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Technically, yes. But if the interest rates influence one's buying decision towards buying new, it is no longer costless financing since you have only gotten out of paying interest by agreeing to take on more depreciation (in effect.) As a result, you are still spending more money. The only exception is if you can positively swear that there was zero chance that financing had any effect at all on your decision to buy new, which is to say, if you would've bought new even if you had to pay cash.
If you cannot honestly say this, then the financing did (indirectly) cost you money!
over the past 10 years, the way used car prices have been, the depreciation argument is just not as strong as it used to be - and it's very model specific. if i did not care at all what model car I was driving and what safety features it had, then maybe i would be worse off buying new vs. used. but given the parameters of what I've wanted - i looked at the used market and the new - and it just didn't make sense to buy used. to pay a couple thousand more for a car with 20,000 fewer miles, with no previous owner who may or may not have maintained it properly, just doesn't make sense when someone buys a vehicle to hold it for 10+ years.
so a couple of things:
1. with 0%-2% financing available, no i would not buy a used car over a new car unless the model i was looking at cost at LEAST $4,000 less than the new car, and had relatively low mileage. This number is somewhat "random", but not entirely. Because if i calculate how much my cars have cost me per year, given their ages, i'm at roughly $3,000 per year for my newer car, and that will only continue to decrease for each year of ownership. So i would want to save more than what the annual cost of ownership was for me right now.
2. financing isn't why i bought new. financing didn't enter the equation at all until i determine what kind of car i was going to purchase.
3. Here's a good description of why I don't care about depreciation anyways:
4. The cars that offer the largest depreciation hit do so for a few reasons:
a. They are made by manufacturers who are known to deeply discount off MSRP, so "depreciation" off MSRP becomes irrelevent since you really would need to calculate the depreciation off of the average sale price of those models.
b. They are known to be lower quality than models that don't depreciate as much, hence, they likely won't spend as many years on the road - so buying it used just means you're likely to have a car closer to the end of it's life.
c. they are absurdly overpriced to begin with, and there's not a large demand for them in the secondary (used) market.
i can probably think of other reasons - but the point is - i'm not even considering the models that depreciatie 40% for a variety of reasons. quality being one of the major ones. do you think you can find a 1 year old honda accord that's 40% cheaper than a brand new one?
Assumes that new cars are more expensive. That may be generally true, but it wasn't when I was looking. Assuming a 300,000 mile lifespan, the majority of used cars were actually more expensive than new when considering the useful life they had left on a straightline basis (eg, a car that's done 60,000 has used up 20% of its useful life and if it costs 80% of new, it's not any cheaper). That's pretty absurdly favorable to used cars. Of course, that's for the Prius which was helped by, like most boring cars that most people are buying, holds it's value very well. Also Toyota has to put about a 20% discount on the hood to move them. Combined, you end up with the result that buying a new Prius is cheaper. Interesting result. Apparently the stigma against buying new cars is more powerful than logic. That or most people have greater expectations of the longevity of a Prius than I do as 300k is stretching what I would consider the useful life.
Honestly, that's not that uncommon though. Same thing when I bought the Mazda3. Used cars really weren't the relative bargain they were made out to be. I sold mine with 140k for $6,000. Bought it new for $18,000. In other words, in seven years and 140k is depreciated by 2/3rds. Very few cars actually make it to 200k for a variety of reasons. They get in accidents sometimes which prematurely aborts an otherwise useful life, but they also just become money pits, especially if you're not doing your own maintenance and repairs. With the jalopy market, you've long since replaced depreciation expense with maintenance/repair expense.
well said. and since i'm willing to do a lot of the basic maintenance myself, i do believe I'll drive my cars at least 200,000 miles, if not more. the "new vs. used" discussion flies right out the window when you're driving your car that far.
Let's say someone buys a house with a huge mortgage, and a year or two later the economy crashes and the house AND that person's investment portfolio have BOTH lost 40% of their value. They get laid off and chose to live in an area with few employment options and now have to relocate to find a job, a la 2008, and didn't bother to have any cash reserves to cover decreased equity in their home. Now what?
I agree that Dave Ramsey is averse to debt in times when it can be a net gain; however, he is right about one thing, and that is that some people who over-simplify by saying their investments can outearn their debt are ignoring RISK. The 8-10% some people think they will earn in the market is not safe in the short term, and those people don't have any short term investments to account for that. It is only if you can actually hold the investment long-term, and if you have planned for short term economic issues that the figure applies. In many cases people don't plan for that and can't. If something happens and they ask the bank to let them make no payments for 5 years so they can wait out a downturn and then sell their investments because they didn't have any money to cover shorter term hardships - I have one thing to say - good luck with that. I expect the bank to be laughing until two hours after closing for asking such a silly thing.
So many people's effective time horizon is not necessarily 30 years. It can be very short because many people don't do any short term planning.
let's say i did that - except i would not do that. buying a house "with a huge mortgage" if you're not in a stable field is just not that smart.
you entire discussion seems to hover around hypotheticals instead of discussing what WE are actually doing. i don't ignore risk.
i edited your post a bit since you are talking about hypothetical individiuals and not me.
