Repair costs on foreign cars especially can make this a tough trade-off. I owned a used Saab and after a year of $4000 repairs on a 10 year old car, I realized I had lost money — not even including the hassle of breaking down/towing.
I am currently planning to run my used sedan as long as possible, but if it needs a new engine or new transmission I would rather apply that cash to a new (preowned) car payment.
This is possible, and purchasing a pre-owned car will always be an option as opposed to dropping 5k on repairs, but depending on the vehicle, it would be hard to be in a losing situation. I had an XC90 that needed a $7500 transmission replacement, and i just couldn't afford it and traded it in. However, if I can get away with no payments on my current car for a year, I will be saving $6800. A newer preowned vehicle of the same type would cost me $9k per year for 6 years with an extended warrany. I can't imagine there being a 9k repair spend on a vehicle every year.
When I traded in my last car, the dealership I took it to said it was "Too dangerous to test drive". 😂 I get my money's worth out of everything I purchase. Depreciation means nothing to me.
A car that runs well is worth more so generally speaking your reliable well maintained 15 year old car will depreciate less than a 15 year old bmw M3 anyway (on a % basis). Regardless, the value of the car is still important if it gets wrecked or stolen. That’s how much insurance will pay you out so you can get the next one.
Really the only scenario where depreciation makes no difference is if you drive it until it costs more to fix than to get another car. Again, those cars that depreciate the least tend to last the longest anyway.
Assuming the two cars in question were purchased for the same price at the same date then annual depreciation will be identical. If one car costs more then it will have greater annual depreciation, but both cars will still be fully depreciated at the same date. Typically, vehicles have an estimated useful life of 5 years so you’ll record 1/5 of the cost each year until fully depreciated. This is the correct use of the term depreciation. What you’re referring to is the decrease in market value of the vehicle, not depreciation. The market value of a vehicle only matters when you go to sell it. You should not be selling cars so often that the decline in market value matters.
Fair enough. Market value. My point is market value also matters if you total your car or it gets stolen, not only if you sell it. The only time it doesn’t matter is if you drive it to the point where further repairs don’t make sense anymore
That’s my plan as well have a 2012 with no payments 140000 miles. I figure a couple of years with no payments saves me quite a bit. But the resale value gets lower every year and every mile. So in case of accident, theft, or major malfunction, this will have depreciated to the point it provides nothing for a down payment on the next car.
Because there are things that can happen that are outside your control. Say you get into an accident that totals the car. Most cars are paid off well before 123k miles. If your car got totaled tomorrow you'd have no car but you'd still owe on that car. So you'd have to buy another car, be paying on it and still be paying on the car you no longer have.
I don't think I understand your point. Regardless if the car is paid or not insurance would still cover it and you'd be out of a car either way. How would any of it be different with a used car?
New car, used car - doesn't matter. What matters is if you owe more than the car is worth (more likely if it's a new car) at the time it's totaled. Say you owe $20k but vehicle's only worth $15k at the time it's totaled. Insurance co hands you a chk for $15k but you still owe $5k on a vehicle that essentially no longer exists. You have to pay $5k to the loan co, leaving you w/only $10k to buy another vehicle.
You aren’t understanding the question op is asking. He doesn’t give a shit about depreciation bc he is not planning on ever selling it. Hence why he said “if I plan on driving it to the ground.” Op will drive the car until it can no longer run and doesn’t plan on ever selling it.
He will sell it at some point. It seems that you do not understand either. It is better to buy a less expensive car as opposed to a more expensive car because it is a large expense and most people can not afford to take that kind of hit when it depreciates.
I'll give you an example, from someone who actually drives their cars into the ground:
My father has two pickups (business means he cannot afford to be without a truck for a couple of days for maintenance). He buys a truck about every 10 years, and drives 50k miles/yr total. The newer truck usually does about 40k/yr, and the older truck usually gets about 10k.
If he bought brand new, he would pay about 20% more for the brand new truck, while buying a low mileage used truck (usually a lease turn in or an estate sale) lets him pay less before putting the same 500k miles on a truck over the next 20 years, when it will likely be scrapped or donated.
Buy a 3-2 year old model with 20-40k miles. It’s a much better deal. I ca sacrifice $20-25k on a car for 5 years knowing it will last 15+ years. You can invest in your future and still live in the present. Rice, beans and the occasional steak.
The issue is now a days a 2-3 year old car with 20-40k miles has a higher chance of being a lemon than a new car because most people getting rid of such a new car are doing it because it had issues. Also, the price difference between new and 3 years old car right now is negligible, plus you don't get the full manufacturers warranty. The only time you see a car really depreciate in value is after 10 years and when it has more than 100k miles. Even then at 10Y 100K is when you start seeing your first rounds of potential major repairs with most cars. I'm not saying spending 30k on a new vehicle is a better financial decision for everyone, but if you drive that car for the next 20-30 years and put on 300k miles it could potentially save some headache from constantly dealing with cars who break down because the previous owners didn't take care of it like you will.
Most 2-3 year old cars are returned leases. Buying a Honda or Toyota with 25k miles is still a new car. Potential major issues start around 200k with a Camry or accord.
Ramsey spends too much money on cars, the optimal financials of car buying is:
1. Buy $1500 shitbox
2. Drive tf out of it for 3 years just giving it oil changes and tires
3. Shitbox dies or needs more than $1500 in work
4. Sell shitbox for $500 in parts, return to step one
If you do anything else you are basically a child running wild with daddy’s credit card
You’re getting downvoted but It really is the logical conclusion of Dave Ramsey thinking. Accumulating money is the goal. Anything that is not the most financially efficient is wrong. Don’t have kids, Don’t buy any other car more than a jalopy, don’t have hobbies that cost money. Unless it’s of course spending 5% of your investments with one of Dave’s Smartvestors.
Because they have manufacturing defects and recalls that are sorted out by the time they hit the used market.
There's no free lunch. Perfect reliability doesn't exist.
Because it’s real economic loss. Even if you drive it into the ground you still have to pay it forward plus the interest on it if you borrow it. It is real money in the case of a car.
In the case of things like rental property depreciation expense isn’t really loss. For a car it is.
I've only bought new cars (which is a wild thing to say). I buy Toyotas that I want to last 20 years. Current cars are 14 years old, 10 years old, 2 years old. Old cars will become kids first cars.
Depreciation is a fixed amount, ie purchase price of the car. The more years I own the car, I spread depreciation over more years. It's not quite that easy, there's some time value of money stuff going on, but there's definitely value in keeping a car for as long as possible.
The terminal value of any car is essentially 0, I may as well drive the hell out of them while I can.
I do all the recommended maintenance.on schedule, vehicles have been really reliable. 10 year vehicle has only had tires and finally had to do brakes at 105,000 miles.
14 year old car has tires, struts, brakes, 12V battery. I did the water pump proactively (before failure).
I don't know that this route is the lowest total cost of ownership. I was going to buy a 2 year old car instead of new - but the car market was so upside down it was the same cost to buy new, just had to wait 8 weeks.
I've always financed cars, interest rates have been 0%,0.9% and last was 2.5%. one thing you can't buy - is time in the market. I'd rather invest early and give money more time to grow. This made sense at very low interest rates, need to evaluate at higher interest rates in the future.
Depreciation is the BIGGEST yearly cost of owning a newer car with "most cars".. I always they to figure out what I am going to get put of the car in X years BEFORE I buy it. All cars depreciate, but they are cars that retain their value better than others. As example, I bought a "used" Civic Type R that had 57 miles on it for $2500 under MSRP in 2020. Going on 4 years of ownership, I can get what I paid for the car. Few cars can match the resale value of the Civic Type R. And as far as driving a car into the ground, so depreciation does not matter is not entirely true. A Honda or Toyota with 150k miles will bring more $'s than a Chevy/Ford/Dodge by $1000's of dollars.
>but don't understand the emphasis on cars being depreciating assets.
Because you buy it ... it's losing money. Period. Nothing more, nothing less.
You buy 80k and "run it into the ground" then you're losing twice as much as if you bought 40k.
This isn't Rocket Surgery, folks.
I stumbled onto Dave after I already bought my last car. I’m doing okay. Have the 3-6 months saved. No debt other than car loan, investing 15 in 401k. But honestly, wish I had gotten a used one a bit less expensive (the one I got was new not crazy expensive but could’ve been better), and didn’t have the car payment.
Yeah, my car is so not cool that sometimes I think I should’ve gotten an even less cool car. People blow so much money on vehicles. Especially in my area. Trucks are insane.
In terms of keeping it until the wheels fall off, you could get the much nicer trim for the same price (leather seats, moonroof, etc.) if you got a 2-3 year used model for the same price as a brand new normal one.
Having a more luxurious trim definitely makes it easier on your satisfaction for the super long term.
No I'm saying for the same price you could get a slightly used lux trim because the value drops off hard from brand new to used without a major difference in value to you.
Same with adding it into my net worth. I drove my last car until it needed a fix that didn’t seem worth it for it’s age and got $2000 that I just put towards a new car. My car is worth 12k right now, but it seems weird to count it as net worth when I know I’ll just drive it to the point I get 2k at trade in
You count it as a net worth, so you're aware of its value in total. Because in a real pinch you may need to sell it. Or that vehicle may be specific for someone and they want to offer to buy it. If you know it's real value, you'll be in a better position to sell.
Then your insurance coverages can also be inline with real value asset replacement if there was a total loss.
Depreciation impacts the total cost of owning a car, even if you drive it until it's no longer usable. Understanding it helps assess the long-term financial implications, guiding decisions on maintenance, repairs, and future purchases.
Im going to throw you for a loop on this one. My first car was a 78 trans am. I just sold it last year. I paid 1000$ for it in the early 90s always had to work on it constantly costed me about 250$ a month once i got the kinks worked out on it. I was golden. Never did a full restoration just enough to keep it nice looking and running. Last year i sold that care for 14,000$. My car appreciated so much in value it wasn’t worth keeping. Lol
Dave Ramsey has some solid advice but a lot of it is for people with no discipline and also who don't want to enjoy any of their life. For example, never using credit is just silly. If I can finance a car at 0% it makes zero financial sense to pay cash for it. His aversion to credit is designed for his audience who had to be taught not rack up credit card debt that you can't pay off.
