I do?

[suaveflooder]

Originally Posted by zipfizz

So do as I say, not as I do?

No, learn from my mistakes so you don't make the same ones.

A wise person will learn from others mistakes, a foolish one will repeat them

Edit:
You should see my life now. I have a budget that I make every two weeks. I have learned to tell my money where to go. I have to wait for things! It sucks to have to wait sometime, but i will be better in the end. This is actually how I'm living now. It's hard seeing the all those around you spending lots of money on toys and vacations because i want those too, but they have no plan for the future and are racking up lots of debt and spending lots of unnecessary money in interest.

I'm far from perfect with money, but i am reading as much as i can gets hands on in the subject and getting advice from people who have actually done it and who ARE multimillionaires

[strat61caster]

3% interest on a $20k loan over 5 years is $1,600 total paid in interest. And that's IF you make the minimum payments. I'm planning on paying off in under 2 years which should be less than $600 in interest paid to the bank. (Reasonable approximation for the OP and myself, I graduated last year, bought/financed in January)

Small price to pay for having reliable transportation, great credit building opportunity, and most importantly putting a smile on your face every day. Yup I could have driven my truck for the next year or two, picked up a used FRS for $22k cash (net loss of ~$6k). But I would have had to rely on a failing vehicle with unknown maintenance requirements (no big deal but I would likely be late for work, miss opportunities to do things etc.), I would have no credit in two years, the car would have been beaten on by some other tool, and most importantly I wouldn't be as happy as I am now.

Am I losing out financially? Yes. Is it worth it to play the game by the rules and lose a little up front to be ahead in the long run? I think so, credit isn't cheap. Sure there are cheaper ways to build it but car loans look great.

It's great to play numbers and talk about interest rates and investing but I don't have that cash laying around, I'm still saving it up to the point where I CAN plop something significant into a high yield investment and I'm sure the OP is in a similar position (besides with the circulating talk of new legislation regarding student loans I'm not sure it makes sense to blow every penny on paying off that debt, certainly pay more than the minimum if possible but maybe not every penny).

The millionaire next door is a good book but those kind of people live a lifestyle that I do not want. I do not want to drive the most economical vehicle I can find and pinch pennies to have a stash hidden away so that if I lose my job I can continue to pinch pennies for another couple of years. It's great advice but must be taken with a grain of salt and it doesn't fit everybody.

Before you lump me in with the other "consumerist sheep"; the only purchase I have made this year over $200 that wasn't rent, food, or bills was my FRS. It's not the wisest thing to do but it's not going to bankrupt you in the next couple of years, at least it won't be the only contributing factor.

[thill]

Originally Posted by strat61caster

3% interest on a $20k loan over 5 years is $1,600 total paid in interest. And that's IF you make the minimum payments. I'm planning on paying off in under 2 years which should be less than $600 in interest paid to the bank. (Reasonable approximation for the OP and myself, I graduated last year, bought/financed in January)

Small price to pay for having reliable transportation, great credit building opportunity, and most importantly putting a smile on your face every day. Yup I could have driven my truck for the next year or two, picked up a used FRS for $22k cash (net loss of ~$6k). But I would have had to rely on a failing vehicle with unknown maintenance requirements (no big deal but I would likely be late for work, miss opportunities to do things etc.), I would have no credit in two years, the car would have been beaten on by some other tool, and most importantly I wouldn't be as happy as I am now.

I would not consider a 1-2 year old car a "failing vehicle". And many cars are sold "certified" that either have the remainder of the current warranty plus an extended 10yr/100K mile warranty on the powertrain. I am not blaming you for buying new, but it seems like you are being a little dramatic about buying a used vehicle. Toyota/Subaru are known for having vehicles that, if maintained properly, will run for well over 100K or even 200K miles with mostly just normal wear and tear repairs.

Am I losing out financially? Yes. Is it worth it to play the game by the rules and lose a little up front to be ahead in the long run? I think so, credit isn't cheap. Sure there are cheaper ways to build it but car loans look great.

Sure car loans help build credit (just like credit cards, mortgage, etc). But you lost me on the cheap part. You can build credit on a $10-20K car loan the same you can on a $20-40K car loan.

It's great to play numbers and talk about interest rates and investing but I don't have that cash laying around, I'm still saving it up to the point where I CAN plop something significant into a high yield investment and I'm sure the OP is in a similar position (besides with the circulating talk of new legislation regarding student loans I'm not sure it makes sense to blow every penny on paying off that debt, certainly pay more than the minimum if possible but maybe not every penny).

