Saying No To New Cars - Fenger Academy High School
Saying No To New Cars
Got a million bucks? If not, don’t buy a new car!
From on 07 Aug 2006
Thinking about buying a new car?
Try this instead: Take your current car out for a drive, open the window, and repeatedly throw $100 bills out the window. Now that sounds dumb, doesn’t it? But when you buy a new car, you’re doing the same thing the moment you take it off the lot.
If you’re a millionaire, then feel free to go nuts and buy yourself a shiny, new car. But 98% of Americans simply can’t afford it. You’ll save a ton of money and heartache if you will just buy used!
So why are we making such a big deal about new cars? One word: depreciation. New cars lose 70% of their value in the first four years. When you buy used, the original owner has already eaten the cost of depreciation. You, on the other hand, get a great four-year-old car for a great deal—one well below the expensive wholesale prices of new cars.
Let’s dig just a little deeper. Say that you are thinking about financing a new car with payments of $400 a month, just a little below the average car payment. Your current car is worth around $1,500. If you take that $400 and pay yourself, instead of the dealer, you’ll have a $4,000 paid-for-with-cash car in just 10 short months.
Sell your old car and you’ll have $1,500 to bank as you continue saving $400 a month. Ten months later, you have $5,500 for a used car. Repeat this process again, and you’ll have a $10,000 car just 30 months after you started saving. How much more sense does that make than buying a new car and watching its value drop like a rock?
Used car lots are overflowing. Millions of cars come from expired leases. For-sale-by-owner magazines are easy to find. Usually, the best deals come from individuals who are eager to get rid of their cars. They have one car to sell, not hundreds of cars like a dealer, so they will be more desperate to get the car out of their yard. Also, call some of the banks in your area and ask them how they dispose of their repossessions. Repo auctions are a great way to find good deals.
Before you buy a used car, make sure you come prepared. Know the value of the car you are considering. Visit websites like KBB, Edmunds and Carmax and do your research, especially if you are working with a dealer.
Remember, unless you’re a millionaire, you can’t afford a new car because you can’t take the hit in depreciation! The new car smell just isn’t worth it.
Car-Buying Tips
Practical tips to know before heading to the dealership
Seems like it never ends, doesn't it? The media is always plastered with ads from car dealerships who are offering super, close-out, blow-out, going-out-of-business deals. It's true that you can generally get better deals at certain times of the year, but you have to be smart about it.
Here are some helpful tips to keep in mind:
• Don't get car fever!
Look for the best deals and research the car you want.
• Negotiate if you can.
If you get a deal from one seller and take that dollar amount to another seller, they may come down on the price. If you pay with cash on top of that, you can get an even better deal!
• Ask for factual information.
Do this especially if buying from a dealership. For example, don't ask, "Does it get good gas mileage?" The dealer may consider 10 miles to the gallon to be good mileage, but you won't. Ask, "How many miles per gallon does it get?"
• Be willing to walk away.
You must do this! Just like Dave says, if a dealer senses for even a second that you really want a certain car, you won't get a good deal.
• Forget the extras.
Don't pay for things that you don't need like pin striping, special detailing and extended warranties. If you have your full emergency fund in place, it'll cover any costs you have if the car breaks or has problems. That is actually one of the beauties of buying a two-year or older paid-for car; it has a lot of the kinks worked out of it.
• Two are better than one.
If you need support when going to buy a car, take a friend or family member who can help you keep your head. Your friend can also help you to remember details about the car that the seller tells you, which can help you make your decision.
Unless you're filthy rich, you cannot afford a new car! New cars drop in value like a bag of rocks. A new car loses 60% of its value in the first four years. Save up money and pay cash for a used car.
It's much easier to save $400 a month (the average car payment) for 10 months and buy a used car than to sign up for a payment plan and pay thousands of extra dollars for several years! Remember, the purpose of a vehicle is to get you from A to B. When you are working, playing with your children or helping a friend, you are not thinking to yourself, "Man, I am so happy since I have a new car. Life is beautiful!" The key to happiness is not a new car, so don't pay for it like it is!
