The amount of money the average person pays in car payments, if invested in mutual funds, would grow to $5.6 million

I think what most people make mistakes financially with car buying (including me) is replacing them too often. People always focus on how to get the best bang for the buck, by buying used, reliable cars.

However, people miss on the fact that best way to save money on cars is to replace them very infrequently. Even, if you buy a new car, if you keep it for over 10 years, you're good. If you buy an used car, but only keep it for few years, trade it in, and buy again, even if you're buying used, you're wasting a lot of money on transaction costs and depreciation hit.

I'm trying my best to listen to my own suggestion here as I've gone through many cars, and they've been always used, but I've still taken a lot of depreciation hit from changing them more frequent than I should.

I think it's best to change out of cars when you deem your current car is no longer safe.

RamseyFollower wrote:

sub_3_is_the_goal wrote:

I think you have the causal arrow backwards there chief. Rich people don't need car payments because they're rich.

Rich people don't spend a bunch of money, relative to their net worth on things that go down in value. On average new cars lose 40% of their value in 3 years. That means that in 3 years, that $30k new car you bought will be work $16k. Turning $30k into $16k is not a good way to become rich.

I think you have to accept that cars are depreciating assets and in US, most people need it unless you're fortunate to live where you can live without it.

So, buying used is good to not waste as much money on depreciation. However, with what you're saying, you're only focusing on the buying process. Even if you buy a $30K new car and you keep it for a very long time like 15 years, you're fine as you a car is something that most people need or make their lives so much more convenient that it's worth the expense.

my own advice for cars wrote:

I think it's best to change out of cars when you deem your current car is no longer safe.

I buy a different car only when it is no longer reliable. Safety is much of a big factor at all since all cars built within the last 20 or so years are plenty safe. My current car is 15 years old, still wouldn't hesitate to take it on long road trips, therefore, it stays.

Correct! Buy a car and drive it until the wheels fall off. Then buy another one and do the same thing. You do not need a new car every three years.

Yea, even if you buy new to you car(used) every 3 years, you're wasting a lot of money. Just need to make sure that what you're driving, you are safe. I don't recommend with some of buying the cheap econobox as death rates with small cars like Kia Rio or Hyundai Accent is really bad.

I got a 2008 SUV with all of the safety features and I feel very safe to continue to drive it for years to come.

This is a good approach if you can stick to it. I'm not a car guy and I avoided a car payment because my wife and I did follow the Ramsey plan (it's worked out very well for us) but I did buy a brand new car and I've kept it for 8 years now with no plans of getting rid of it any time soon. I think if I had done this right after school with my first job I would still be in good shape.

The counter to Dave's car advice is that you end up buying with a car with problems, and payments on repairs that end up being as much as a car payment AND you have a car that you don't trust.

elviejo wrote:

my own advice for cars wrote:

I think it's best to change out of cars when you deem your current car is no longer safe.

I buy a different car only when it is no longer reliable. Safety is much of a big factor at all since all cars built within the last 20 or so years are plenty safe. My current car is 15 years old, still wouldn't hesitate to take it on long road trips, therefore, it stays.

I wouldn't put a blanket statement that all cars built within the last 20 years are plenty safe. Many cars especially from mainstream brands didn't come with standard side or curtain airbags.

Also, I don't think many of the econoboxes are considered safe. It shows in data that many of the smaller cars result in more deaths from accidents like Kia Rio, Nissan Versa, Chevy Aveo, etc.

So, I personally think safety is important as you never know if you or other drivers cause an accident.

So, I'd choose to upgrade a car if I deem the car to not be safe anymore more than about reliability. Cars are machines and parts can be changed easily. If parts are no longer readily available, then I can see the cost could outweigh, but it's probably still cheaper to replace parts than to buy a newer car.

Dave Ramsey, C.F.A. wrote:

Rich people don't have car payments. That's why they're rich.

Most rich people are rich because of how much they earn or how much they've inherited, not because of how little they spend.

The poorest people spend the least on cars.

And any rich person that paid $80K for their car up front lost out on investing that money to beat the little or no interest they would have paid on car payments.

Now if you think that rich people shouldn't buy nice cars, then what's the point of being rich?

According to the "Millionaire Next Door" the median income of millionaires is only $131k. That means that half the millionaires make less than $131k per year. To become a millionaire making less than $131k means that you have to watch what you spend.

Only sometimes. Because many poor people are unable to scrape together a thousand or two dollars to but a beater car for cash, the use BHPH car dealerships. The BHPH dealerships charge several times the cash value of a beater car because they get it in convenient, small weekly payments. So poor people tend to over pay for cars the most.

If you worry about the investment returns you would lose from paying cash for an $80k, then you are not rich enough to afford an $80k car.

If you are a millionaire with a $131K income, then you're old and you are closer to death than enjoying the majority of your life.

That's not rich.

Rich means you can buy what you want.

If you want a nice car but don't because you want to save, then you aren't rich.

If you don't want a nice then you don't want a nice car and it has nothing to do with this subject.