The millionaire next door is a good book but those kind of people live a lifestyle that I do not want. I do not want to drive the most economical vehicle I can find and pinch pennies to have a stash hidden away so that if I lose my job I can continue to pinch pennies for another couple of years. It's great advice but must be taken with a grain of salt and it doesn't fit everybody.

Actually in the book, the millionaire next door base tends to buy gently used luxury cars (Acura, Infinity, ,etc). They are not really buying low cost Kia's. But they simply don't buy them brand new. I am not trying to be hypocritical here, I tend to buy new too. But there is no denying that your car is worth thousands of dollars less the second you drive it off the lot. Obviously with the FRS/BRZ buying used is much trickier since the used market is so small and dealers are going to use that to their advantage. But in general, for most situations, buying a gently used car makes lots of sense.

[strat61caster]

Originally Posted by thill

I would not consider a 1-2 year old car a "failing vehicle".

I agree entirely with your post, buying gently used makes the most sense and should be the number one consideration. I guess I should have been clearer, my primary vehicle is a 20 year old pickup truck with 200k miles on the clock that I bought for $1k and put $1.5k into maintaining. It was that or another car, of which I considered many but there was nothing "lightly used" that caught my fancy, FRS (and Abarth) are the cars that interested me the most over the last decade, the used market is very small for both and not that advantageous to save a couple grand and take the risk on previous owner negligence.

My point was that it would have made financial sense to make due with my current vehicle and wait for a year, save up the cash and buy a "lightly used" FRS but the pros of financing now outweighed the cons of waiting in my mind.

Edit: I think the most important point made in the book on vehicles is that it makes the most sense to buy reliable vehicles and own them outright for a long time than just about anything else. Too old and you rack up repair costs, too new and you pay for depreciation, the trick is driving around and only paying for the things that need replacing, the gas in the tank and the insurance, which I should be able to claim as my plan in about a year when my FRS is paid off.

Edit 2:

Originally Posted by thill

Sure car loans help build credit (just like credit cards, mortgage, etc). But you lost me on the cheap part. You can build credit on a $10-20K car loan the same you can on a $20-40K car loan.

My car loan is sub $20k which I used in my example because I saved for a hefty downpayment. My cheap comment doesn't really hold up to paying cash for a used car (especially if it's the same one a few years down the road) but overall $1,600 to the bank over five years (while obviously not the cheapest choice) isn't going to leave me struggling to save for retirement like some are saying.

[hanabie]

Originally Posted by chickdigger802

now for the real tough issue... what color?

:facepalm: seriously? It seems like you like to follow the majority opinion.

[thill]

Originally Posted by strat61caster

I agree entirely with your post, buying gently used makes the most sense and should be the number one consideration. I guess I should have been clearer, my primary vehicle is a 20 year old pickup truck with 200k miles on the clock that I bought for $1k and put $1.5k into maintaining. It was that or another car, of which I considered many but there was nothing "lightly used" that caught my fancy, FRS (and Abarth) are the cars that interested me the most over the last decade, the used market is very small for both and not that advantageous to save a couple grand and take the risk on previous owner negligence.

Pretty big change from a 20 year old pickup to an FR-S. Congrats

My point was that it would have made financial sense to make due with my current vehicle and wait for a year, save up the cash and buy a "lightly used" FRS but the pros of financing now outweighed the cons of waiting in my mind.

Edit: I think the most important point made in the book on vehicles is that it makes the most sense to buy reliable vehicles and own them outright for a long time than just about anything else. Too old and you rack up repair costs, too new and you pay for depreciation, the trick is driving around and only paying for the things that need replacing, the gas in the tank and the insurance, which I should be able to claim as my plan in about a year when my FRS is paid off.

I think that is a very fair statement. And I think many of us don't mind paying a little more for something we enjoy driving. I have three young kids and my wife drives a minivan. It is very practical. I splurged on a RWD sports car that only really seats two of my kids and has a manual transmission. My wife was not overjoyed about it, but the price was right, and the funny thing is that she drives the car every chance she gets

[HotLeopardMama]

Originally Posted by thill

Pretty big change from a 20 year old pickup to an FR-S. Congrats



I think that is a very fair statement. And I think many of us don't mind paying a little more for something we enjoy driving. I have three young kids and my wife drives a minivan. It is very practical. I splurged on a RWD sports car that only really seats two of my kids and has a manual transmission. My wife was not overjoyed about it, but the price was right, and the funny thing is that she drives the car every chance she gets

Because mama needs and recognizes the joy that driving this car brings, too. The car is a blast and I love driving it every second I get a chance.