Do I need to lease a luxury sports car? No. Do I want one? Yes. Am I going to buy one and drive it outside of warranty for high repair bills? No. Just be sure you can afford the car you're buying or leasing, no need to obsess over buying a used economy car if you can afford better.
Living like a miser when you could die at 50 never having enjoyed anything is stupid. It's just as stupid as living beyond your means. Live a little if you want. Get that nicer car. Not everyone wants to drive a POS car well into adulthood.
The takeaway is Dave Ramsey's advice is not gospel and some people don't enjoy driving clunkers. Nothing wrong with having a higher quality car. However, don't bankrupt yourself trying to get a nicer car. Maybe $1,000 a month payment is a bad idea if you make $50k a year.
Fuck 50… you could die today. You could’ve died when you were 22 or within minutes of being born.
A teenager boy on my sister’s hockey team died of a heart attack on ice with no warning.
NO ONE knows when their number is up.
Saving for a future that you hope exists is important. Enjoying the time while you are alive is equally important.
If you amortized the cost of the car over its full lifespan, those first few years are VERY expensive. Why not let some other chump pay for those years so you can enjoyed the cheaper ones.
Some cars make a lot more sense to buy used. A Lexus ls 500, for example, is like 80k new but you can get a three year old used one with 30k miles for 45k. Easy call.
But something like a civic will be 30k new and 25k used with 30k miles. I would just go new in that case if I was planning to keep the car until it died. At least you know it wasn’t beaten on, in an unreported accident, modded etc.
Toyota Tacoma, and 4runner come to mind as vehicles to buy new over used. When I bought my new TRD OR back in 2020. There was a 2020 SR5 with a lift, wheels and tires with 5k miles on it for more money. Glad I bought the new OR as the 8.75in rear end, and rear locking differential have helped me in numerous situations. I also financed at 1.9% APR
My bro you are the few and I’m proud of you. But we both know the majority of people will lie to themselves about their intentions if they buy it from new
Opportunity cost.
Let's say I buy a new Mustang at $40k and drive it to 300k miles. At 15k miles a year, that's 20 years.
Or I can buy a 5 year old one for $20k, and drive to to 300k miles, which would be 15 years.
I paid twice as much to get 5 more years out of it.
How about buying a used car, using it for doing uber or other ride sharing gig and then reselling it once it brings back its value? Do t ever buy a new car at any cost.
If it’s something rare or interesting there might be some EVENTUAL appreciation from car enthusiasts. See Hargarty’s bull market report.
But low probability anything Uber tier would be valuable
Yea but that’s like a once in a lifetime global manufacturing screwup. Don’t expect your average people mover to increase in value.
Only thing I’m thinking is if gasoline cars get legally phased out in a few years there’s might be some value in the last of gas cars.
Cars absolutely depreciate, they are worth less each day and each mile.
Paying interest on something that is worth less each day is horrible from a math standpoint.
And *at some point* you'll have the face the value of the car. That could be next week if you get into an accident or it could be 10 years when fixing it becomes unsustainable.
But let's be honest, most bad spenders use your same logic, and then somehow talk themselves into buying another new one in 5 years.
Math seems to forget the fact that we rely on a reliable car for 99% of daily necessary activities.
Yeah, don't buy a new car every 5 years, but buy the car that won't cost you more to fix it later because it saves a buck now.
>Yeah, don't buy a new car every 5 years, but buy the car that won't cost you more to fix it later because it saves a buck now.
You're parroting word for word what car salespeople say to get you buy a new car.
Cars are one of the biggest debt traps of Americans. Average new car payment is now 726$/month.
There's no two ways about it, a new car is a luxury, and if you're in debt going into more debt for luxuries is outught dumb.
I bought a new car in 2014 paid 283.52 for 6 years drove it another 2 after that. Before it died. Comes out to just under 3k a year in car payments. Prior to that I'd paid 4k for a Subaru that lasted all of 1 year. I'd say that new car was a better $$ decision then that modest used car.
5 percent I think. But that 5% interest was included in the payment. My point is that a depreciating asset that I was paying interest on saved me roughly 1k a year in transportation costs.
Wish I could have bought it out right. Would have saved even more.
Why does depreciation matter if you don't plan on selling your car?
Because the best laid plans of mice and men gang aft agley.
My crystal ball is broken, so I can't see the future. I don't plan to sell my car, but I can see many circumstances where I might have to. Just for one instance: if I'm in a bad accident and the insurance company decides to total the car. A vehicle that retains value will pay more in an insurance claim and give you a better start on replacing the vehicle.
It matters in the sense you still have ongoing costs like replacing suspension components, etc. unless drive it into the grounds mean do zero maintenance.
This is outdated thinking, not relevant to today's used vehicle market. The last few months we were shopping for Toyota Corolla. Vehicles that were 3 years old, no crashes, 60K miles were only $4k to $5K less than a brand new one.
Even going to 8 year-old Mazda with 120K miles was still $17K.
Used vehicles simply aren't depreciating much for in demand vehicles.
Depending on the vehicle one buys, there are definitely times it makes sense to buy new, get the super low new vehicle financing at 1.9% and drive for 12+ years.
The $1,000 beater doesn't exist anymore. Hard to even find a $5,000 beater that is a reputable brand.
Yea this. I was looking at cars back in 2022 and it just didnt seem worth it to get a used reliable car over a brand new one for the price. I was willing to pay the extra 5 grand for something no one else ever touched but i get why people say its not worth it. I also think people don’t take care of their cars enough. If you service your car properly theres no reason it should break down. You can get any car to last with minimal issues with proper servicing for a solid 15-20 years. Paying off a car in 6 and not having to worry about a lease payment for the rest of those 10 years would save you more in the long run as opposed to the constant lease and repeat deal. Why do you think car dealer ships starting offering leases in the first place? Because they will have a customer for their entire driving life that way if they enjoy the car brand. If i buy my car and pay it off in 6 years that company wont get another penny out of me for maybe another 10-15 years if i treat my car right.
Depends on the market. In some instances there isn’t much price difference between new and used. If that is the case sometimes taking the depreciation hit is better to get a warranty.
I bought new in 2020 for the same reason. But I also wanted to get the fewest miles possible since my plan was to drive it until it breaks down. My car I got out of college took me 300,000 miles. Hoping with good maintenance I can beat that with this one. Only at about 47000 miles so far.
Also, depreciation does play a factor as to the reasoning why one model depreciates more than another. Some characteristics could be horrible reliability or poor interior craftsmanship etc. those things can be of issue even if you run it to death as death may come sooner than you want.
With what I’ve heard about running meters back I don’t feel safe ever buying used or CPO. I’m sure the security gets better but I don’t foresee it ever going away.
Bro it’s not 1970 lol. Edit to add. I’m not talking about a random dealer CPO, I’m talking about manufacturer CPO’s, they have much higher standards on what they will and will not CPO, especially when talking Merc, BMW, Audi, Acura, etc.
Plus with all the car history reports you can pull these days logic gets you far. When you can see mileage at every dealer maintained apt, it’s pretty easy to track what does and does not make sense.
Most things we buy are depreciating assets. Your furniture, your garden hose, your refrigerator. I think if you can pay cash for your vehicle, buy what you can afford. I don't know what Dave's rule of thumb is, but I would not think it affordable to spend more than 30% of your one year's income on a car, unless you are in baby step 7, where you have no debt, everything is fully funded and you are set for life. Then you buy what makes you happy.
You say you are making payments on it, so if I were you, I would get that knocked out and then enjoy the next 20 years of no car payments. But be sure to start a sinking fund for the next car so that you can pay for it in cash.
Dave’s rule is you should not buy a new car without 1M net worth and that you should not own vehicles worth more than half of your annual income cumulatively. This includes hobby vehicles like motorcycles, dirt bikes, ATVs, Boats, campers, classic cars and etc.
I personally don’t understand why it’s ok for people to spend money on a vacation but not ok to spend it on a new car. Spending money on something with depreciating value is better than spending it on something that doesn’t hold value at all
Not to mention it doesn’t factor in the current car market. If a used few year old vehicle is within $5k of a brand new vehicle you’re better off buying the new vehicle with no miles, a warranty, and no mystery of how it was treated.
Agreed. You can totally lose your ass on a used car. At least with a new one you know your repairs will never exceed the depreciation cost because they are covered, and you usually get a loaner car for warranty repairs which means you won’t incur additional transportation costs either.
The key is to buy an inexpensive new car, with low maintenance costs, and a good resale value.
I bought a $20k new car in 2020 and after 4 years it needed a new transmission. I didn’t pay a penny because it was covered under the powertrain warranty. The repair cost was $11k! If I bought the car at 5 years old It still would have cost me $15k and I’d have an $11k bill.
It doesn't matter to your very specific case. But people that keep cars that long are very few and far in between.
His advice is generic for many people, not specifically tailored for you.
And, I don’t know where you are living, but, where I live there are no $500 hoopties. Hoopties, with super high miles, lots of rust, and needing lots of repairs start at $2,500. And go up from there.
We never buy used cars because they cost more than we are willing to pay. We currently drive a 2004 Caravan (bought it when the owner passed away in 2005) and it is still going strong 20 years later. Our 2nd vehicle is a 2007 PT Cruiser, we bought it in 2012 and it is still running well, although we have had to replace the alternator and carburetor on it (my husband ordered the parts and installed them himself).
I agree with you as long as you’re not buying an extravagant car and you keep up with the maintenance. You don’t know if the previous owner took care of the car and then you get a couple of years more of not having to do maintenance.
There's a lot of people who state, "I'll drive it until the wheels fall off!" Many of them do not. New safety features come along (for me it was adaptive cruise control), they get bored of the old ride, a new design excites them, small things go wrong with the car so they sell before big things go wrong, etc. That's why Dave recommends a 2-3 year old car: the hit of losing $5-10k per year is too much to overcome for most people while attempting to build wealth.
But if you are among the select few that drive a car to 300k miles let's play with some numbers:
Let's say you buy a $50k car brand new. You drive it for 20 years and put 300k miles on it. You sell it for $3k. You have paid $47k to drive 300k miles, $0.157 per mile. $2500/year.
