Riddle me this…
Name me something that you use less than 4% of the day, all the while it loses value?
Of course it’s your CAR!
According to AAA Americans spend on average 17600 minutes driving per year which equals about 48 minutes each day. So unless you are sitting in your car enjoying that new car smell in the garage… this equates to about 4% of the entire day that you are actually using your car.
So what happens the other 96% of the day… well the value goes down, down, and well down.
Bobby from MMM recently just posted an article called “I Still Drive a $6,000 Car When I Don’t Need To”. If you don’t know who he is READ HIS BLOG! He is absolutely killing it!!! In January he launched not one but TWO courses!!! He hit over $150,000 in January alone and yet still drives his 2004 Yukon…
Bobby is not normal… but normal is broke!
Michelle and I are both driving 14 year old vehicles. Hers is 2004 Toyota Rav 4 and my beast is a 2004 Dodge Ram. We paid cash and bought used and have been lucky only to have to do basic maintenance. Our goal is ride them out to about 200,000 miles…
Again we are not normal…
What is normal?
Car companies spend BILLIONS on advertising to explain what normal is.
Check out this INSANE graph of advertising spending in 2016!
GM spends 3,769 Million or…wait for it….
3.769 BILLION dollars on ads…
The job of those ads are to trigger emotions and explain what “normal” is.
For men… we need a truck… because that’s what men need. Check out this ad.
Ummmm yeah if you are a man and DONT own a truck after that…
For moms is about safety, family, and of course storage… Check out this ad.
“You just fall in love with the car”…
Remember these things sit 96% of the time doing NOTHING!
More reasons that new cars are a terrible idea
Here are 3 BIG ONES!
If you are like 1 of the 107 million Americans out there, you got a car loan. You may remember walking onto the car lot and one of the first questions the salesman asking you is:
“What type of monthly payment are you looking for?”
But here’s the thing that they don’t tell you…
That 400 dollar a month payment you said could wanted COULD be applied over 4 years, 5 years, 6 year or even more!!! There is a HUGE difference between 4 year loan of 400 per month and a 6 year loan of 400 per month.
Just how much????
Not including interest… nearly $10,000!!!
In 2017 the AVEREAGE monthly payment was 479 dollars and had a loan of 68 months or 5 and half years.
Wait it gets worse…
For example, when paid over the course of 48 months, a $25,000 loan at 4.5% interest will result in monthly payments of $466.08 and a total cost of $27,965.
When paid over the course of 84 months your monthly payments are lower at $347.50 but the total loan would cost you $29,190 — more than $1,200 versus 48 months. For higher interest rates, the difference between short and long term loans will be even greater.
Yup… whether you buy new or old you are going to have maintenance costs. This is just comes with the territory. AAA estimates that it costs on average $2,686 annually to operate a car.
This includes gas and repairs but not insurance…or the final reason…
Unless you bought an antique car the value of your car is going to go down. Depreciation is a simple concept. Over time your car will be less and less valuable. But just how much value does a new car lose?
Once it leaves the lot it drops on average 10%…
Let’s pretend it’s a $25,000 car. Within seconds you just lost $2,500.
But Eric I am going to keep it LONG TERM.
Awesome! After 5 years it loses 63% of its value…
How to avoid the new car trap
- Buy used… I know you know this. But seriously… By a 5 year old vehicle or older and let the “normal” people lose 63%. Think of it as you saving 63% on a car…
- Pay in cash… As Dave Ramsey says “Cash is KING!”. Michelle and I were able to save up and pay cash for both of your vehicles. There is buying power with cash. For one there is ZERO hidden fees or changes to the price of the car when you get into the back room. But even more important, you are in control of the negotiation. You DON’T need their money or their payment plans.
- Have Patience… Michelle and I waited 6 months for the “RIGHT” deal before we bought. We researched what vehicles we wanted and then set our buying criteria. For example, Michelle wanted an SUV with low miles and I wanted to make sure it wasnt going to break down every month.
I set up an alert for any SUVs that had less than 40,000 miles on it for less than $10,000 in the brands we wanted. After 6 months and a couple of hits we landed the 2004 Rav 4. Walked in, told the guy our price and walked out 30 minutes later with our new car.
Why is this important?
As a dad my main goal is provide for my family. I know this is the goal for a LOT of dads out there. But too many times we get wrapped up into thinking that a new car or new shiny object is what that means. We are caught up in the idea that advertisers sell us.
But a LOT of time these payments just add stress to our lives and create more burden than it’s worth.
Let’s take a look at “Normal” VS “Not-Normal”
Let’s say you buy a brand new car for $25,000 and put down $5,000 leaving you to finance the other $20,000.
You have great credit and they give you a BELOW market interest rate of 4% for 5 years. Your payments come out to be $368 a month.
Now let’s look at this a bit differently.
Let’s say you buy a 5 or 6 year old car instead. On average it loses 63% after 5 years but let’s say it only lost 60% of its value. The car would cost $10,000. Again you use you put down $5,000 and finance the other $5,000.
They give you the same 4% interest for 5 years. Your payments are now 92 dollars a month!
That’s a difference of 276 dollars. EACH MONTH!
If you place the money you saved each month into your savings account with 0% interest rate, you will have $16,560! That is enough to buy a NEW used car in CASH!!!!
Soooooo is that New car smell really worth it?
Lets be “Not-Normal”