My down payment + trade-in wasn't spectacular (only $3750), but my interest rate is 1.99% and my monthly payment is affordable. My insurance payment is $20 more a month ($99) than it was for my 2002 Ford Taurus, so it's not breaking the bank, either... and I'm deliriously happy with my first new car ever (at 30 years old).

[shirker]

Originally Posted by suaveflooder

Please tell me you see the contradiction here. That is far from not paying interest. I mentioned in my earlier post that a 1/2 million dollar house will cost you $17k+ in interest alone the first year....that's not counting taxes. That is A LOT of money to GIVE to the bank because someone couldn't be patient. It's the "I deserve this right now and I am not going to wait for it" mentality that is really scary, and its all around us right now!

There is no contradiction, you're merely selecting specific parts of my post to try and discredit it. I am saying that payment history is based on BOTH installment debt and revolving debt, and explaining that IF you carry revolving debt (by using a credit card) but pay your balance off in full every month, you are not paying interest. But, since you still have revolving debt use, you're therefore building credit history without paying interest. I never said anything about installment debt and not having to pay interest with installment debt - you do. I just offered an example with revolving debt how you are wrong about not being able to build credit without paying interest, because that is blatantly untrue and dangerous for people to believe.

[shirker]

Originally Posted by suaveflooder

Millionaires know this...

...in fact, my uncle is one of them. Multimillionaire who takes out loans...

Millionaires don't live like everyone.

Pity the fool who maketh millions and liveth a scrooge.

Seriously man, what's your obsession with becoming a millionaire? Financial security is fine and dandy and I'd recommend it to everyone, and I'm planning it for myself but do you want to never go on a vacation until you're old and retired, at which point you'll have so much saved up but only so many years left to enjoy it? Suit yourself.

I don't disagree with you that from a net wealth perspective, the way to absolutely maximize wealth (and become a MILLIONAIRE! WOOHOO!) is to never spend and save everything. There comes a point when you realize that some of that money sitting in the bank/investment will give you more marginal utility if spent than saved.

Life isn't all about making money.

[oofie]

Originally Posted by shirker

Pity the fool who maketh millions and liveth a scrooge.

Seriously man, what's your obsession with becoming a millionaire? Financial security is fine and dandy and I'd recommend it to everyone, and I'm planning it for myself but do you want to never go on a vacation until you're old and retired, at which point you'll have so much saved up but only so many years left to enjoy it? Suit yourself.

I don't disagree with you that from a net wealth perspective, the way to absolutely maximize wealth (and become a MILLIONAIRE! WOOHOO!) is to never spend and save everything. There comes a point when you realize that some of that money sitting in the bank/investment will give you more marginal utility if spent than saved.

Life isn't all about making money.

+1.

When I was growing up (I'm 30 now), I wanted to be rich and buy everything that I wanted. Now that I'm 30, I find myself living within my means, saving up for what I want and enjoying my life.

Sure, I want to have a good chunk of money in the bank, but I also want to enjoy the hard work that I put in everyday. It's just a matter of living within your means. My brother, who makes twice as much as what I make, has over $20k debt in his credit card and he only makes twice the minimum payment. My wife and I have $1k-2k which I pay off every month. Only other debt I have is my car. I have cash to pay for it now, but would rather be liquid as I'm paying very little interest on it anyway.

[shawnperolis]

Originally Posted by shirker

Pity the fool who maketh millions and liveth a scrooge.

Seriously man, what's your obsession with becoming a millionaire? Financial security is fine and dandy and I'd recommend it to everyone, and I'm planning it for myself but do you want to never go on a vacation until you're old and retired, at which point you'll have so much saved up but only so many years left to enjoy it? Suit yourself.

I don't disagree with you that from a net wealth perspective, the way to absolutely maximize wealth (and become a MILLIONAIRE! WOOHOO!) is to never spend and save everything. There comes a point when you realize that some of that money sitting in the bank/investment will give you more marginal utility if spent than saved.

Life isn't all about making money.

Couldn't have said it better.

[GNS]

- To the OP - yes. Why? Because of reasons.

- To everyone else - you're wasting your time. Nobody makes a thread like this without having already made up their mind.


No need to thank me, I'm just doing my job.