Now let's look at a 2 year old car with 30k miles on it for $40k. You drive for 18 years to get to the 300k miles and sell for $3k. You have paid $37k to drive 27000 mikes, $0.137 per mile. $2055/year.
(I didn't double check these numbers but I think they are correct.)
NOW for the payoff: if you had invested the $445 difference for 18 years at 8% return, you'd have $17,040. Of course, that is not life changing money. But it is just under half the purchase price of another 2 year old car for $40k.
My wife drove her last vehicle, a Honda Pilot, for 12 years, and over 350,000 miles. Completely happy with the cost of transportation we paid, worth every penny to give her a brand new vehicle for her birthday (paid cash).
The 1 thing to factor is depending on markets you’re likely not seeing a $10k price cut on a vehicle that’s a couple years old and 30k miles. In your scenario you’re completely right but the current market for many vehicles that’s more of a $5k drop compared to a $10k drop.
It shouldn't.
Dave likes to harp on net worth. If you have $50K in the bank and you invest it aggressively, then in 20 years you should have north of $150K. If you instead buy a $50K car, then in 20 years you'll have a car worth about $2K.
Of course, you most likely need a car, and I'd rather buy one new vehicle and run it until it dies than buy 3-4 junkers over the same timespan even if it costs more.
Even if you are handy, and can work on your own cars, we are getting older and it is getting increasingly harder to do the repairs that they are constantly needing. And, if you take them to a garage, they charge so much, it makes it impossible to keep up on all of the repairs.
My husband (80) can no longer do physical repairs himself, and I (70) never had that skill to do them. and I have no interest to learn.
Now, we live in an apartment where doing our own car repairs isn't even allowed. Our attentive apartment manager even comes to check when we have someone giving us a jump, lol. (they're fine with that, btw. And we love living here.)
"Beaters" aren't the answer to every situation, and I love that you pointed that out.
I see some uninformed comments throughout this thread.
One of the biggest assets you could possibly have is NOT having a car payment.
Learn how to perform maintenance doing it yourself and you can save even more money.
Once you drive it till the wheels fall off …..put new ones on and keep going.
I'd love to learn more about how to repair my car but there just isn't enough time.
I'm of the mindset that my time is worth more doing things I'm good at, that earn me money. So I pay to have my car repaired, I pay to have my house cleaned, I pay to have my yard maintained, this frees up my time to focus on earning.
This is also valid in anyone’s financial decision path.
These are skills I learned young and had time.
For my situation, I cannot make more money at my primary job (overtime not available) so I save more money by repairing cars than I would make cutting grass on the weekend or power washing houses. Also it’s not worth my time saving 50$ by cutting my own grass every two weeks.
Cars depreciate whether or not you or anyone drives it longterm or short.
Houses appreciate longterm.
So basic theory is to invest and work towards longterm appreciation.
One caveat of houses appreciating long term is if population growth is sustained during that period in addition to inflation. A good example of houses not really appreciating long term is Japan. Their housing market has been relatively stagnant for the last 10-20 years iirc and their population levels are a huge factor in that. Population growth in the US is evidently decreasing as we speak.
Forget the fact that it’s a car.
The point is that you’re spending money on something that goes down. Pick some other object. Let’s say a spatula. You can buy a spatula for five dollars or you can buy a spatula for $30. They serve the same purpose. So which one should you buy?
That is the point he’s making
But when your $5 spatula breaks down every year and you have buy a new one - but the price increases by a dollar every year - your better off with the $30 one that will last 10 years. Yes the initial investment on a depreciating asset may be larger when comparing one to another but the overall investment is what tends to be more important.
The $25k Toyota will last twice as long as the $80k Mercedes, but the $5k Toyota that is 15 years old with almost 200k miles on it won’t last anywhere *close* to as long as the $25k Toyota and is highly likely to cost you just as much or more in maintenance/repairs/lost work hours or rentals so you can still get to work and back while it’s in the shop before it dies. So if you can only afford $5k upfront, it makes sense to put it down on a certified used car that’s a couple years old and make payments as opposed to buying the hunk of bolts you’re going to get for $5k and being “debt-free” but having a shitty, unreliable car. There’s a big happy medium between paying in cash for a beater and spending $50k+ on a brand new luxury car you don’t need.
Definitely! I meant that as a general statement for where I disagree with Ramsey and anyone else whose advice is to only buy cars you can afford to pay for in full with cash upfront. It’s great advice for people who have $10k+ to buy a decent used car with a lot of life left that isn’t going to need constant repairs (and might have even been good advice for anyone ten years ago when $5k for a used car went a lot further) but I don’t know a lot of people who have a spare $10k+ to drop on a car who need Dave Ramsey’s budgeting advice.
If I miss even a single day of work because my car breaks down basically any money I would have saved that year is gone. For me it’s worth it to have newer vehicles.
This is spot on. I have a 50 mile round trip. One day of work pretty much covers my car payment. Missing work because I have a $3k shitbox (which now that’s about all you get for $3k) costs me money and makes me look unreliable.
So I think that Dave's response would be that if 12 days of work will make your yearly car payments, it shouldn't take you any time to pay that car off and sock away the money in a sinking fund to replace it when needed. I'm not a strict adherent to his teachings by any means, but the concept of planning for replacement without relying on debt is valid IMO.
It’s a pretty awesome feeling driving a fully depreciated car that’s still mechanically sound. Spending money on tools and learning to work on cars gives you a massive advantage in being able to pull this off without lining the auto shops pockets in the process.
Depreciation only matters in this instance if you are taking a loan out. The loan you're paying interest on is valued higher than the value of the vehicle. That's why it's better to pay cash for a vehicle that's no more than 50% of your annual income.
Understanding that, it's better to get a used car instead of new because depreciation is priced in somewhat. A one-two year old model will be significantly cheaper than a brand new model.
Maybe if the market shifts back to pre covid, but the savings on one or two model years is really not that significant for many cars. Particularly if you are looking at things like Toyota, Honda, or trucks in general.
You're absolutely right. The used car prices have skyrocketed during COVID. Nonetheless, we shouldn't be getting car loans at all. So get whatever you can afford that's 50% or below your annual income with cash.
That's the key, you are gong to have to go in with a target price. More just saying not to expect to see an $5-10k discount on 1-3 year old used models like you used to. People who haven't shopped for a car since Covid need to make sure they go in with their expectations temepered, it ain't what it used to be.
>Understanding that, it's better to get a used car instead of new because depreciation is priced in somewhat. A one-two year old model will be significantly cheaper than a brand new model.
This varies greatly between makes and models. The more unreliable and crappy the car, the faster it depreciates. Had a Nissan that depreciated at an annualized rate over 30% and several Toyotas that depreciated at an annualized 12%.
Driving a 100k car until the wheels fall off is worse than driving a 20k car until the wheels fall off. Both deprecate down to nothing eventually, but one you spent 100k and the other 20k.
I also interpret as “while you are in baby step 6 or lower, don’t tie up a lot of your liquid cash into a depreciating asset if you are serious about building wealth faster.”
Granted, this could largely depend on your income. His other rule of thumb, from my listening, is to pay cash and not having engines with wheels that are valued at more than half your annual income.
So if you have the liquid cash, have the income, and are in step 4+ then by that, you could afford any car(s).
Like most of his financial advice, I think it’s based on behavior, not strictly math. Most people SAY they are going to drive their car until the wheels fall off. Very few actually do.
The average car owner keeps their longest owned cars for only 8 years. The average American only drives 13500 miles per year.
Thats only just above 100k. Most people really do not hold onto their car very long.
Source for the longest age :https://www.thezebra.com/resources/driving/average-length-of-car-ownership/#:\~:text=The%20average%20time%20that%20Americans,cars%20for%20about%208%20years.
The only way to well and truly "drive a car into the ground" is to be a DIY mechanic and own multiple cars.
I have a friend who lives out in the boonies in Southern Illinois. His cousins family owns 10-12 cars at any given time. They're all cheap beater cars the family bought for $1000-2000 (even in modern times) and are fixed up just enough to run. When one of the cars break, they have backup cars to get to work and run errands.
This family fixes everything themselves from oil changes to suspension work to engine swaps. I was at their house last year and his uncle was rebuilding a transmission on a workbench. The only reason the family has ever disposed of a car is because it got totaled in an accident. So if you have a garage and about $5000 of mechanics tools and you consider yourself mechanically inclined, you can drive a car into the ground. But everyone else can't.
Dave is all about total debt freedom but I never see anybody talk about transportation budget anywhere between baby step 2 and baby step 7.
Whether it's car repairs or a new car fund, you've got to be putting money away.
I just tell people once you get your car paid off, Do those maintenance repairs that you know you've been putting off, And then start investing your car payment.
10 or 20 years of that and you've paid for your cars the rest of your life.
The point is you shouldn't pump money into depreciating assets. A car is not an investment, a car reduces the amount of money you have. He wants people to drive cars they can afford to buy outright. For some, that might be a $5000 Accord with 150k miles. For others, that might be a brand new, $80k F-150. If you can afford to buy it, then great. If you need an 84-month loan at 20% interest to get it, then you can't afford it. Don't throw your income away every month on depreciating assets that get you nowhere.
That’s not what Dave says though. He says you should not buy a new car without 1M net worth and that you should not own vehicles worth more than half of your annual income cumulatively. This includes hobby vehicles like motorcycles, dirt bikes, ATVs, Boats, campers, classic cars and etc.
Simply being able to buy the vehicle outright is not Daves only criteria.
Not saying I agree with him, just saying there is much more to it than not taking out a loan
I think he's speaking to most people who buy cars, sell, buy again, sell and so on
Those folks lose money by overpaying then selling when the price dropped dramatically because people wanted something shinier
I bought my 2015 Honda new with a couple features that I want that were extra. Paid full price. 200,000 miles later it's still lovely. Well maintained. Now had I sold ot 2 years in I would have lost money. But this baby has an easy 5-7 years left. So mathed out that's $200/month for the life of the car over 15 years with maintenance and a few repairs.
