Dude, Where's my car fit in with my number?

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Photo credit: maniadb.com

Dude, Where’s my car fit in with my number?

I was waiting for somebody to post this picture with this post, and I’m glad to say that Ryan didn’t disappoint! ๐Ÿ™‚ Ryan’s post is a short-but-sweet one that raises some questions on buy v lease/finance and new v used … any thoughts?

By the way, Ryan’s current Net Worth can be found at: https://www.networthiq.com/people/PassiveSeeker


I feel like we’ve done some good things with our auto purchases and some not so good things. We currently have a 2002 Mazda Tribute (Kelly Blue Book $8,700) and a 2006 Acura TSX (Kelly Blue Book $18,000). The Mazda we bought (I don’t believe in leasing) through payments over 60 months for a total of around $23,000. The Acura was $26,000 and we paid cash. We bought both of them new, which I think is the not so good thing, financially, but because we keep cars so long (at least 8 years) I’m not sure if that changes the situation. What I mean is, if we bought our cars when they were two years old, we certainly would have paid less, but there is some question as to whether or not we could keep them for the same amount of time.

I’m interested to hear what you guys think about new vs. used when keeping a car that long, and if there is ever a good time to lease.

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Ryan I think you’ve done well by not leasing. I agree with you concerning not wanting to lease a vehicle and the only reason in the world that one of my 2 cars is a lease is because my employer opted to pay for it for me.

As far as the new car vs. used car debate, I believe that used is ALWAYS the best way to go. As you know, cars loose such a tremendous percentage of their value THE MOMENT they are driven off the lot. Some figures show this to be anywhere from 10% to 20% depending on brand and model and then loose quite a bit more within the first year and second year.

So basically you get a huge, sometimes 30% discount on a car that is exactly the same car and exactly the same shape as the showroom car(as long as you’ve done your research, been selective and choosy with your purchase with a car that’s been babied and taken excellent care of, and waved cash in the face of the person selling to get an even greater bargain. This works even better in a recession!).

If your buying quality cars, I don’t think you have too much to worry about concerning the durability of the car, even though you bought it used. In many cases, a slightly used, high-end brand car has just barely been ‘broken in’ by the first owner and it’s in prime condition for you and you still get the new car smell!

Buy slightly used, I think you’ll always come out better in the end financially if you run the numbers and you’ll get the exact same thing and no one (including yourself after driving it for 3 months) will ever know the difference!

NEW vs USED ? Ryan I guess is really depends upon your pesonal philosophy of what you need the car for. For me both my wife and I grew up in families that always purchased new cars. When we got married we did the same thing. My idea was that I wanted my wife to have dependable transportation and I wold get the old clunker.

From a financial stand point it was probably a mistake because we have for the past 40 years alsways had a car payment and we have often times refinanced. It would have been good to have paid cash but we didn’t.

We even had one car what we leased, that was a big mistake, at the end of the lease, we had nothing for a trade in. To me leasing is never good unless you can do it through your business then maybe it’ll work for you.

Ryan, I would suggest buying used until you have cash to buy a new…BMW, you have no maintenance bill for 4 years, 50,000 miles, except for the tires, so I would suggest getting rid of the run flates.
When I have the cash, I’m going to buy a new BMW, drive the heck out of it for 4 years, then sell it and buy a new one. This may not be the most economical choice, but it’s one that accommodates my priorities.
(once $50,000 = 5% of my net worth of course)

@ Lee – If you calculated what your cars have actually cost you over a ‘lifetime’ because you did finance, I think you’d be shocked.

