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Wednesday, June 2, 2010

The Worst Car Accident

Do you know where the worst car accidents happen? AT THE DEALERSHIP!People make more financial mistakes buying cars simply because they are not informed. New car sales are just plain dumb for people who do not have money to pay for it outright. In his best-selling book, The Total Money Makeover, Dave Ramsey states that "a $28,000 car will lose about $17,000 of value in the first four years you own it. That's almost $100 a week in lost value." So, if you enjoy making payments on something that loses about $5,200 of value every year, something is wrong.
So, how can the average American buy a car without going into debt? Tom Stanley has made a career of studying the lifestyle and buying habits of millionaires. In his book The Millionaire Next Door, Stanley's research suggests that millionaires generally don't buy the latest model. In fact, less than one in four own a current model-year vehicle. First of all, to avoid car debt, buy used. you can still own a nice car without having a brand new model.
Second, pay with cash. That's right, I said save up and pay for it with cash. This is smart for a couple of reasons. First of all, you can probably get a better deal when paying with cash. If you pay with cash, which demonstrates immediacy, that the deal doesn't have to wait, you can usually get a great deal. Also, when paying with cash, You can eventually get a better car. Ramsey uses this example:
If you put $378 per month (the average car payment in America) in a cookie jar for just ten months, you have almost $4,000 for a cash car...Then you can save the same amount again and trade up to an $8,000 car ten months later and up to a $12,000 car ten months after that. In just thity months, or two and one-half years, you can drive a paid-for $12,000 car, never having made a payment, and never having to make payments again.
So which sounds better? Why pay for a Chevy that drops in value "like a rock" or Found On Road Depreciating Ford? Why not be smart, and pay for it?

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