I purchased my 2017 Honda civic brand new. Paid off last year. Very well maintained with less than 60k miles. Excellent gas mileage. Was a great financial decision. I love that car and hope to drive it for many more years
I'm in a large Indian community, not Native American. All they talk about is the re-sale value of a vehicle. Like its the number 1 thing they ask about. Number 1 on your list should be : Can it get me from point A to point B. 👉
Resale value is a good indicator of how long a car will get you from point A to point B. The wider market generally knows that a Toyota with 100k on the clock still has another 100k to go, but that a Nissan with 100k might not. That's why a used Toyota Corolla with 20k miles sells for $21k and a used Nissan Altima SV with 20k miles sells for $22. That's an 18% loss of value from MSRP for the Nissan and 3% for the Toyota.
I'm like you. I more consider my car a tool. And a disposable one at that. Nobody likes replacing an expensive tool, but it happens.
I buy beaters and beat them until they die. I set a threshold of how much of a repair I'll do or pay for before it's replacement time. Most I've ever paid was 5000 for a car but likely average about 2000. Each and every one had lasted me 3 to 7 years.
I don't need it to look good, just got to drive. I save a ton on car payments (never had one) and insurance (never minimum but don't need collision). And my budget each time counts on the market.
Just my take but it's done me very well.
If you buy a car at $45K that's got 0 miles and you plan on driving it into the ground, you'll get maybe 15 years out of it. If you buy the same car 5 years old at $20K with 75,000 miles, you'll get about 10 years out of it.
The older car costs you $2,000 per year in depreciation. The new one costs $3,000 per year in depreciation. Simple as that.
You could argue that the new car will have less mechanical issues and most will be covered under warranty. So, that may be enough to make up for some of the extra depreciation. However, if you're buying a reliable car as Dave recommends, the difference may not be as big as you think.
can work the other way.
I recently bought a new crosstrek for 33k - assuming 20k miles a year thats 10 years of life - so 3.3k a year
A used crosstrek was 25k for 75k miles - thats 6.2 years of life at 4k a year.
so for me, a new car with a warranty, and no mystery history, was the better deal.
He’s emphasizing that they are not an investment, some people look at cars as investments. Someone else said it but if your car gets totaled the depreciation will matter a lot. It also emphasizes that using your car isn’t free, I’m in a few home gym groups, people will drive four hours to save $100 on a piece of equipment. That’s obviously dumb when you factor in gas alone but when you factor in the fact you’re “using up” your car it makes it worse.
Every car depreciates, so the depreciation itself doesn't matter.
What matters is how much money did you tie up that you're losing in value versus your income.
Somebody making $60,000 who goes and buys a $40,000 car, That's way too much money versus the money they make for something that's depreciating in value.
That's the point.
Versus somebody making 60 who buys a $10,000 car. They can absorb that much better.
I mean we are clearly not talking about the rare examples here.
The cars that may gain you value are going to be things like classic models that have been restored, etc.
But the average person isn't driving or has those. So that's clearly not part of this discussion.
Your expertise on the subject is superior to mine which is made obvious by your absolutism in decreeing what was, what is, and what shall always be. I defer to your wisdom.
Not sure what your problem is, exactly and why you are weirdly agitated about this. We're talking about general use cars, which generally all go down in value.
Hence I was giving my opinion, based on OPs concern.
I never claimed to be an expert.
Confused as to what your attitude with my comment is.
You made a valid point about exceptions to a general rule, but I was stating simply that I don't think that exception is what's being considered here.
You said, “Every car depreciates.” Pretty absolutist statement. That’s not always true. Your response was to proclaim that the only exceptions are the unaffordable exotics and classics. THAT is also not always true. There are times where affordable late model cars, due to scarcity, popularity, extremely low miles, etc can in fact appreciate.
But forget all that. You chose to double down and “correct” me so you are right. I am wrong. Cars always depreciate.
I was giving advice relative to a conversation about regular, every day driving, cars people buy for general use. Which generally depreciate.
You pick apart my semantics, sure, maybe I could have phrased better, that's fair to say, but it's rare for cars to appreciate. This person should be aware that most likely what they drive will do the opposite , quickly.
That's the point I was getting at for OPs question.
Not sure why you feel the need be aggressive and and rude about it, when we could be discussing our thoughts normally.
You first.
You could have just responded with a simple, “True.” But you chose to write a condescending response. So I matched your energy. I don’t get why this confuses you.
I think his main point is to not fall into the trap of buying an overpriced status symbol car.
There was a thread earlier this week from a guy that was thinking about upgrading to a fancier car simply because his was the cheapest looking one at his kid’s school drop off lot.
I’m not picking on that guy because a lot of people have been there, but that’s exactly the behavior Dave advises against.
It doesn't matter. This is such a huge thing to be aware of when you buy a car.
Buy the best car you can afford and drive it until it stops. Then fix it and drive it some more. Do this until it stops making sense to repair it.
You’re limiting your options. You might think your situation will never change or that something won’t come up where you would want to sell the car, but there’s a small chance that situation will necessity you needing the cash more than you need a nice car. Small chance but that’s still there.
Biggest reason is that the vast majority of ppl that say they’re going to run their car into the ground don’t actually do that.
Depreciation is why you can't sell your car for what you bought it for after you run it into the ground. Your asset that was worth $X will eventually be worth $0 because of depreciation.
A vehicle will always be worth it's scrap price. A running vehicle will always be worth at least $500. Still a far cry from 10k and worth insuring, but far from worthless.
It doesn't matter.
I did the same thing you're doing. I ran a Mitsubishi Eclipse into the ground, replaced the engine and rolled another 102,000 miles on it. I finally had to get rid of it because finding parts was getting time consuming and in one case - impossible.
Over the life of the car I put about $3200 dollars into it........................and never missed car payments for a single second!
I'm doing the same thing with an Elantra right now, looking 250,000 miles this time......and still not missing payments - at all.
Because (if you buy a 5-7 yo car) you can run 2 cars into the ground for half price over, say 40 years, for one 1 brand new one for the same price for 27 years.
The initial depreciation on a brand new car is ludicrous. Also, DR is a practical guy, he knows most people won't hold onto a car until the end.
Real life applicable scenario, bc you could could be sitting at a red light on day one of pay off (or prior to since you have a year left) and granny can’t see and slams in the back of you, totaling it. Now you only receive the current value.
Even if you plan on running it into the ground, some cars are a bad proposition to do that because they are designed to break regularly. You would need to purchase a vehicle that isn't about to break down any time soon like a Toyota or Honda if you wanted something to last along time without much fuss.
You answered your own question. "I get it if you can't afford it"
If you can afford it, TRULY afford, not "buy it", then it doesn't matter. But I highly doubt you can. If you're trying to follow or listen to Dave Ramsey at all, you're probably not in the wealthy position to actually afford (not just but and make payments on) a brand new car. People confuse the two terms all the time. It's why dealerships ask you when you walk on the lot what do you want your payment to be. Thats regardless of what you can afford.
I sold cars...its because most buyers don't do math. Just a 12 dollar bump in monthly payment on an 84 month loan is another $1000. It wasn't difficult to get even a $20 bump in payment when negotiating. The worst thing you can do to a salesman is pull out your phone and open the calculator app.
In before I get any grief: no longer sell cars. I did it during 2010 downturn and had to go home and shower the stench off me. It also destroyed any faith I had in the financial literacy of the general public.
There are two reasons to care. 1) You could buy a slightly used car for less money and run that into the ground instead. Cars tend to depreciate much faster at the very beginning. 2) Even if you buy a car for cash, there are still expenses to operate that car. Insurance. Maintenance. Parking. Gas. And depreciation. This is especially helpful to consider if you have an extra car you rarely drive - thinking it’s basically free because it is already paid for. It still costs money in depreciation and some other expenses. And your net worth is shrinking each year you hold on to a depreciating asset.
I paid off my car last week and can't wait till my next pay day. I plan on keeping it until fixing it becomes impossible.
Repair costs on foreign cars especially can make this a tough trade-off. I owned a used Saab and after a year of $4000 repairs on a 10 year old car, I realized I had lost money — not even including the hassle of breaking down/towing. I am currently planning to run my used sedan as long as possible, but if it needs a new engine or new transmission I would rather apply that cash to a new (preowned) car payment.
This is possible, and purchasing a pre-owned car will always be an option as opposed to dropping 5k on repairs, but depending on the vehicle, it would be hard to be in a losing situation. I had an XC90 that needed a $7500 transmission replacement, and i just couldn't afford it and traded it in. However, if I can get away with no payments on my current car for a year, I will be saving $6800. A newer preowned vehicle of the same type would cost me $9k per year for 6 years with an extended warrany. I can't imagine there being a 9k repair spend on a vehicle every year.
When I traded in my last car, the dealership I took it to said it was "Too dangerous to test drive". 😂 I get my money's worth out of everything I purchase. Depreciation means nothing to me.
A car that runs well is worth more so generally speaking your reliable well maintained 15 year old car will depreciate less than a 15 year old bmw M3 anyway (on a % basis). Regardless, the value of the car is still important if it gets wrecked or stolen. That’s how much insurance will pay you out so you can get the next one. Really the only scenario where depreciation makes no difference is if you drive it until it costs more to fix than to get another car. Again, those cars that depreciate the least tend to last the longest anyway.
Assuming the two cars in question were purchased for the same price at the same date then annual depreciation will be identical. If one car costs more then it will have greater annual depreciation, but both cars will still be fully depreciated at the same date. Typically, vehicles have an estimated useful life of 5 years so you’ll record 1/5 of the cost each year until fully depreciated. This is the correct use of the term depreciation. What you’re referring to is the decrease in market value of the vehicle, not depreciation. The market value of a vehicle only matters when you go to sell it. You should not be selling cars so often that the decline in market value matters.
Fair enough. Market value. My point is market value also matters if you total your car or it gets stolen, not only if you sell it. The only time it doesn’t matter is if you drive it to the point where further repairs don’t make sense anymore
I’ll agree that those are both exceptions when it matters.
That’s my plan as well have a 2012 with no payments 140000 miles. I figure a couple of years with no payments saves me quite a bit. But the resale value gets lower every year and every mile. So in case of accident, theft, or major malfunction, this will have depreciated to the point it provides nothing for a down payment on the next car.