Not everyone has the option of using debt wisely, e.g. many do not qualify for 0% financing.
here's the problem with this conversation. i'm not talking about what "everyone" can do. but, even if you're talking about "everyone" when it comes to dave ramsey - everyone can do math - and paying off the smallest debt first instead of the highest interest debt is mathematically inferior planning.
you can talk about the psychology of a person in debt all you want, but i'm talking about math - and using math, Ramsey's advice is bad.
here's the problem with this conversation. i'm not talking about what "everyone" can do. but, even if you're talking about "everyone" when it comes to dave ramsey - everyone can do math - and paying off the smallest debt first instead of the highest interest debt is mathematically inferior planning, assuming that you would make the same total payment either way.
you can talk about the psychology of a person in debt all you want, but i'm talking about math - and using math, Ramsey's advice is bad.
Fixed it for you. The fact is that a lot of people who get into trouble with credit card debt have a lack of motivation and lack of discipline problem. For them the above assumption is often invalid.
Of course the Ramsey snowball is sub-optimal for those with constant discipline, but not everyone has constant discipline. The ones with poor habits and motivation are the ones that do well with Dave Ramsey.
Let's say you buy a house with a huge mortgage, and a year or two later the economy crashes and the house AND your investment portfolio have BOTH lost 40% of their value. You get laid off and have to relocate to find a job, a la 2008. Now what?
I agree that Dave Ramsey is averse to debt in times when it can be a net gain; however, he is right about one thing, and that is that people who over-simplify by saying their investments can outearn their debt are ignoring RISK. The 8-10% you think you will earn in the market is not safe in the short term. It is only if you can actually hold the investment long-term that the figure applies. In many cases you can't. If something happens and you ask the bank to let you make no payments for 5 years so you can wait out a downturn and then sell your investments - I have one thing to say - good luck with that. I expect the bank to be laughing until two hours after closing for asking such a silly thing.
So your effective time horizon is not necessarily 30 years. It can be very short.
Well, what if the zombie apocalypse occurs tomorrow?
FYI, the "Great Recession" in 2008 was the worst economic event since the Great Depression which officially began in 1929. That's nearly 80 years, and at its worst, conditions were never, ever as bad as in the Great Depression, primarily because the government and the Federal Reserve worked together rather than sacrifice the economy (and the country) on the altar of ideology the way many economic/financial reactionaries wanted. The Great Recession also didn't last nearly as long as the Great Depression, which was still weighing down Americans 10 years later, and it affected a much smaller percentage of Americans than did the Great Depression, too.
there is nothing in the world that someone can't take and come up with a strawman argument f that will buck what was , what is and what stands a good chance of continuing.
there are what if's for everything in life but usually betting on the what if's is the wrong thing to do unless facts say otherwise.
The thing about mainframes is their coding has declined since about 1980, but programmers don't lose their coding skills, so the supply of mainframe coders has been ample for over 30 years.
I graduated in the Rust Belt at the bottom of the Carter recession. Only STEM majors were regionally in demand at the time.
Again, cry me a river! Jimmy Carter has been out of the White House for 34 years!!!!
You graduated in the 1970s with computer knowledge, and you couldn't find a job??? BULL MANURE!!! You didn't even try!!! In the 1970s and 1980s, anybody who had some programming skills, could write intelligibly, and could speak coherently in front of a group of 5 or 6 people without needing to change underwear later could find a job in IT! Even if coding wasn't your thing, you could have gone into technical writing or testing.
You can try to shovel that crap to other people but not to me because I've been there and done that. I went back to college to learn FORTRAN and COBOL in the early 1980s -- on mainframes. I got my first computer related job, as a trainer, on PCs in 1984. When I started working in state government, I worked on Prime minicomputers, and later IBM and DEC/VAX equipment. I currently work in an AIX (IBM) shop at a community college.
You're simply making excuses for your own inertia and want people to feel sorry for you because you've had such bad luck. Sorry, but no, because it's not bad luck but bad attitude. I'll feel sympathy for the single mother with two kids who's trying to make it on a $12/hour manufacturing job and going to school to get her GED. I'll feel sorry for the guy in his 40s who got laid off when his shop closed, and is now back in school for nursing. I'm not going to feel sorry for somebody with a college degree who has spent the last 30+ years working crap jobs because he wouldn't try to do better.
Well, what if the zombie apocalypse occurs tomorrow?
FYI, the "Great Recession" in 2008 was the worst economic event since the Great Depression which officially began in 1929. That's nearly 80 years, and at its worst, conditions were never, ever as bad as in the Great Depression, primarily because the government and the Federal Reserve worked together rather than sacrifice the economy (and the country) on the altar of ideology the way many economic/financial reactionaries wanted. The Great Recession also didn't last nearly as long as the Great Depression, which was still weighing down Americans 10 years later, and it affected a much smaller percentage of Americans than did the Great Depression, too.
Quote:
Originally Posted by mathjak107
there is nothing in the world that someone can't take and come up with a strawman argument f that will buck what was , what is and what stands a good chance of continuing.
there are what if's for everything in life but usually betting on the what if's is the wrong thing to do unless facts say otherwise.
If you sign a 30-year contract in such a way that it hurts you if something happens in the first 10 years, and that event happens once a century, this is 10 years at risk out of a century, or 10%. This is not negligible.
The point I'm trying to make is it is not so simple as what happens to the portfolio over a 30-year period. If there were no payments due for 30 years even upon sale, then absolutely it is virtually risk-free. But this does not describe the real world.
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