A Fresh Look at Buying a Car
By Ramit Sethi
The single most important decision associated with buying a car is not the brand or the mileage or the rims. Surprisingly, from a financial perspective, the most important factor is how long you keep the car before selling it. You could get the best deal in the world, but if you sell the car in four years, you’ve lost money. Instead, understand how much you can afford, pick a reliable car, maintain it well, and drive it for as long as humanly possible.
There are four steps to buying a car: Budgeting, Picking a Car, Negotiating, and Maintaining your Car.
First, ask yourself how buying a car fits with your priorities. If you’re satisfied with a used Toyota Corolla and would rather put your extra money towards saving and investing, great! On the other hand, if you absolutely love BMWs and can afford one, you should do it. This is where budgeting comes in. You need to plan for a monthly car payment. Find a number that you can spend up to, but ideally we’ll find a deal for less. And remember, ignore commercials with scummy deals that seem too good to be true: they probably are.
So knowing that there will be other expenses involved, you want to find a total monthly cost that includes insurance, gas, parking, and maintenance. For example, my car payment is $350, but I actually budget for $1000 a month when I add in all my other costs.
Pick a good car! Some cars are just objectively bad. And you ought to consider things like reliability, fuel economy, how long it will last, and resale value before you consider things like style and color. In all, you should get a car you love, especially if that’s important to you but keep in mind that luxury cars have a lower resale value than do economy brands, insurance will be higher for a new car and much higher for certain types of cars, like a Dodge Charger. Finally, if you’re going to take a loan to buy car, you need to consider how much you’ll need for a down payment and the interest rate on your loan. If your credit is good, you can afford a better car because you’ll get a better APR, but if its bad, you’ll want to buy a car that you can put a bigger down payment on and pay off quick.
You must negotiate mercilessly with dealers! I have never seen as many people make bad purchasing decisions as when they’re in a car dealer’s office. If you’re not a hardball negotiator, take someone with you who are. If possible, buy the car at the end of the year, when dealers need to meet their quotas. You can check websites like that will tell you how much the dealership paid for an exact car. I spend a month on the site researching and bought my car for $2000 under the invoice price. Here’s how I did it: I started in December, I faxed seventeen dealerships and told them the car I wanted and said I was prepare to buy in two weeks and because I knew exactly how much they would make, thanks to , I would go with the lowest price. I sat and waited for the dealers to make their offer. In the end I got my car at a nearly unheard of deal and didn’t have to leave my house accept when I actually bought the car.
Dos and Don’ts for your First Car
DO
Investigate Recent Graduate Incentive plans
For first-time car buyers, many car companies offer rebates or special financing. If you’re a new grad with good credit, use goggle to find companies offering deals.
Calculate the Total Cost of Ownership
This means you figure out how much you’ll be spending over the life of the car—these expenses can save a big effect on your finances. Besides the cost of the car and the interest on your loan, the total cost should include maintenance, gas, insurance, and resale value. By understanding a ballpark figure for how much these will cost, you’ll be able to avoid surprises.
Buy a Car that will Last you at least Ten Years
Not one that looks cool, not one that’s in style, not one that the dealer is offering a scummy deals on commercials and in newspapers, but a car that will last you ten years. Looks fade and you’re still going to be stuck with big payments for your flashy car. Optimize your choice for the long term.
DON’T
Lease
Leasing nearly always benefits the dealer, not you. It appeals to people who want the newest car and are willing to pay for it. This is for wealthy people who want a new car every two years, not you! Consumer Reports research recently determined that buying a car would cost nearly $5000 less over five years than leasing the same model.
Sell Your Car in Fewer than Seven Years
Real savings come when you paid off your loan and drive it for as long as possible. Most people sell their cars far too early. It’s much cheaper to maintain your car well and drive it into the ground. Moreover, the older a car gets, the less it diminishes every year in value. For example, your new car after a year will lose up to 50% of its value, but your car at 5 years and your car at 7 years will be worth roughly the same, with the caveat that there are psychological factors that diminish the value, such as a car with 95,000 miles being worth a significant amount more than a car with 105,000 miles, simply because it’s over 100,000 miles.
