Posted on 12/15/2010 5:48:13 AM PST by CSM
College kids don't need new cars!
Dear Dave,
I’m 24, and I’m finishing up college. I’ve been driving an old, used car for a while now, and I’m thinking about getting a new one. I’ve managed to save up about $30,000 from my jobs, but every time I go to a car dealer they want me to finance a new car instead of paying cash for one. What do you think I should do?
Devon
Dear Devon,
Who gives a crap what the car dealers want? This is your purchase, not theirs. Besides, the only reason they want you to finance is so they’ll make a lot more money off the deal.
Dude, you’re a 24-year-old college student who has been smart enough and industrious enough to scrape up $30,000 over the last few years. You don’t need to throw a huge chunk of that into something that’s going to go down in value like a rock. New cars lose 60 percent of their value in the first four years. A $28,000 car would be worth around $11,000 after that period of time. That’s not what I call a smart investment.
You don’t need a brand-new car, Devon. Once you’ve got a million dollars in the bank, then you can go out and buy a new car. For now, you need to stick with good, used, low-mileage vehicles that are about three or four years old.
If I were in your shoes and had your budget, I’d shop around and pay cash for a cool little $10,000 car. You can get a great automobile for that kind of money, plus you’ll still have the majority of your savings sitting there!
—Dave
No, no, no!
Dear Dave,
Should I take $20,000 out of my thrift savings account to use as a down payment on an investment property? My payment would be $1,200 a month, and I could lease it for $1,500 a month. It will also give me a better return than if I left it in my savings account, even with all the penalties. What do you think? Cecilia
Dear Cecilia, So, you want to cash out retirement, and take a penalty, to buy an investment property. And on top of that you’re going to take on debt, too? This is like combining two dumb things into one big mess. I don’t think so!
I understand the allure of real estate. I love real estate. But it’s pretty obvious you’ve never been a landlord. Bringing in $1,500 and paying out $1,200 sounds good to you, but there’s also a lot of risk involved, and that’s something you haven’t figured into the equation. Sometimes you have places that just sit there empty. Other times you have renters who don’t pay, things that need fixing, or people who just tear stuff up.
The idea that you’re going to make a bunch of money off this situation is pure fantasy. Don’t go there!
—Dave
My boss has been to demanding lately, so I am behind in my pings to you. Don’t be to upset with me for trying to catch up today.....Blame it on Charles H for the reminder this morning.
;-)
Dave Ramsey Fan Ping List.
If you would like to be added to the “Live like no one else, so that you can LIVE like no one else” list, feel free to Freepmail me.
Don’t add me to the ping list but I think Dave Ramsey should be Treasury Secretary.
I don’t see where the lady in the 2nd one says anything about it being a retirement account. Why would she pay a penalty?
I sometimes suspect the actual letters are longer, and have detail information (I know if I were asking for financial advice, I’d include a lot of specifics like interest rates and stuff, so I assume others do as well).
The federal employees have a “thrift savings plan” that is a retirement fund, so maybe that is what she was talking about.
She mentions ‘even with all the penalties’ in her question.
I wholeheartedly agree about the desire for Dave to take that position, I completely disagree about not adding you to the ping list!
;-)
I think that a “thrift savings account” is some sort of gov’t employee benefit that is treated like a retirement savings. I hope that someone can correct me if I am wrong.....
When we were young, my cousin was in a similar position as the guy in the first letter. He had saved a bunch of money, and paid cash for a custom van. My dad told him he should have financed it, then paid it off the next month as a way of building credit. You could do the same thing with the used vehicle. Just being out of college, he probably doen’t have much of a credit history.
First, I agree with the advice to stick with a slightly used car over a brand new one from the dealer. If nothing else, the government gets a much smaller check. Second I see no reason if buying (used) from a dealer, to not use this to his advantage. The dealer will probably give him a better deal to lure him into borrowing. As long as the loan has no prepayment penalty, and the savings on the car are substantially greater than any non-recoverable fees to set up or end the loan, why NOT borrow it and pay it back the following month?
You are right. The TSP (thrift savings plan) is a retirement account offered to federal employees. When you take out the money, you have to pay tax on it.
If your children are trustworthy, they don't have to engage in poor transactions in order to build a credit rating.
My wife and I pay off our credit cards every month. We use them for the convenience of not having to carry much cash. When my daughters went off to college, we had them added to our credit card accounts. By the time they had graduated they had each basically "inherited" our credit rating.
That is an excellent idea. I did not realize that you could do that. Thanks!
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