X-Runner wrote:

Dave Ramsey, C.F.A. wrote:

Rich people don't have car payments. That's why they're rich.

Most rich people are rich because of how much they earn or how much they've inherited, not because of how little they spend.

The poorest people spend the least on cars.

And any rich person that paid $80K for their car up front lost out on investing that money to beat the little or no interest they would have paid on car payments.

Now if you think that rich people shouldn't buy nice cars, then what's the point of being rich?

I definitely don't buy Ramsey's overall point here, and you are likely right that MOST people are rich because of how much they earn or inherited, BUT, with moderate income, a person definitely CAN BECOME rich by spending well within their means. It's not that difficult to do.

X-Runner wrote:

Dave Ramsey, C.F.A. wrote:

Rich people don't have car payments. That's why they're rich.

Most rich people are rich because of how much they earn or how much they've inherited, not because of how little they spend.

The poorest people spend the least on cars.

And any rich person that paid $80K for their car up front lost out on investing that money to beat the little or no interest they would have paid on car payments.

Now if you think that rich people shouldn't buy nice cars, then what's the point of being rich?

Thanks for sharing the poor person's viewpoint on the subject.

X-Runner wrote:

If you are a millionaire with a $131K income, then you're old and you are closer to death than enjoying the majority of your life.

That's not rich.

Rich means you can buy what you want.

If you want a nice car but don't because you want to save, then you aren't rich.

If you don't want a nice then you don't want a nice car and it has nothing to do with this subject.

I think people are arguing over different meaning of being rich.

X-Runner has a point where if you're forced to save so much, then you're not really living the rich life.

But others are arguing that if you live within your means, you can be rich later in life and could argue that their lives are more fulfilling as you're not so focused on materialistic life and more content.

The headline is misleading. Those people aren't without car expenses even if they don't have a car payment. They are going to have to buy a cheap car or two, more than likely they'll have more repair and up keep costs.

Unless this scenario is set up to where someone invests their $350 a mo and take a bus the rest of their lives, then yeah.. no car expense.

You could play that game with anything. If people never eat out and invest that money, they'll have X million dollars in Y years.

If you never ran, but instead took the money you spend on running shoes, gear, travel and race entries you could have a million dollars blah blah blah.

i get the overall point, but having been poor and with unreliable transportation (and in many cities and towns there is virtually no public transport) there is very little more frustrating than dealing with a car that is constantly in the shop or one that is breaking down on you (usually at the worst times.) I see why people chuck it and go get a reliable car and a monthly payment.

Buy a reasonable car - civic or accord for example - pay off in 3 years at 0.9 or 1.9% financing - keep your cash that you would use to avoid the car payment to invest or keep as emergency fund to avoid credit card dept. Keep the cars for 10 years or more.

Concurrently put all you can afford in a 401k or IRA with pretax money, invest in a growth mutual fund and let it grow.

I used to be on board with this, but not so sure now. The used car market is pretty amazing now. I bough a 5 year old car with 60k miles for 10k. When it gets above 120, it'll be pretty old and it's not going to be worth much. If I had bought that car new for say 17k, put 60k miles on it, it still has some value. Where is the break point?

Honestly not sure wrote:

Sayer of correct wrote:

Correct! Buy a car and drive it until the wheels fall off. Then buy another one and do the same thing. You do not need a new car every three years.

I used to be on board with this, but not so sure now. The used car market is pretty amazing now. I bough a 5 year old car with 60k miles for 10k. When it gets above 120, it'll be pretty old and it's not going to be worth much. If I had bought that car new for say 17k, put 60k miles on it, it still has some value. Where is the break point?

I think you want to choose a car that you can keep for a long time. So, the car you bought for $10k may not have been the best choice if falling apart after five years. But I think it’s not too bad either if the car is in decent shape, as car is worth some money.

Either way, if you’re checking out this thread, you may be too much into cars where you may have trouble keeping the same car for awhile.

For instance, my wife doesn’t care much about cars so her last car, she kept her used car for 10 years.

kartelite wrote:

Thanks,

kartelite, CFA

NATHAN JOHNSON!!! How have you been, man? I feel like I haven't seen you in so long!

The headline is not misleading. The point is that if you determine how much car you can afford by the monthly payment the dealer offers you, you get fleeced over the long term. Example, if you make $30k/year, while you may be able to make the payments on a $30k car, doing so will cost you your retirement.

Dave offers the following guidance on how much car you can afford. It is this:

1) The total value of all the vehicles you own (cars, boats, motorcycles, etc...), should not exceed 1/2 your annual income.

2) You need to be able to pay cash

3) You need to have a fully funded emergency fund of 3-6 month of living expenses on top of the cash you are using for the vehicle.

If you don't have a fully funded emergency fund, then you are in the beater market. This means that you buy cars for cash from people (not dealers) who are selling their cars. You do your due diligence on the cars you buy and trade up every year or so. Since you are buying from people, not dealers, you don't lose much money every time you trade.

If you can never save enough cash to buy a car that isn't in the beater category, then there are probably other areas of your life where you are living outside your means.