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From 1968-1988 I traded for a new car every one to three years...
This is more or less what I'm talking about. Is this a financially sound approach? I mean, yay, it's great having a new vehicle every 2-3 years but does the depreciation make it worth the trade so soon? I would have thought you need to squeeze an extra 5-10 years out of the car to compensate for the depreciation in trade-in value.
His reasoning is faulty. Depreciation on the old car will be less than on a new car, especially considering it's the same model. If he were trading an M5 for a prius, that would be different. Subarus, especially used ones, hold a pretty good % of value. FWIW, I have an 07 model that I've owned for 4 years and the trade in value on it is still within 4 grand of what I paid back then. The car has held value better than anything I've ever owned.
Yes, that's what I've always held to be true. They used to say, your car's value drops a certain percentage the minute you drive it off the dealer's lot.
My '99 Forester held out pretty well for 12 years and then required about $2K or $3K in repairs (engine block, transmission, and electrical). At that point, we decided to call time of death, got about $900 in trade, and moved on. I do miss that car, though; it handled so well in the snow, and it had pretty good pick up.
The Prius is like driving a giant slug. But, the affordability from week to week is amazing; 570 miles on 11.5 gallons. I plan to drive this car into the ground (realistically, though, until the hybrid batteries start to give out).
Now he's talking about trading it in for a brand new Outback, while "there's still plenty of trade-in value left in this car". I asked what new features was he hoping to get, and he said, rear seat vents so his 3-year-old could have separate controls, and a built-in GPS.
Personally, I wouldn't do what he's thinking of doing.
With that line of thinking, he should be leasing cars instead of buying if he wants new cars every couple of years.
I'm not a fan of built in GPS. What if he needed GPS in his wife's car? Some say to use a cell phone but I'd rather use my cell phone for phone calls. He can get a Garmin whatever at Target for $100 and use that in any car.
Rear seat vents with separate controls for a 3 year old? Doesn't sound like spending thousands of dollars is worth it on a 3 year old who probably wouldn't even notice it.
But I do know people who want new stuff, I don't understand it myself but it's their money.
If I were him and just came upon this job that was in the tech sector, I wouldn't change my lifestyle, I'd be saving the money. With the economy the way it is, you never know what can happen and for someone who has lived for years on next to nothing, he of all people should be saving money for a worst case scenario.
Personally, I wouldn't do what he's thinking of doing.
With that line of thinking, he should be leasing cars instead of buying if he wants new cars every couple of years.
I'm not a fan of built in GPS. What if he needed GPS in his wife's car? Some say to use a cell phone but I'd rather use my cell phone for phone calls. He can get a Garmin whatever at Target for $100 and use that in any car.
Rear seat vents with separate controls for a 3 year old? Doesn't sound like spending thousands of dollars is worth it on a 3 year old who probably wouldn't even notice it.
But I do know people who want new stuff, I don't understand it myself but it's their money.
If I were him and just came upon this job that was in the tech sector, I wouldn't change my lifestyle, I'd be saving the money. With the economy the way it is, you never know what can happen and for someone who has lived for years on next to nothing, he of all people should be saving money for a worst case scenario.
That's precisely it. He got a job with a famous high tech company and they went public a few months ago, so I suspect he's got more wealth on paper than he's ever seen.
Money burns a hole in my pocket which is why I tell my benefit plan to put as much into 401K as possible. I figure, if I didn't, I'll be a moron and spend it today on temporary pleasures, only to discover in 20-25 years that I don't have enough to live on. Maybe none of us will have enough to live on at the rate things are going, who knows? But at least we have to try.
You know this much about the guy from his decision to trade in a used car he bought a year ago?
Perhaps he couldn't afford a brand new car a year ago since he just graduated. Perhaps he just got a big fat bonus and decided to splurge after years as a poor grad student. Perhaps he likes the looks of the redesigned 2015 Outback better.
