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Old 12-17-2015, 02:06 AM
 
Location: Honolulu
430 posts, read 633,913 times
Reputation: 632

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Quote:
Originally Posted by Larry Caldwell View Post
People who borrow money on car loans are not the type who invest, they are the type that squanders their extra cash on interest payments. Just look at the number of people who are terrified of a car repair bill. They will borrow $20,000 to avoid spending $2000 cash on a repair bill. Those are not people who manage their money.
I don't think you get it. Most of us in this country don't HAVE $2000 lying around.

Maybe you're living in some kind of fantasy land where people are actually earning enough to be able to save. Wake up.
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Old 12-17-2015, 07:01 AM
 
Location: Shady Drifter
2,444 posts, read 2,735,369 times
Reputation: 4118
Quote:
Originally Posted by Larry Caldwell View Post
People who borrow money on car loans are not the type who invest, they are the type that squanders their extra cash on interest payments. Just look at the number of people who are terrified of a car repair bill. They will borrow $20,000 to avoid spending $2000 cash on a repair bill. Those are not people who manage their money.
I invest and I make payments on our cars. Why would I want to sink all that cash into a car when I can get a much better rate of return elsewhere?
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Old 12-17-2015, 07:19 AM
 
5,481 posts, read 8,497,934 times
Reputation: 8284
Quote:
Originally Posted by Larry Caldwell View Post
People who borrow money on car loans are not the type who invest, they are the type that squanders their extra cash on interest payments. Just look at the number of people who are terrified of a car repair bill. They will borrow $20,000 to avoid spending $2000 cash on a repair bill. Those are not people who manage their money.
Without getting into details, I get on average a 10% return on my investment via a business route that I purchased a few years ago. Had I dumped that lump sum of cash into a depreciated asset such as a car, it would have done absolutely nothing for me. Instead I can make my vehicle payments with a small portion of the interest I make off of my investment.

As for "people who are terrified of a car repair bill"? Its not about being "terrified". Truth is....I have yet to meet one person in my life who looks forward to bringing their car into the shop for costly repairs. There's nothing fun about that. Some people like myself just don't have the time nor the patience to deal with shady shops/mechanics. People like myself rely on dependable transportation at all times. For this reason I lease.

Funny story is I have a friend who is the Dave Ramsey type. Will only buy his cars used from private party sales and in cash and looks down on those who finance/lease because we're giving the banks/dealerships "free money". This same friend spends about $80/week on beer and cigarettes. Yet paying a bank 1.9% over the course of 5yrs is foolish! LOL.
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Old 12-17-2015, 09:09 AM
 
3,075 posts, read 5,619,150 times
Reputation: 2698
Quote:
Originally Posted by thejackalope View Post
I don't think you get it. Most of us in this country don't HAVE $2000 lying around.

Maybe you're living in some kind of fantasy land where people are actually earning enough to be able to save. Wake up.
A lot of those people who don't have $2,000 lying around are the same people that go buy the new IPhone every time it comes out and have to have the newest and best all the time.
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Old 12-17-2015, 10:41 AM
 
Location: NE Mississippi
25,323 posts, read 16,958,731 times
Reputation: 36873
Quote:
Originally Posted by LeavingMA View Post
A lot of those people who don't have $2,000 lying around are the same people that go buy the new IPhone every time it comes out and have to have the newest and best all the time.
Right you are.
And those people make "saving" the LAST priority in their lives. Then they complain that they don't have enough money to save.
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Old 12-17-2015, 11:26 AM
 
Location: Huntsville
6,013 posts, read 6,590,188 times
Reputation: 7031
Quote:
Originally Posted by Tiffer E38 View Post
Also, I'd rather have money in savings for emergencies than tying up my saved cash on a car. It's better to have a low, fixed monthly cost to budget for than tie up your savings and suddenly need the cash that you no longer have because you spent it all on a car.


And in response to the "what if you are making a monthly payment and you need to make a $700 repair out of warranty?" Another what if question to ask is, what if you just blew your savings on a used car out of warranty and IT immediately needs a sudden repair?


You can what if scenarios all day long, but the fact remains, a budget with a low fixed cost is easier/better to manage than tying up all your cash in a depreciating asset, and then saving up for it's replacement.


I think you're missing what DR is telling you....

