SWB: Alan B. Rowley II - Success Coach - ECoaching - Email Coaching

While We're Talking About Driving . . .

A lot of money is spent on cars.  In fact, car sales makes up a large part of the US economy.  The economy was up in August unless you take car sales out of the equation.  Then consumption was down.

People should be paying cash for cars but they aren't.  Not even me yet but I'm really hoping that I will be paying cash for my next car.  I'm going to keep the two I have until I have saved up enough money to buy another car.

Consumer reports says that if you drive your car for 15 years, you'd save over $30,000.  That's just what you would save and doesn't count how much money you would have if you continued to pay the amount of a car payment into your savings account.

Quite frankly, 15 years seems like a long time, even to someone like me who doesn't care about cars.  If you were to keep the car for 10 years and put the second 5 years worth of payments into savings, you'd earn interest for those 5 years and be able to pay cash.

Most people can pay off their cars in 2 years if they really want to so you could start saving 3 years earlier if you wanted or buy a car 3 years earlier.  Once you by a car on cash, you could buy a new car every 5 years if you continued to make payments into your savings account.  You might just find that you like having the money more than the car though and start keeping your cars longer.

Saturn of Riverdale - Just Looking Around

This is third part of a series.  Part one is here and part two is here with interesting side trips here and over at Chronicles today (I'll add the post link later - here it is).

We were heading into town on an errand, talking about moving, and we were going to be driving right by Saturn of Riverdale.  We were going to need a new car if we moved so I thought it might be a good idea if we stopped in to have a look.  I had no intention of buying a car but I wanted to look to see what they had and just start thinking about it.

We went into town on our errand and then went further north to check to see if Tia's grandpa was at his greenhouse.  He wasn't there so we went back to the freeway and came back down to the car dealership.  It was the quickest way to get back to the stores that we wanted to get to anyway and once again we would be going past the car dealership.

It was fate.  Or heavy traffic and traffic lights if we came back any other way.  Fate sounds cooler though.

Saturn of Riverdale - Our First Experience

Our car blew up.

A couple of years ago, we were on one of our grueling day long stock-up excursions because we live across the wasteland in a place that only exists because gambling is legal in Nevada and illegal in Utah.  Every month or two, we have to go in to the city to pick up things that you can't buy out here.  That list includes everything except groceries.  You can buy groceries here.  It costs more because they have you by the short and curlies but at least you can eat.

It was about 6pm and we were done for the day.  We were going to get something to eat and then get home.  It looked like we might actually be home before midnight.  That would be nice since we usually had to get up at 5 or 6am to start these trips and we usually came dragging in at midnight.  It was hot and had already been a long day and we were thinking happy thoughts about being home kind of early.

That's when the car blew up.

Wow! When I Impulse Buy, I Do It Up Right!

I would have to say that my wife and I are pretty good about impulse buying.  Part of that is the financial plan that we are following and part of it is the fact that we live 120 miles from a store.  We do shop online when we need to but neither of us get any joy out of doing so.  We search for what we are trying to purchase and then buy it.  There's no browsing or walking through different departments to get to what we want.  There's no chance of throwing a couple of extra things into the cart like there is in a physical store.

Yesterday we went to town.  We create a list before we go of what we want and which stores we're going to be visiting.  Yesterday's list was short and we considered not going but we had one important thing to do that couldn't be put off.  If we have to go for one thing, we put together the list because if you're going to spend that much on gas, you have to do everything you can.  It was a usual trip with us leaving around 8:30am and getting home around midnight.

Our short list of items included a wallet or binder of some sort for Tia, a shirt and pair of pants for me, blinds for the bedroom, underwear and some extra Thomas the Train tracks for Trey, a couple of small items that we forgot to buy at the grocery store like garbage bags and toothpaste.  We were also going to go to our favorite pizza place for lunch, meet with my mom and 2 brothers for dinner, and drive around a bit looking at houses in case we have to move in the next couple of months.  It was going to be a long day but as far as actual shopping went, it looked pretty simple.