@ Josh – I think you’ll find that the trade-off between depreciation and maintenance cost-savings is a very poor one … I’d much rather be the the ‘poor sap’ who buys these 4 year old Bimmers from you (although, I might choose one from somebody who hasn’t “driven the heck” out of it) ๐Ÿ˜‰

Strangely enough, I actually don’t care, though …. here’s why: if your cars’ total value is below some threshold (remember: ALL of your personal possessions, INCLUDING CARS, should total NO MORE THAN 5% of your Net Worth – once you have satisfied your basic transport and living NEEDS) then who says that you actually need to make the wisest financial decision with your discretionary/spending money?! One also has to LIVE ๐Ÿ™‚

For example, my aim is to buy a Ferrari, if I can buy one for cash and fit in the rule, I’ll buy the latest model if I like it better than my current fav. the F430 Spyder, else I’ll happily buy the used F430 … as long as I fit withing the rule, I’ll waste my money any way that like ๐Ÿ˜‰

Remember: the KEY [pun intended] is not to break the 5% Rule (cars + other possessions) … investing 75% of your net worth always comes first! And, don’t think you can cheat because you have less than 20% of your Net Worth tied up in your house: at least a house appreciates! So, think about buying one of those instead of the new BMW …

@ Ryan – Payments over 60 months v leasing: my point was meant to be “pay cash or don’t buy” … that’s been my philosophy for most of my cars (I have leased through my business on occasion, on the advice of my accountant, but the last 3 cars have all been cash purchases).

Your biggest problem is that your cars represent 30% of your current net worth … instead of appreciating at your required annual compound growth rate, that’s 30% DEPRECIATING for you at the rate of 50% every 3 years, or so the story goes:


Yikes! I’ve always known that it’s better to pay cash for your car, and buy used, but I’ve never considered that my cars make up 30% of my net worth. And that 30% is depreciating at 50%/3 years! That’s scary!
Now, two cars are an absolute necessity for my family We need a reliable larger car because we have two kids and no public transportation available. I also need a non beater car to transport products and occasionally clients around in. So I’m not sure that we could get away with $5000 for two cars to obey the 5% rule.
In an ideal world, my passive income would be sufficient to buy our next car. For now though, I’ve made the decision to buy used for the next vehicle, to wait at least 2 years, and to pay cash. And I’ll focus on increasing my net worth to subsequently increase the 5%!
Also, here is a cool video about paying cash for your cars. I’m not sure about the numbers they use (12% for a mutual fund) but the concept is good.

@Adrian – Do you mind posting the link to the 5% Rule in the comments section here for reference? I think I’ve read something about it before.

My philosophy is to buy a used (3 or 4 with low milage) and pay with a HELOC instead of cash. That way, you can invest the cash and take out a low (tax deductable) % loan. Cars to me are a neccessity to get to and from work and are meant for transportation only (not a status symbol). Buy the best one to fit your circumstance. To me that is
1) compfortable and ‘fun’ to drive.
2) Fuel efficient and
3) Easy to maintain.

I drive almost 70 miles each way to work and my 2003 Acura RSX stacks up (I bought for $16k in 2006 with 20k miles).
1) I love to drive it. It also fits 2 kids car seats in the back and has room for ‘stuff’ in the hatchback
2) 34 miles per gallon!
3) 10,000 miles between oil changes (just don’t take it to the dealer for servicing).

def agree about the dealership Chris, the ones i have been to in a pinch charge in excess of $100 an hour/ That nuts.

@ Adrian, Thats basically what I’m getting at. When I have the money, I enjoy a fun car so much that I’m not really going to care about the initial depreciation, although I do fully understand and am aware of it. It’s a vice I enjoy and will pay for.

@ Chris – I assume that from what you’re saying, you’re essentially borrowing to invest and paying cash for the car … except that in practice, it LOOKS like you’re doing it the other way around: e.g.

You Have:

Cash: $10,000

HELOC: $10,000

You Buy:

Investment: $10,000

Car: $10,000

If I am right, it matters not as you are basically paying cash for the car … provided you don’t cash out your investment and spend it ๐Ÿ˜‰

[…] was posting about his car and Josh commented: I would suggest buying used until you have cash to buy a […]

[…] Ryan also likes BMW’s, which cause Josh to recommend buying a new one because it means NO “maintenance bill for 4 years, 50,000 miles” … is this a good deal? […]

OK just soemthing i read the other day. I know many have a loan on their cars and tade in while still owing on that car. this leaves the dealer promising to pay off your loan on the old one. But What i read the other day is, many dealers are going under, and not paying that promised loan ,then bank then comes after the seller ,who now has to cover the loan on the new car, and the loan on the old car. Big surprise huh? Scarry really.