His principles are simple and easy to follow if people will get the right mindset. But first they have to stop rationalizing why they need the nicer things. He doesn't say start from scratch with no car. What he assumes is that you already have that big car payment, mortgage, credit card debt, etc....

1. Save up your emergency fund money first before you do anything else.
This money covers home repairs, emergencies, vehicle repairs, unforeseen expenses... etc.

2. Save up enough money to put with any money you can make off of selling your expensive car to eliminate the payment. Once you have enough, SELL your current vehicle. Not before.

3. Take the money saved for the vehicle and go pay cash for a cheaper vehicle to get you from Point A to Point B until you are out of debt....
Yes, this is going to require some homework to make sure the car you are buying isn't about to need major repairs. Have it checked out if you need to. That added cost will be cheaper than buying something that fails next week.

4. Move into a lower cost home... rent... etc... Reduce that mortgage payment if you can. (This is for extreme situations)


You then have two choices depending on your personality. a) Start taking that extra money and rolling into the bill with either the highest interest rate, or (b) pay off the smallest balance first. Many of us are creatures of immediate gratification, so they might choose to pay off the smallest debts first. Others who are more disciplined can hold out and pay off the highest interest rate first and stay on the plan.

As you pay one off, you take that money spent and roll it into the next bill essentially snowballing the payments you make.


AFTER everything is paid off, you will recognize a large chunk of cash each month that no longer goes to payments. Save that cash up, and then go pay cash for a nicer vehicle that you can further enjoy.

He's not saying to have zero debt. He is saying to manage that debt wisely, and not keep a perpetual payment on something that is constantly depreciating.

It's not that difficult, nor any deeper than that.
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Old 12-17-2015, 01:20 PM
 
Location: Shady Drifter
2,444 posts, read 2,735,369 times
Reputation: 4118
Quote:
Originally Posted by Nlambert View Post
He's not saying to have zero debt. He is saying to manage that debt wisely, and not keep a perpetual payment on something that is constantly depreciating.
How is it any better to sink all your cash into a car and lose out on better returns through investments, as opposed to minimizing your out of pocket expenses on a depreciating asset? The car isn't going to be worth more or less later on because of how you paid for it. Find a good interest rate and finance and keep the cash in the bank or in investments.
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Old 12-17-2015, 01:40 PM
 
2,094 posts, read 1,911,149 times
Reputation: 3639
You also only live once. If I want to buy a nice new car (and can afford it) for $35,000 at 6 years and 2.5%, and I will drive it for 8-10 years, I don't think it's that big of a deal.


I don't want to drive around in a $1500 beater.
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Old 12-17-2015, 02:26 PM
 
Location: New Hampshire
639 posts, read 573,682 times
Reputation: 1046
Quote:
Originally Posted by Larry Caldwell View Post
People who borrow money on car loans are not the type who invest, they are the type that squanders their extra cash on interest payments. Just look at the number of people who are terrified of a car repair bill. They will borrow $20,000 to avoid spending $2000 cash on a repair bill. Those are not people who manage their money.
Again, ridiculous generalization. Everyone I know make's payments on cars. Theses same people put the max amount matched into there 401k, If there not self employed, They also have a lot of money, Most own 2nd homes on a lake or the coast. They get 0-2% max loans. It has nothing to do with fearing a repair, who wants to break down ever, who wants to get in the car when it's -20 and have the heat not work. Keeping the 40 grand in the bank or elsewhere is a much better move.
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Old 12-17-2015, 03:22 PM
 
Location: Arizona
3,145 posts, read 2,702,255 times
Reputation: 6050
Dave is correct.

The truth is, most people don't buy a car for transportation. They buy it to make a "personal statement". Why in the hell else would anyone pay 50k for a shiny new 4x4 pick-up truck? Mine cost $700 and is still running. I bought it 3 years ago, replaced the door hinge pin bushings, replaced the distributor cap and wires and it's as reliable a rig as I've ever owned ('cept the 1978 Mercury Zephyr I bought for $400 and drove for 3 years without even changing the oil. I later sold that for $650).

Used cars are one of the best deals money can buy. For under 5k you can get very reliable transpo. The sales tax is lower, they do not require full coverage to insure (if you paid cash), and if they get a parking lot ding you're not gonna lose your mind. You can also throw Taco Bell wrappers on the floor and not diminish the value.
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