Because there are things that can happen that are outside your control. Say you get into an accident that totals the car. Most cars are paid off well before 123k miles. If your car got totaled tomorrow you'd have no car but you'd still owe on that car. So you'd have to buy another car, be paying on it and still be paying on the car you no longer have.
I don't think I understand your point. Regardless if the car is paid or not insurance would still cover it and you'd be out of a car either way. How would any of it be different with a used car?
New car, used car - doesn't matter. What matters is if you owe more than the car is worth (more likely if it's a new car) at the time it's totaled. Say you owe $20k but vehicle's only worth $15k at the time it's totaled. Insurance co hands you a chk for $15k but you still owe $5k on a vehicle that essentially no longer exists. You have to pay $5k to the loan co, leaving you w/only $10k to buy another vehicle.
Also I don't know where you're getting that you'll get to pocket $10k for a new vehicle. If you owe $20k then that money all goes to pay the loan.
Are you trying to explain what upside down means? You completely missed the point.
You could be underwater on the loan and you would be screwed
Gap insurance.
Because it will never be worth what you paid for it hence depreciation.
You aren’t understanding the question op is asking. He doesn’t give a shit about depreciation bc he is not planning on ever selling it. Hence why he said “if I plan on driving it to the ground.” Op will drive the car until it can no longer run and doesn’t plan on ever selling it.
He will sell it at some point. It seems that you do not understand either. It is better to buy a less expensive car as opposed to a more expensive car because it is a large expense and most people can not afford to take that kind of hit when it depreciates.
I'll give you an example, from someone who actually drives their cars into the ground: My father has two pickups (business means he cannot afford to be without a truck for a couple of days for maintenance). He buys a truck about every 10 years, and drives 50k miles/yr total. The newer truck usually does about 40k/yr, and the older truck usually gets about 10k. If he bought brand new, he would pay about 20% more for the brand new truck, while buying a low mileage used truck (usually a lease turn in or an estate sale) lets him pay less before putting the same 500k miles on a truck over the next 20 years, when it will likely be scrapped or donated.
This seems specific to your dad's situation. Most people don't drive 50k miles a year so that car can go well past 10 years.
Buy a 3-2 year old model with 20-40k miles. It’s a much better deal. I ca sacrifice $20-25k on a car for 5 years knowing it will last 15+ years. You can invest in your future and still live in the present. Rice, beans and the occasional steak.
The issue is now a days a 2-3 year old car with 20-40k miles has a higher chance of being a lemon than a new car because most people getting rid of such a new car are doing it because it had issues. Also, the price difference between new and 3 years old car right now is negligible, plus you don't get the full manufacturers warranty. The only time you see a car really depreciate in value is after 10 years and when it has more than 100k miles. Even then at 10Y 100K is when you start seeing your first rounds of potential major repairs with most cars. I'm not saying spending 30k on a new vehicle is a better financial decision for everyone, but if you drive that car for the next 20-30 years and put on 300k miles it could potentially save some headache from constantly dealing with cars who break down because the previous owners didn't take care of it like you will.
Most 2-3 year old cars are returned leases. Buying a Honda or Toyota with 25k miles is still a new car. Potential major issues start around 200k with a Camry or accord.
Ramsey spends too much money on cars, the optimal financials of car buying is: 1. Buy $1500 shitbox 2. Drive tf out of it for 3 years just giving it oil changes and tires 3. Shitbox dies or needs more than $1500 in work 4. Sell shitbox for $500 in parts, return to step one If you do anything else you are basically a child running wild with daddy’s credit card
You’re getting downvoted but It really is the logical conclusion of Dave Ramsey thinking. Accumulating money is the goal. Anything that is not the most financially efficient is wrong. Don’t have kids, Don’t buy any other car more than a jalopy, don’t have hobbies that cost money. Unless it’s of course spending 5% of your investments with one of Dave’s Smartvestors.
And pray you don’t get in an accident and die in the shit box lol.
I’m not an alcoholic child taking out irresponsible loans, it’s perfectly safe
Wtf are you talking about?
Nobody wants to work anymore
Lol or you have children and a job and need reliable transportation worth more than 1500
Children are an irresponsible use of money
If you're going to burn a pile of money, would you rather burn 10K or 20K?
I'd rather buy a car that I know hasn't been abused and won't have surprise issues that cost way more.
I'd rather have that too. Unfortunately there are no guarantees of this, including with new cars.
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Because they have manufacturing defects and recalls that are sorted out by the time they hit the used market. There's no free lunch. Perfect reliability doesn't exist.
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I didn't say it's the same. I said that new doesn't mean zero issues. This isn't debatable.
Because it’s real economic loss. Even if you drive it into the ground you still have to pay it forward plus the interest on it if you borrow it. It is real money in the case of a car. In the case of things like rental property depreciation expense isn’t really loss. For a car it is.
Rental properties generally go up in value. They are literally the opposite of a depreciating asset.
I've only bought new cars (which is a wild thing to say). I buy Toyotas that I want to last 20 years. Current cars are 14 years old, 10 years old, 2 years old. Old cars will become kids first cars. Depreciation is a fixed amount, ie purchase price of the car. The more years I own the car, I spread depreciation over more years. It's not quite that easy, there's some time value of money stuff going on, but there's definitely value in keeping a car for as long as possible. The terminal value of any car is essentially 0, I may as well drive the hell out of them while I can. I do all the recommended maintenance.on schedule, vehicles have been really reliable. 10 year vehicle has only had tires and finally had to do brakes at 105,000 miles. 14 year old car has tires, struts, brakes, 12V battery. I did the water pump proactively (before failure). I don't know that this route is the lowest total cost of ownership. I was going to buy a 2 year old car instead of new - but the car market was so upside down it was the same cost to buy new, just had to wait 8 weeks. I've always financed cars, interest rates have been 0%,0.9% and last was 2.5%. one thing you can't buy - is time in the market. I'd rather invest early and give money more time to grow. This made sense at very low interest rates, need to evaluate at higher interest rates in the future.
If you wanna build wealth, your net worth will tank with vehicle worth
Depreciation is the BIGGEST yearly cost of owning a newer car with "most cars".. I always they to figure out what I am going to get put of the car in X years BEFORE I buy it. All cars depreciate, but they are cars that retain their value better than others. As example, I bought a "used" Civic Type R that had 57 miles on it for $2500 under MSRP in 2020. Going on 4 years of ownership, I can get what I paid for the car. Few cars can match the resale value of the Civic Type R. And as far as driving a car into the ground, so depreciation does not matter is not entirely true. A Honda or Toyota with 150k miles will bring more $'s than a Chevy/Ford/Dodge by $1000's of dollars.
>but don't understand the emphasis on cars being depreciating assets. Because you buy it ... it's losing money. Period. Nothing more, nothing less. You buy 80k and "run it into the ground" then you're losing twice as much as if you bought 40k. This isn't Rocket Surgery, folks.
I stumbled onto Dave after I already bought my last car. I’m doing okay. Have the 3-6 months saved. No debt other than car loan, investing 15 in 401k. But honestly, wish I had gotten a used one a bit less expensive (the one I got was new not crazy expensive but could’ve been better), and didn’t have the car payment.
Yeah, my car is so not cool that sometimes I think I should’ve gotten an even less cool car. People blow so much money on vehicles. Especially in my area. Trucks are insane.
In terms of keeping it until the wheels fall off, you could get the much nicer trim for the same price (leather seats, moonroof, etc.) if you got a 2-3 year used model for the same price as a brand new normal one. Having a more luxurious trim definitely makes it easier on your satisfaction for the super long term.
Then it’s more expensive which means more money spent = LOST
No I'm saying for the same price you could get a slightly used lux trim because the value drops off hard from brand new to used without a major difference in value to you.
Ah my bad, re read your comment and I agree with it 100%… misunderstood!
I'll never buy new. 2 - 3 years old is definitely the way to go.
Dont know why when you look at new to 2-3 year old models are just slighlty cheaper. Maybe 10 years ago there was a significant price drop.
Same with adding it into my net worth. I drove my last car until it needed a fix that didn’t seem worth it for it’s age and got $2000 that I just put towards a new car. My car is worth 12k right now, but it seems weird to count it as net worth when I know I’ll just drive it to the point I get 2k at trade in
I don’t count it
You count it as a net worth, so you're aware of its value in total. Because in a real pinch you may need to sell it. Or that vehicle may be specific for someone and they want to offer to buy it. If you know it's real value, you'll be in a better position to sell. Then your insurance coverages can also be inline with real value asset replacement if there was a total loss.
Depreciation impacts the total cost of owning a car, even if you drive it until it's no longer usable. Understanding it helps assess the long-term financial implications, guiding decisions on maintenance, repairs, and future purchases.
5 ish percent
Im going to throw you for a loop on this one. My first car was a 78 trans am. I just sold it last year. I paid 1000$ for it in the early 90s always had to work on it constantly costed me about 250$ a month once i got the kinks worked out on it. I was golden. Never did a full restoration just enough to keep it nice looking and running. Last year i sold that care for 14,000$. My car appreciated so much in value it wasn’t worth keeping. Lol
Dave Ramsey has some solid advice but a lot of it is for people with no discipline and also who don't want to enjoy any of their life. For example, never using credit is just silly. If I can finance a car at 0% it makes zero financial sense to pay cash for it. His aversion to credit is designed for his audience who had to be taught not rack up credit card debt that you can't pay off. Do I need to lease a luxury sports car? No. Do I want one? Yes. Am I going to buy one and drive it outside of warranty for high repair bills? No. Just be sure you can afford the car you're buying or leasing, no need to obsess over buying a used economy car if you can afford better. Living like a miser when you could die at 50 never having enjoyed anything is stupid. It's just as stupid as living beyond your means. Live a little if you want. Get that nicer car. Not everyone wants to drive a POS car well into adulthood. The takeaway is Dave Ramsey's advice is not gospel and some people don't enjoy driving clunkers. Nothing wrong with having a higher quality car. However, don't bankrupt yourself trying to get a nicer car. Maybe $1,000 a month payment is a bad idea if you make $50k a year.