All the reason you list doesn't change anything I said. If anything those are the reasons someone with the traits I described would use to justify a purchase. People who tend to trade in a 3 year old car for the EXACT same model of a newer year are usually money wasters. That's far from a splurge, its irresponsible behavior.
If he had even traded in 1 year old sports coupe for a van (growing family), that would make sense. What he plans on doing is frankly just a waste of hard earned dollars.
Quote:
Originally Posted by Army_Guy
Personally, I wouldn't do what he's thinking of doing.
With that line of thinking, he should be leasing cars instead of buying if he wants new cars every couple of years.
This also would make more sense then what he is planning on doing. Going this route would have been a splurge that would actually be smart AND he still gets a brand new car.
It is always easy to play 'what if' games or 'if it was my money, I would...', when it is someone else's money. Fact is, it is his money and if that is what he wants to do, then more power to him. Who are we as internet trolls, to say what someone should and should not do with their money. It is always easy to say "blah blah invest that 10K blah blah", because you are looking at it from your own perspective and not theirs. Give someone 100 bucks when their bank account has 42 cents in it and 100 bucks is a lot of money. Now, give 100 bucks to someone who has 80 grand in their bank account and the 100 bucks is almost irrelevant.
There are so many variables. Maybe his new job gave him a signing bonus... maybe his new job is paying him a grip of money to the point where 10 grand is nothing. Maybe he had a long lost uncle that died and left him millions. We don't know. Also, what's to say that he won't get this new vehicle and keep it until the wheels fall off?
Sounds like your friend is finally getting a taste of success and wanting to take advantage of it for a bit after living on next to nothing for so many years.
Is it the smartest decision? Probably not, but there's time to recover.
I'm 26 and if I could have made all the "right" decisions the last 8 years knowing what I know now, I could probably be debt free and have a net worth of 100k+. Instead right now I'm working diligently to pay off student loans and a truck..
It is what it is. To late to change and all you can do is think better moving forward. Part of life, just hope to figure it out before it's too late.
This would get my vote for the worst financial decision ever. SO your later FIL, traded in his car every year and paid all the taxes that come along with a new (used) car purchase.
In most states, the sales tax is only on the difference in value between new car and the trade-in. So it wouldn't have been much money at all.
I can't lease since I drive too many miles, so I just trade into a new used car every 1-2 years. The car I have now I bought at less than 2 years old with 12,000 miles for about $13,000 less than the sticker price was. It's not going to depreciate that much again over the next year. I'm in a nearly new car with a warranty and I'll probably trade by the time that warranty is up, so I never spend anything on repairs. Makes sense to me.
I enjoy driving something new/different, maybe your friend does too. Life's short, be happy.
My friend just started working for a tech company after years of grad school, living on next to nothing. About a year ago, they bought a 2-year-old Subaru Outback. A reasonable, thrifty thing to do.
Now he's talking about trading it in for a brand new Outback, while "there's still plenty of trade-in value left in this car". I asked what new features was he hoping to get, and he said, rear seat vents so his 3-year-old could have separate controls, and a built-in GPS.
I've long since learned not to lecture others on wasting money, so I didn't say anything. But what sense is there in trading a car you just bought a year ago? He'll probably pay $8K or $10K just to have that new car feel and smell.
$10K isn't just $10K. If invested into your retirement accounts, it represents about $100K 30 years from now when you retire. Assuming of course an average return of 8% which is the historical norm.
Is it prudent to trade in a car so soon? Hey, my 2013 Prius V is starting to feel a little long in the tooth. Not as shiny as it was 12 months ago! Maybe I should consider a trade-in while it's still got some of its long term value! (joking) I plan to drive it into the ground, actually, and I believe that's the only way to maximize your investment (or rather, minimize your loss) in your vehicle. Isn't that still the conventional wisdom?
You're right, it's a stupid move.
On the other hand, what are you going to do? It's his money to spend wisely or foolishly as he will.
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