Assume you have to Buy Used Car
Run the numbers. Over the long term, a new car may end up saving you money, if you pick the right car, the right price, and drive it for a long time, a new car can be a better deal over the long term.
Stretch your budget for a Car.
You do not want to buy a car, have it drop in value significantly in the first year, and then sell it because the payment and maintenance fees are too much of a burden. Be honest with yourself and budget for a car you can afford.
How Mr. O’Brien got a GREAT DEAL on a GREAT TV
By Mr. Voss
If you didn’t already know, Mr. O’Brien is a conscious spender. This means that Mr. O’Brien spends money with a plan and is mercilessly frugal on anything he doesn’t love. But one thing that Mr. O’Brien does love, as you all know, is Chicago sports. This is how Mr. O’Brien decided to spend a good bit of money on a quality big screen TV.
Mr. O’Brien started at a disadvantage. He knew that one of the most important things to consider when buying a big ticket item is the time of year and for electronics that usually means right around holidays when stores compete with each other offering mind-blowing sales. But Mr. O’Brien was moving into a new apartment, so he decided he would do everything else he could to avoid paying a cent more than he should.
The first thing Mr. O’Brien did was go to friends and family to ask about their TV buying experience. Foremost in these discussions was the quality of the television, because a good deal on a bad product is not a good deal. This helped him narrow down brands to LG and Samsung, learning that these were quality TVs but didn’t carry the markup that a brand name like Sony carries.
After deciding on brands and size, Mr. O’Brien checked the Internet—Amazon’s reviews website and consumer reports—for reports on specific televisions. This helped Mr. O’Brien identify the right TV, a 50 inch LG Plasma (sports look better on plasma than they do on LCD.) Following that Mr. O’Brien went to the Internet to look at prices. Both Bing and Google have shopping searches, and Bing even has an option where you can find rebate deals. Often different retailers will have the same item for vastly different prices. The Internet has made this process a whole lot easier, as well. You can search through sites like , , , and a ton of other helpful sites.
Looking online, Mr. O’Brien learned that his target TV was going for about $850 to $1000 new and as low as $650 used. And it must be said; that buying used electronic items can be risky but profitable. Often individuals are much more motivated to sell and can even be bargained down to a lower price. Mr. O’Brien then went to his credit card’s website which links him to retailers that offer points or cash back when purchasing through the Internet. Looking at that, it appeared that Mr. O’Brien could get the TV he wanted for $950 with taxes and shipping included from that would also earn him 1700 points on his credit card, which is about an $80 value. This put the price at $870. Knowing the price range from the original search, Mr. O’Brien knew he could do better.
Knowing that brick and mortar stores have particular sales, especially when they have an overstock of one item, Mr. O’Brien called local Best Buy’s, Fry’s, Little Guy’s, and Costco and explained to each store that he was willing to pay cash for a specific item and wanted to know what price they were offering. Mr. O’Brien here was fortunate to have friends who are members at Costco, a discount warehouse retailer. Costco explained that they would sell the television for $720, which was 10% lower than their sale price of $800. They offered this price because Mr. O’Brien he explained that he had seen the TV for $800 at other stores. So, Mr. O’Brien drove to the Costco in the suburbs (the taxes are cheaper out there) and bought the TV with his friend’s membership at Costco. With tax, the TV came out to just about $800. A bonus to that was the cash back rebate program that Costco runs for “gold” members. This meant that Mr. O’Brien got his TV, for a total of $770. Wow! That’s over $100 less than the $900 the television would have costs had he just walked into Costco and bought it, and almost $200 less than if Mr. O’Brien had walked into Best Buy or another retailer. And an added bonus to buying at Costco was the free extended warranty offered by Costco.
Man! The Bulls are going to look good winning the NBA Championship on those 50 inches.
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