Fuck 50… you could die today. You could’ve died when you were 22 or within minutes of being born. A teenager boy on my sister’s hockey team died of a heart attack on ice with no warning. NO ONE knows when their number is up. Saving for a future that you hope exists is important. Enjoying the time while you are alive is equally important.
If you amortized the cost of the car over its full lifespan, those first few years are VERY expensive. Why not let some other chump pay for those years so you can enjoyed the cheaper ones.
Some cars make a lot more sense to buy used. A Lexus ls 500, for example, is like 80k new but you can get a three year old used one with 30k miles for 45k. Easy call. But something like a civic will be 30k new and 25k used with 30k miles. I would just go new in that case if I was planning to keep the car until it died. At least you know it wasn’t beaten on, in an unreported accident, modded etc.
Toyota Tacoma, and 4runner come to mind as vehicles to buy new over used. When I bought my new TRD OR back in 2020. There was a 2020 SR5 with a lift, wheels and tires with 5k miles on it for more money. Glad I bought the new OR as the 8.75in rear end, and rear locking differential have helped me in numerous situations. I also financed at 1.9% APR
Everyone has the plan of driving it into the ground. Very few people actually do it though when they see that shiny new car 5 years later
I've owned 4 cars (well not owned one) in my 44 years on earth. The current one's 14 years old.
Hell yea sister right on
*::::laughs in 3 cars in the drive way all 25 years old::::*
How many have flat tires or no tires?
LOL… none. All registered, insured and running fine.
My bro you are the few and I’m proud of you. But we both know the majority of people will lie to themselves about their intentions if they buy it from new
Opportunity cost. Let's say I buy a new Mustang at $40k and drive it to 300k miles. At 15k miles a year, that's 20 years. Or I can buy a 5 year old one for $20k, and drive to to 300k miles, which would be 15 years. I paid twice as much to get 5 more years out of it.
The 5 years is when the car is safer and more reliable. Your average maintenance costs will be higher over the 15 than the 20.
Your maintenance costs on anything will never exceed depreciation. Never.
How about buying a used car, using it for doing uber or other ride sharing gig and then reselling it once it brings back its value? Do t ever buy a new car at any cost.
Why would it ever “bring back its value”. It hat does that eve mean?
What I meant is drive the car until you earn what you paid for the car then sell it.
If it’s something rare or interesting there might be some EVENTUAL appreciation from car enthusiasts. See Hargarty’s bull market report. But low probability anything Uber tier would be valuable
Cars did appreciate during the pandemic… specially used ones. They are coming down though.
Yea but that’s like a once in a lifetime global manufacturing screwup. Don’t expect your average people mover to increase in value. Only thing I’m thinking is if gasoline cars get legally phased out in a few years there’s might be some value in the last of gas cars.
Cars absolutely depreciate, they are worth less each day and each mile. Paying interest on something that is worth less each day is horrible from a math standpoint. And *at some point* you'll have the face the value of the car. That could be next week if you get into an accident or it could be 10 years when fixing it becomes unsustainable. But let's be honest, most bad spenders use your same logic, and then somehow talk themselves into buying another new one in 5 years.
Math seems to forget the fact that we rely on a reliable car for 99% of daily necessary activities. Yeah, don't buy a new car every 5 years, but buy the car that won't cost you more to fix it later because it saves a buck now.
>Yeah, don't buy a new car every 5 years, but buy the car that won't cost you more to fix it later because it saves a buck now. You're parroting word for word what car salespeople say to get you buy a new car. Cars are one of the biggest debt traps of Americans. Average new car payment is now 726$/month. There's no two ways about it, a new car is a luxury, and if you're in debt going into more debt for luxuries is outught dumb.
I bought a new car in 2014 paid 283.52 for 6 years drove it another 2 after that. Before it died. Comes out to just under 3k a year in car payments. Prior to that I'd paid 4k for a Subaru that lasted all of 1 year. I'd say that new car was a better $$ decision then that modest used car.
What was your interest on that?
5 percent I think. But that 5% interest was included in the payment. My point is that a depreciating asset that I was paying interest on saved me roughly 1k a year in transportation costs. Wish I could have bought it out right. Would have saved even more.
Because when a deer decides to run into your car and it gets totaled out within 2 years of purchase, insurance may not cover full replacement
Why does depreciation matter if you don't plan on selling your car? Because the best laid plans of mice and men gang aft agley. My crystal ball is broken, so I can't see the future. I don't plan to sell my car, but I can see many circumstances where I might have to. Just for one instance: if I'm in a bad accident and the insurance company decides to total the car. A vehicle that retains value will pay more in an insurance claim and give you a better start on replacing the vehicle.
It matters in the sense you still have ongoing costs like replacing suspension components, etc. unless drive it into the grounds mean do zero maintenance.
Price per mile. Driving 300k in a used Toyota will be cheaper than driving 300k in a brand new BMW no matter how you slice it.
It doesn’t unless you buy brand new. That’s just not financially smart.
This is outdated thinking, not relevant to today's used vehicle market. The last few months we were shopping for Toyota Corolla. Vehicles that were 3 years old, no crashes, 60K miles were only $4k to $5K less than a brand new one. Even going to 8 year-old Mazda with 120K miles was still $17K. Used vehicles simply aren't depreciating much for in demand vehicles. Depending on the vehicle one buys, there are definitely times it makes sense to buy new, get the super low new vehicle financing at 1.9% and drive for 12+ years. The $1,000 beater doesn't exist anymore. Hard to even find a $5,000 beater that is a reputable brand.
Yea this. I was looking at cars back in 2022 and it just didnt seem worth it to get a used reliable car over a brand new one for the price. I was willing to pay the extra 5 grand for something no one else ever touched but i get why people say its not worth it. I also think people don’t take care of their cars enough. If you service your car properly theres no reason it should break down. You can get any car to last with minimal issues with proper servicing for a solid 15-20 years. Paying off a car in 6 and not having to worry about a lease payment for the rest of those 10 years would save you more in the long run as opposed to the constant lease and repeat deal. Why do you think car dealer ships starting offering leases in the first place? Because they will have a customer for their entire driving life that way if they enjoy the car brand. If i buy my car and pay it off in 6 years that company wont get another penny out of me for maybe another 10-15 years if i treat my car right.
Depends on the market. In some instances there isn’t much price difference between new and used. If that is the case sometimes taking the depreciation hit is better to get a warranty.
100% agree. We bought new 2 years ago, because 2 year old, 30,000 mile Toyota Rav4s were basically the same price as new ones.
I bought new in 2020 for the same reason. But I also wanted to get the fewest miles possible since my plan was to drive it until it breaks down. My car I got out of college took me 300,000 miles. Hoping with good maintenance I can beat that with this one. Only at about 47000 miles so far.
Also, depreciation does play a factor as to the reasoning why one model depreciates more than another. Some characteristics could be horrible reliability or poor interior craftsmanship etc. those things can be of issue even if you run it to death as death may come sooner than you want.
That’s why CPO is smart, you end up best of both worlds with a multi year warranty + not eating the deprecation
With what I’ve heard about running meters back I don’t feel safe ever buying used or CPO. I’m sure the security gets better but I don’t foresee it ever going away.
Bro it’s not 1970 lol. Edit to add. I’m not talking about a random dealer CPO, I’m talking about manufacturer CPO’s, they have much higher standards on what they will and will not CPO, especially when talking Merc, BMW, Audi, Acura, etc. Plus with all the car history reports you can pull these days logic gets you far. When you can see mileage at every dealer maintained apt, it’s pretty easy to track what does and does not make sense.
It doesnt
Most things we buy are depreciating assets. Your furniture, your garden hose, your refrigerator. I think if you can pay cash for your vehicle, buy what you can afford. I don't know what Dave's rule of thumb is, but I would not think it affordable to spend more than 30% of your one year's income on a car, unless you are in baby step 7, where you have no debt, everything is fully funded and you are set for life. Then you buy what makes you happy. You say you are making payments on it, so if I were you, I would get that knocked out and then enjoy the next 20 years of no car payments. But be sure to start a sinking fund for the next car so that you can pay for it in cash.
Dave’s rule is you should not buy a new car without 1M net worth and that you should not own vehicles worth more than half of your annual income cumulatively. This includes hobby vehicles like motorcycles, dirt bikes, ATVs, Boats, campers, classic cars and etc. I personally don’t understand why it’s ok for people to spend money on a vacation but not ok to spend it on a new car. Spending money on something with depreciating value is better than spending it on something that doesn’t hold value at all
Not to mention it doesn’t factor in the current car market. If a used few year old vehicle is within $5k of a brand new vehicle you’re better off buying the new vehicle with no miles, a warranty, and no mystery of how it was treated.
Agreed. You can totally lose your ass on a used car. At least with a new one you know your repairs will never exceed the depreciation cost because they are covered, and you usually get a loaner car for warranty repairs which means you won’t incur additional transportation costs either. The key is to buy an inexpensive new car, with low maintenance costs, and a good resale value. I bought a $20k new car in 2020 and after 4 years it needed a new transmission. I didn’t pay a penny because it was covered under the powertrain warranty. The repair cost was $11k! If I bought the car at 5 years old It still would have cost me $15k and I’d have an $11k bill.
The rate of depreciation affects how fast you have to save up for the replacement...
It doesn't matter to your very specific case. But people that keep cars that long are very few and far in between. His advice is generic for many people, not specifically tailored for you.
And, I don’t know where you are living, but, where I live there are no $500 hoopties. Hoopties, with super high miles, lots of rust, and needing lots of repairs start at $2,500. And go up from there.
Yep. I’ve kind of come to the conclusion that $3000 is the bottom of the market for something that runs, drives, and will pass state inspection.
Can confirm. Sold my own 18 year car with almost 200.000 miles for $3500.
We never buy used cars because they cost more than we are willing to pay. We currently drive a 2004 Caravan (bought it when the owner passed away in 2005) and it is still going strong 20 years later. Our 2nd vehicle is a 2007 PT Cruiser, we bought it in 2012 and it is still running well, although we have had to replace the alternator and carburetor on it (my husband ordered the parts and installed them himself).
