On today’s podcast I will be giving my thoughts on a few things I have been wanting to discuss with you. I will then dive into 4 Reasons Not To Be an Average American.
Reminder about My Speaking Engagement
Before I get into that, I will to remind everyone I will be speaking at the Podcast Dallas meet up, organized by Gary Leland and Mitch Todd on Tuesday, March 4th at 6:30 PM. Subject of my presentation: Getting Great Interview Subjects for Your Podcast and Getting Noticed
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Location:
Improving Enterprises
16633 Dallas Parkway,
Addison, TX
Question from a Blog Reader
I received an message from a reader of my blog at the end of December right before the launch of this podcast. He had a 2006 VW Pasat and his wife enjoyed driving. He said it was coming up on 100,000 and he was concerned about how much is might start to cost in repairs. He was toying with the idea of getting a new car, maybe one with a 10 year/100,000 warranty. It is paid off. He asked for my feedback.
I appreciate your current dilemma. It sounds like you and your wife enjoy driving your VW Passat, but the expense of maintaining it has become too expensive.
I don’t fully know your situation, so I don’t know if you were planning to pay cash for the new car or take on auto debt.
I would not go into debt for a car, but either way, I would not recommend buying a new car. I agree with Dave Ramsey, who says, “Remember, unless you’re a millionaire, you can’t afford a new car because you can’t take the hit in depreciation!”
I am not sure what new car you are considering, but let me share with you the averages. According to edmunds.com an average new car today sells for about $31,000. I have outlined below the average depreciation. (You can find the depreciation calculator I used on edmunds.com at Depreciation Infographic: How Fast Does My New Car Lose Value?)
Description Depreciation Value
New on the lot $0.00 $31,000
First year $7,666 $23,334
Second year $3,512 $19,821
Third year $3,091 $16,731
Fourth year $2,737 $13,993
Fifth year $2,458 $11,535
Total Depreciation $19,465
On top of the depreciation there are the car payments which today average about $464 per month. Which works out to about $5,600 per year. You can do a lot of repairs on the Passat for $5,600.
If you combine the depreciation, $7,666, and car payments for the first year, $5,600, the new car costs $13,266 for the first 12 months.
If you determine after looking at all these numbers your 2006 Passat is too expensive to maintain and you want to get another car. I recommend buying a good two year old used car for cash.This allows you to buy a car after a significant hit has already been taken on depreciation by the original owner. You can still find a low mileage vehicle and one likely with a warranty. It will cost a little more, but you can also buy a certified pre-owned to put your mind a little more at ease.
In closing, if I were in your shoes, I would not be buying a new car now. Both the cars my wife and I are driving were purchased with over 100,000 miles on them. Mine, a Ford F-150, now has 146,000 miles and has made multiple trips from Fort Worth, TX to Atlanta, GA and back. The last one just this past Thanksgiving.
I also told him in a later correspondence that most cars today are engineered to go to about 250,000 miles if they are properly maintained.
If I were you, I would proactively have any necessary repairs done on the Passat to handle problems a mechanic could identify before they show up. I would do the required maintenance (oil changes, other fluids, timing belt, etc.. I would then pay myself the car payment I would have been making on a new car. I would those funds for repairers and to save for my next cash car.
Some useful web articles: (I will link to these in the show notes.
Top Five Ways to Make Your Car Run Forever
Five Reasons to Buy a New Car?
Auto Leases Entice, but They’re Still Costly (This article is about more than leasing)
Lastly, thank you for your service to our country. It is my honor to provide you my thoughts and share some resources with you. I hope you find this information helpful in your decision making.
Now the thoughts this gentleman had are not too unusual. Many of us tend to think a little worse of our cars after we have driven them for a while. They are as shiny and new as they once were. It is amazing how much driving a dirty car can influence this type of thinking.
His response to me. You have confirmed what I was wanting to ignore. Amazing how my impulse is to spend money simply for the rush, even though it goes against my better judgement.
I’ve actually followed all your advice with this Passat. I bought it when 4 yrs old for a great price with low miles, put a warranty on it, and have done meticulous preventative maintenance.
I think I should probably begin putting aside cash each month for the next several years so I can pay cash for my next car like you suggest.
You really have a great niche with your blog. I can’t wait to get your podcast.
I was beyond excited to get this response. I want to challenge all of you listening who are in a similar situation to take a hard look at the numbers before you pull the trigger on a new car. Please reach out to me if you need to. I am here to help!
4 Reasons Not To Be an Average American
Note: Unless otherwise stipulated, all data used in the the remainder of this podcast was pulled from a report in GoBankingRates.com.
As we are now nearly 2 months into 2014 many of us reflect to take stock of how we are faring in our New Year’s Resolutions.
Are we still on course?
Are we better or worse off than we were in December?
Many of us tend to lose focus quickly in the new year. The gym start to get back to their normal levels of activity. The resolution to get up early falls by the wayside and we spend more time with our pillow.
Likewise the desire to be financially fit may slip away as well.
I want to help you stay the course with by giving you 4 reasons not to be an average American.
1. The average American has credit card debt of $15,263 with an APR of 14.95%
2. The average American has student loan debt of $31,646
3. The average American has auto loan debt of $30,738
4. Only 59% of Americans have at least $500 in savings
If you are the average American today. You can’t change the decisions that brought you to the indebtedness you now face. You can, however, make a choice not to continue on the path to increased indebtedness.
The good news about being an average American is the median annual income is $52,782. Compare this to the global annual median income found in a 2012 article in the Daily Mail of $1225. In America, it isn’t income that’s our problem. It’s the spending and borrowing that’s out of control.
Do you follow Dave Ramsey‘s Financial Peace University philosophy?
Maybe you follow M.J. DeMarco’s Millionaire Fastlane philosophy.
One thing is true of both philosophies, you have to spend less than you earn to get ahead. Average Americans don’t.
According the Bureau of Labor and Statistics, for the year 2012, in most households the second largest annual expense is your car, second only to the expense of housing.
In my view, It is much easier to drive a cheaper car than move to a cheaper house or apartment. This makes your car a prime target to be the fastest way to get your debt under control.
Look at my previous posts and podcasts to learn how to find and buy a good inexpensive cash car. You can also find a post on how to sell your current car. The podcast will be coming soon.
Whether you chose to reduce your annual expenses by downsizing your car or in some other area of your life, make controlling your spending and reducing expenses a priority in 2014.
Don’t be an average American.
Links:
Podcast Dallas Meetup: http://www.meetup.com/Podcast-Dallas/events/164835992/
Dave Ramsey: http://www.daveramsey.com
MJ DeMarco: http://www.mjdemarco.com
Edmunds: http://www.edmunds.com
How Fast does My New Car Lose Value Info Graphic: http://www.edmunds.com/car-buying/how-fast-does-my-new-car-lose-value-infographic.html
Call to action:
To find the show notes go to cashcarconvert.com/017
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