How buying cars can totally change your life? There’s nothing like buying a brand new car or is it? Buying a brand new car can have a tremendous impact on our future. Most of us like the new smell, the reliability, the fact that we are the first owners, and many other reasons; however if we truly understood the significant impact of buying a brand new car, I think we would totally change the way we approach the purchase.
According to (Consumer Report, 2010) “a major disadvantage to buying a new car is the rapid depreciation it undergoes in the first few years. Models typically lose about 47 percent of their value in the first three years, compared with 18 percent over the next three”. In addition to this, imagine paying full price for something that’s worth a lot less as soon as you buy it. It’s definitely not a good deal at all. Hypothetically, let’s say you wanted to purchase a brand new 2011 Lexus GS 460. This car would cost you in excess of $55,000 according to Kelly Blue Book. Now if you bought that same car in a 2008 model from a private owner, it would cost you $33,900; if you bought it from the dealer certified pre owned, it would cost you $37,800. That’s a whopping savings of $21,100 from a private owner. If that impressed you, imagine paying for the car in cash. You know as well as I do, cash talks. Purchasing things in cash, gives you tremendous buying power.
In the Lexus example above, what’s hidden is the added cost of the interest one will pay. According to Kelly Blue Book, if a consumer put $5,000 down and borrowed the remainder at an interest rate of 6% for 60 months, this person would spend approximately $68,000 for a car that would be worth about $20,000 once you paid it off in five years. The consumer is spending an additional $13,000 just because they borrowed money. Borrowing money really places the consumer in a bad position.
Here’s a nice solution to your life as well as your car buying experience. According to Dave Ramsey, the average car payment is $475 in the United States.
Here’s a new plan from Dave Ramsey. What if you bought a cheap $2,000 car just to get around for 10 months? Then you take that $475—the average car payment—save it every month, and pay for a new car (with cash!), instead of giving it to the bank.
After 10 months of doing that, you’ll have $4,750 to use for that new ride. Add that to the $1,500–2,000 you can get for your old beater, and you have well over $6,000. That’s a major upgrade in car in just 10 months—without owing the bank a dime!
But the fun doesn’t end there. If you keep consistently putting the same amount of money away, 10 months later you would have another $4,750 to put toward a car. You could probably sell that $6,000 vehicle for about the same price you paid 10 months before—meaning you now have $11,000 to pay for a car, just 20 months after this whole process started.
The bottom line with this exercise is simply this—what could you do with that $475 if you weren’t paying for the car every month? Anything you wanted!
Think about it this way: If you were to invest that $475 (remember, this is the average car payment in the U.S.) into a good mutual fund with a 12% rate of return, you would have over $100,000 in 10 years! At 20 years, you would have made $470,000. And at 30 years? That mutual fund would be worth $1.6 million!
The numbers will make your head spin, but it really just comes down to simple math. The less money you are spending on your car every month, the more money you have to put into other more important things: your kids’ college fund, your retirement, and paying off any other debt you might have.
If you’ll just follow this simple plan, your life could be dramatically different 10 years from now. You can live without a car payment!
The next time you are thinking about buying a car, remember this article! You can also visit Dave Ramsey website @ http://www.daveramsey.com