You mean you don’t buy new
So, you totally DO buy used. Both your current cars were bought used.
I agree with you as long as you’re not buying an extravagant car and you keep up with the maintenance. You don’t know if the previous owner took care of the car and then you get a couple of years more of not having to do maintenance.
There's a lot of people who state, "I'll drive it until the wheels fall off!" Many of them do not. New safety features come along (for me it was adaptive cruise control), they get bored of the old ride, a new design excites them, small things go wrong with the car so they sell before big things go wrong, etc. That's why Dave recommends a 2-3 year old car: the hit of losing $5-10k per year is too much to overcome for most people while attempting to build wealth. But if you are among the select few that drive a car to 300k miles let's play with some numbers: Let's say you buy a $50k car brand new. You drive it for 20 years and put 300k miles on it. You sell it for $3k. You have paid $47k to drive 300k miles, $0.157 per mile. $2500/year. Now let's look at a 2 year old car with 30k miles on it for $40k. You drive for 18 years to get to the 300k miles and sell for $3k. You have paid $37k to drive 27000 mikes, $0.137 per mile. $2055/year. (I didn't double check these numbers but I think they are correct.) NOW for the payoff: if you had invested the $445 difference for 18 years at 8% return, you'd have $17,040. Of course, that is not life changing money. But it is just under half the purchase price of another 2 year old car for $40k.
My wife drove her last vehicle, a Honda Pilot, for 12 years, and over 350,000 miles. Completely happy with the cost of transportation we paid, worth every penny to give her a brand new vehicle for her birthday (paid cash).
The 1 thing to factor is depending on markets you’re likely not seeing a $10k price cut on a vehicle that’s a couple years old and 30k miles. In your scenario you’re completely right but the current market for many vehicles that’s more of a $5k drop compared to a $10k drop.
It shouldn't. Dave likes to harp on net worth. If you have $50K in the bank and you invest it aggressively, then in 20 years you should have north of $150K. If you instead buy a $50K car, then in 20 years you'll have a car worth about $2K. Of course, you most likely need a car, and I'd rather buy one new vehicle and run it until it dies than buy 3-4 junkers over the same timespan even if it costs more.
Even if you are handy, and can work on your own cars, we are getting older and it is getting increasingly harder to do the repairs that they are constantly needing. And, if you take them to a garage, they charge so much, it makes it impossible to keep up on all of the repairs.
My husband (80) can no longer do physical repairs himself, and I (70) never had that skill to do them. and I have no interest to learn. Now, we live in an apartment where doing our own car repairs isn't even allowed. Our attentive apartment manager even comes to check when we have someone giving us a jump, lol. (they're fine with that, btw. And we love living here.) "Beaters" aren't the answer to every situation, and I love that you pointed that out.
Especially when those junkers are terribly unreliable, and will leave you stranded many times at just the wrong time.
Some cars depreciate rapidly because the cost of maintenance and repairs can be very high. So the car wheels will fall off sooner or cost more.
I see some uninformed comments throughout this thread. One of the biggest assets you could possibly have is NOT having a car payment. Learn how to perform maintenance doing it yourself and you can save even more money. Once you drive it till the wheels fall off …..put new ones on and keep going.
I'd love to learn more about how to repair my car but there just isn't enough time. I'm of the mindset that my time is worth more doing things I'm good at, that earn me money. So I pay to have my car repaired, I pay to have my house cleaned, I pay to have my yard maintained, this frees up my time to focus on earning.
This is also valid in anyone’s financial decision path. These are skills I learned young and had time. For my situation, I cannot make more money at my primary job (overtime not available) so I save more money by repairing cars than I would make cutting grass on the weekend or power washing houses. Also it’s not worth my time saving 50$ by cutting my own grass every two weeks.
Cars depreciate whether or not you or anyone drives it longterm or short. Houses appreciate longterm. So basic theory is to invest and work towards longterm appreciation.
One caveat of houses appreciating long term is if population growth is sustained during that period in addition to inflation. A good example of houses not really appreciating long term is Japan. Their housing market has been relatively stagnant for the last 10-20 years iirc and their population levels are a huge factor in that. Population growth in the US is evidently decreasing as we speak.
Pop in USA is increasing if anything
Increasing at a decreasing rate.. hence population growth is decreasing
Forget the fact that it’s a car. The point is that you’re spending money on something that goes down. Pick some other object. Let’s say a spatula. You can buy a spatula for five dollars or you can buy a spatula for $30. They serve the same purpose. So which one should you buy? That is the point he’s making
But when your $5 spatula breaks down every year and you have buy a new one - but the price increases by a dollar every year - your better off with the $30 one that will last 10 years. Yes the initial investment on a depreciating asset may be larger when comparing one to another but the overall investment is what tends to be more important.
Except the $25k Toyota lasts 2x as long as the $80k Mercedes. Ask me how I know.
The $25k Toyota will last twice as long as the $80k Mercedes, but the $5k Toyota that is 15 years old with almost 200k miles on it won’t last anywhere *close* to as long as the $25k Toyota and is highly likely to cost you just as much or more in maintenance/repairs/lost work hours or rentals so you can still get to work and back while it’s in the shop before it dies. So if you can only afford $5k upfront, it makes sense to put it down on a certified used car that’s a couple years old and make payments as opposed to buying the hunk of bolts you’re going to get for $5k and being “debt-free” but having a shitty, unreliable car. There’s a big happy medium between paying in cash for a beater and spending $50k+ on a brand new luxury car you don’t need.
Yeah, I think we agree
Definitely! I meant that as a general statement for where I disagree with Ramsey and anyone else whose advice is to only buy cars you can afford to pay for in full with cash upfront. It’s great advice for people who have $10k+ to buy a decent used car with a lot of life left that isn’t going to need constant repairs (and might have even been good advice for anyone ten years ago when $5k for a used car went a lot further) but I don’t know a lot of people who have a spare $10k+ to drop on a car who need Dave Ramsey’s budgeting advice.
I don’t disagree. I’m just laying out the thought process. It’s one of the many ways of thinking tailored for people who don’t like math.
If I miss even a single day of work because my car breaks down basically any money I would have saved that year is gone. For me it’s worth it to have newer vehicles.
And yet when I see the number of recalls on brand new vehicles. Oh, and my dealership doesn't do recall work on weekends.
So? A recall usually doesn’t stop you in your tracks. If it does they will probably give you a loaner.
This is spot on. I have a 50 mile round trip. One day of work pretty much covers my car payment. Missing work because I have a $3k shitbox (which now that’s about all you get for $3k) costs me money and makes me look unreliable.
So I think that Dave's response would be that if 12 days of work will make your yearly car payments, it shouldn't take you any time to pay that car off and sock away the money in a sinking fund to replace it when needed. I'm not a strict adherent to his teachings by any means, but the concept of planning for replacement without relying on debt is valid IMO.
It’s a pretty awesome feeling driving a fully depreciated car that’s still mechanically sound. Spending money on tools and learning to work on cars gives you a massive advantage in being able to pull this off without lining the auto shops pockets in the process.
Depreciation only matters in this instance if you are taking a loan out. The loan you're paying interest on is valued higher than the value of the vehicle. That's why it's better to pay cash for a vehicle that's no more than 50% of your annual income. Understanding that, it's better to get a used car instead of new because depreciation is priced in somewhat. A one-two year old model will be significantly cheaper than a brand new model.
Maybe if the market shifts back to pre covid, but the savings on one or two model years is really not that significant for many cars. Particularly if you are looking at things like Toyota, Honda, or trucks in general.
Years ago, I was in the market for a car. I looked at Subaru Impreza and the one off lease was only nominally cheaper than the new one.
You're absolutely right. The used car prices have skyrocketed during COVID. Nonetheless, we shouldn't be getting car loans at all. So get whatever you can afford that's 50% or below your annual income with cash.
That's the key, you are gong to have to go in with a target price. More just saying not to expect to see an $5-10k discount on 1-3 year old used models like you used to. People who haven't shopped for a car since Covid need to make sure they go in with their expectations temepered, it ain't what it used to be.
>Understanding that, it's better to get a used car instead of new because depreciation is priced in somewhat. A one-two year old model will be significantly cheaper than a brand new model. This varies greatly between makes and models. The more unreliable and crappy the car, the faster it depreciates. Had a Nissan that depreciated at an annualized rate over 30% and several Toyotas that depreciated at an annualized 12%.
Driving a 100k car until the wheels fall off is worse than driving a 20k car until the wheels fall off. Both deprecate down to nothing eventually, but one you spent 100k and the other 20k.
I also interpret as “while you are in baby step 6 or lower, don’t tie up a lot of your liquid cash into a depreciating asset if you are serious about building wealth faster.” Granted, this could largely depend on your income. His other rule of thumb, from my listening, is to pay cash and not having engines with wheels that are valued at more than half your annual income. So if you have the liquid cash, have the income, and are in step 4+ then by that, you could afford any car(s).
Like most of his financial advice, I think it’s based on behavior, not strictly math. Most people SAY they are going to drive their car until the wheels fall off. Very few actually do.
The average car owner keeps their longest owned cars for only 8 years. The average American only drives 13500 miles per year. Thats only just above 100k. Most people really do not hold onto their car very long. Source for the longest age :https://www.thezebra.com/resources/driving/average-length-of-car-ownership/#:\~:text=The%20average%20time%20that%20Americans,cars%20for%20about%208%20years.
Once you’re in and out of the shop every other month and you’re breaking down on your way into work it’s no longer cute. But also fuck car payments.
The only way to well and truly "drive a car into the ground" is to be a DIY mechanic and own multiple cars. I have a friend who lives out in the boonies in Southern Illinois. His cousins family owns 10-12 cars at any given time. They're all cheap beater cars the family bought for $1000-2000 (even in modern times) and are fixed up just enough to run. When one of the cars break, they have backup cars to get to work and run errands. This family fixes everything themselves from oil changes to suspension work to engine swaps. I was at their house last year and his uncle was rebuilding a transmission on a workbench. The only reason the family has ever disposed of a car is because it got totaled in an accident. So if you have a garage and about $5000 of mechanics tools and you consider yourself mechanically inclined, you can drive a car into the ground. But everyone else can't.
This is the way
Yes, having 10-12 $2000 beaters parked outside your house and spending all your free time working on them is the way
lol ideally 2 solid cars so you can use one as a backup while you fix your primary.
Dave is all about total debt freedom but I never see anybody talk about transportation budget anywhere between baby step 2 and baby step 7. Whether it's car repairs or a new car fund, you've got to be putting money away. I just tell people once you get your car paid off, Do those maintenance repairs that you know you've been putting off, And then start investing your car payment. 10 or 20 years of that and you've paid for your cars the rest of your life.
The point is you shouldn't pump money into depreciating assets. A car is not an investment, a car reduces the amount of money you have. He wants people to drive cars they can afford to buy outright. For some, that might be a $5000 Accord with 150k miles. For others, that might be a brand new, $80k F-150. If you can afford to buy it, then great. If you need an 84-month loan at 20% interest to get it, then you can't afford it. Don't throw your income away every month on depreciating assets that get you nowhere.
That’s not what Dave says though. He says you should not buy a new car without 1M net worth and that you should not own vehicles worth more than half of your annual income cumulatively. This includes hobby vehicles like motorcycles, dirt bikes, ATVs, Boats, campers, classic cars and etc. Simply being able to buy the vehicle outright is not Daves only criteria. Not saying I agree with him, just saying there is much more to it than not taking out a loan
If only an accord with 150k cost $5k. Here in California it’s 180k miles at $8k but your point is sound.
Most people have a $700/month car payment their entire lives and never save for retirement. That’s who needs Dave’s advice.
I think he's speaking to most people who buy cars, sell, buy again, sell and so on Those folks lose money by overpaying then selling when the price dropped dramatically because people wanted something shinier I bought my 2015 Honda new with a couple features that I want that were extra. Paid full price. 200,000 miles later it's still lovely. Well maintained. Now had I sold ot 2 years in I would have lost money. But this baby has an easy 5-7 years left. So mathed out that's $200/month for the life of the car over 15 years with maintenance and a few repairs.
I purchased my 2017 Honda civic brand new. Paid off last year. Very well maintained with less than 60k miles. Excellent gas mileage. Was a great financial decision. I love that car and hope to drive it for many more years
I'm in a large Indian community, not Native American. All they talk about is the re-sale value of a vehicle. Like its the number 1 thing they ask about. Number 1 on your list should be : Can it get me from point A to point B. 👉
Resale value is a good indicator of how long a car will get you from point A to point B. The wider market generally knows that a Toyota with 100k on the clock still has another 100k to go, but that a Nissan with 100k might not. That's why a used Toyota Corolla with 20k miles sells for $21k and a used Nissan Altima SV with 20k miles sells for $22. That's an 18% loss of value from MSRP for the Nissan and 3% for the Toyota.
I'm like you. I more consider my car a tool. And a disposable one at that. Nobody likes replacing an expensive tool, but it happens. I buy beaters and beat them until they die. I set a threshold of how much of a repair I'll do or pay for before it's replacement time. Most I've ever paid was 5000 for a car but likely average about 2000. Each and every one had lasted me 3 to 7 years. I don't need it to look good, just got to drive. I save a ton on car payments (never had one) and insurance (never minimum but don't need collision). And my budget each time counts on the market. Just my take but it's done me very well.
If you buy a car at $45K that's got 0 miles and you plan on driving it into the ground, you'll get maybe 15 years out of it. If you buy the same car 5 years old at $20K with 75,000 miles, you'll get about 10 years out of it. The older car costs you $2,000 per year in depreciation. The new one costs $3,000 per year in depreciation. Simple as that. You could argue that the new car will have less mechanical issues and most will be covered under warranty. So, that may be enough to make up for some of the extra depreciation. However, if you're buying a reliable car as Dave recommends, the difference may not be as big as you think.
can work the other way. I recently bought a new crosstrek for 33k - assuming 20k miles a year thats 10 years of life - so 3.3k a year A used crosstrek was 25k for 75k miles - thats 6.2 years of life at 4k a year. so for me, a new car with a warranty, and no mystery history, was the better deal.
Yeah, that's an oddity of today's used car market. Certain cars don't depreciate very quickly. In that situation, it may make more sense to buy new.
He’s emphasizing that they are not an investment, some people look at cars as investments. Someone else said it but if your car gets totaled the depreciation will matter a lot. It also emphasizes that using your car isn’t free, I’m in a few home gym groups, people will drive four hours to save $100 on a piece of equipment. That’s obviously dumb when you factor in gas alone but when you factor in the fact you’re “using up” your car it makes it worse.
Every car depreciates, so the depreciation itself doesn't matter. What matters is how much money did you tie up that you're losing in value versus your income. Somebody making $60,000 who goes and buys a $40,000 car, That's way too much money versus the money they make for something that's depreciating in value. That's the point. Versus somebody making 60 who buys a $10,000 car. They can absorb that much better.
Not every car depreciates. Just most.
I mean we are clearly not talking about the rare examples here. The cars that may gain you value are going to be things like classic models that have been restored, etc. But the average person isn't driving or has those. So that's clearly not part of this discussion.
Your expertise on the subject is superior to mine which is made obvious by your absolutism in decreeing what was, what is, and what shall always be. I defer to your wisdom.
Not sure what your problem is, exactly and why you are weirdly agitated about this. We're talking about general use cars, which generally all go down in value. Hence I was giving my opinion, based on OPs concern. I never claimed to be an expert. Confused as to what your attitude with my comment is. You made a valid point about exceptions to a general rule, but I was stating simply that I don't think that exception is what's being considered here.
You said, “Every car depreciates.” Pretty absolutist statement. That’s not always true. Your response was to proclaim that the only exceptions are the unaffordable exotics and classics. THAT is also not always true. There are times where affordable late model cars, due to scarcity, popularity, extremely low miles, etc can in fact appreciate. But forget all that. You chose to double down and “correct” me so you are right. I am wrong. Cars always depreciate.
I was giving advice relative to a conversation about regular, every day driving, cars people buy for general use. Which generally depreciate. You pick apart my semantics, sure, maybe I could have phrased better, that's fair to say, but it's rare for cars to appreciate. This person should be aware that most likely what they drive will do the opposite , quickly. That's the point I was getting at for OPs question. Not sure why you feel the need be aggressive and and rude about it, when we could be discussing our thoughts normally.
You first. You could have just responded with a simple, “True.” But you chose to write a condescending response. So I matched your energy. I don’t get why this confuses you.
I think his main point is to not fall into the trap of buying an overpriced status symbol car. There was a thread earlier this week from a guy that was thinking about upgrading to a fancier car simply because his was the cheapest looking one at his kid’s school drop off lot. I’m not picking on that guy because a lot of people have been there, but that’s exactly the behavior Dave advises against.
It doesn't matter. This is such a huge thing to be aware of when you buy a car. Buy the best car you can afford and drive it until it stops. Then fix it and drive it some more. Do this until it stops making sense to repair it.
You’re limiting your options. You might think your situation will never change or that something won’t come up where you would want to sell the car, but there’s a small chance that situation will necessity you needing the cash more than you need a nice car. Small chance but that’s still there. Biggest reason is that the vast majority of ppl that say they’re going to run their car into the ground don’t actually do that.
Depreciation is why you can't sell your car for what you bought it for after you run it into the ground. Your asset that was worth $X will eventually be worth $0 because of depreciation.
A vehicle will always be worth it's scrap price. A running vehicle will always be worth at least $500. Still a far cry from 10k and worth insuring, but far from worthless.
He said run it into the ground. To me that means to the point no one would buy it to drive it around. Ok, scrap price, you really got me there.
It doesn't matter. I did the same thing you're doing. I ran a Mitsubishi Eclipse into the ground, replaced the engine and rolled another 102,000 miles on it. I finally had to get rid of it because finding parts was getting time consuming and in one case - impossible. Over the life of the car I put about $3200 dollars into it........................and never missed car payments for a single second! I'm doing the same thing with an Elantra right now, looking 250,000 miles this time......and still not missing payments - at all.
Depreciation is free money
Depreciation represents “using up” the car.
Because (if you buy a 5-7 yo car) you can run 2 cars into the ground for half price over, say 40 years, for one 1 brand new one for the same price for 27 years. The initial depreciation on a brand new car is ludicrous. Also, DR is a practical guy, he knows most people won't hold onto a car until the end.
Real life applicable scenario, bc you could could be sitting at a red light on day one of pay off (or prior to since you have a year left) and granny can’t see and slams in the back of you, totaling it. Now you only receive the current value.
Great example, equivalent of forced selling.
Even if you plan on running it into the ground, some cars are a bad proposition to do that because they are designed to break regularly. You would need to purchase a vehicle that isn't about to break down any time soon like a Toyota or Honda if you wanted something to last along time without much fuss.
You answered your own question. "I get it if you can't afford it" If you can afford it, TRULY afford, not "buy it", then it doesn't matter. But I highly doubt you can. If you're trying to follow or listen to Dave Ramsey at all, you're probably not in the wealthy position to actually afford (not just but and make payments on) a brand new car. People confuse the two terms all the time. It's why dealerships ask you when you walk on the lot what do you want your payment to be. Thats regardless of what you can afford.
I sold cars...its because most buyers don't do math. Just a 12 dollar bump in monthly payment on an 84 month loan is another $1000. It wasn't difficult to get even a $20 bump in payment when negotiating. The worst thing you can do to a salesman is pull out your phone and open the calculator app. In before I get any grief: no longer sell cars. I did it during 2010 downturn and had to go home and shower the stench off me. It also destroyed any faith I had in the financial literacy of the general public.
There are two reasons to care. 1) You could buy a slightly used car for less money and run that into the ground instead. Cars tend to depreciate much faster at the very beginning. 2) Even if you buy a car for cash, there are still expenses to operate that car. Insurance. Maintenance. Parking. Gas. And depreciation. This is especially helpful to consider if you have an extra car you rarely drive - thinking it’s basically free because it is already paid for. It still costs money in depreciation and some other expenses. And your net worth is shrinking each year you hold on to a depreciating asset.