So, what's the first thing that I bought?

Cars - Why I Don't Talk About Them

I don't blog about them much and even in my book, they get a very light brush - almost an afterthought.  I do this because:

1.  If you follow my plan, cars are treated just like everything else.  I don't feel any need to address them any differently.

2.  Read any book on personal finance and you will get tons of information on cars.  While you're at the book store picking up my book (not yet, but soon I hope), open the book next to it and read the chapter on cars.  Put that book back, buy mine, and get your finances in order.

3.  I disagree with the biggest tip in those books.

But I Want It

Before I relate this next story, I need to update you on my own situation.  My wife and I are paying off a student loan owned by Sallie Mae.  Sallie Mae has received all sorts of bad press because of their predatory nature and we are doing everything we can to escape their evil clutches.  We weren't keeping track when we started but we were paying around $9.00 a day in interest a year ago to Sallie Mae.  Today, we are paying $.97.  How huge is that?  We pay on it weekly so the interest per day goes down each week.  We are hoping to have it all paid off in the next two months then it's on to the car.

Today's story is about cars.  The story is true with some parts filled in with guessing by me.  I'm not telling this story to give the hero of the story a hard time because everyone has done this sort of thing, including me.

Buck totalled his car and the insurance company gave him $4,000 to replace it.  Buck went car shopping.  Buck does not have good credit which is a common situation in today's world.  I told you that I think that lenders enjoy the situation because it allows them to charge horrendous amounts of interest and people accept it.  Buck is no exception to this practice. 

I don't know how much he shopped around or how many people he talked to but the story that the related was that he was going to buy a new car because a bank didn't want to take a chance with him on a used car because they wouldn't be able to get their money back if Buck defaulted.  Everyone knows that it's harder to get money back on a new car than an old one because a new car depreciates the most, the second that it's driven off the lot.  If you were really concerned about how much money you would lose, you would direct the purchaser to a used car of low value that was likely to hold that value the longest.  The dealer obviously wants to sell the most car possible.  The bank weighs out the odds of getting the money bank based on more criteria than just credit score and takes the biggest possible risk that its guidelines allow.

Buck is talked into a $19,000 car.  He uses part of the $4,000 as a down payment.  I don't know how much but let's say half.  He wanted to use the other part of the money to buy some things that he wasn't able to afford before.  Buck has poor credit and so he's told that he'll be paying 18% interest.  Buck accepts his lot in life and is ready to buy the car.

Buck calls a friend for advice.  This friend happens to be a daily reader of this blog and has a good sense of the money game.  The friend's advice is to use the $4,000 to pay cash for a used car that will probably last for a couple of years and use those two years to rebuild Buck's credit rating.  Buck could save up for a down payment and not get hosed on the interest rate.  No surprise but that's the same advice that I would have given.

Buck launches into all the features of the new car that make it such a wonderful purchase and it becomes obvious to the friend that Buck wasn't calling for advice but to be reaffirmed in a decision that he had pretty much already made.  The friend does his job and tells Buck that the new car sounds great and that he should get it.

Out of curiosity, I ran some numbers using the API calculator which I usually do when I hear stories like this.

I used a 5 year loan because they are the most common currently.  That will change.  People were shocked when banks came out with 6 and 7 year loans for cars but now that the shock is over, it won't be long before the 6 year car loan is the standard.

A $17,000 loan at 18% interest for 5 years will have a car payment of around $430.00.  If Buck just makes the minimum payments, he will end up paying $8,9000 in interest.  That's more than 50% interest.  That means that Buck is paying $26,000 for a car that is being sold for $17,000.

On top of that, Buck is going to have to increase his insurance premiums each month because he will have to have full coverage on a new car.  Both factors will increase the premiums.

Let's look at the friend's advice as a comparison.  We are assuming that Buck can afford the $430.00 payment for this example.  If he couldn't, the bank wouldn't have let him get the new car.  They would have instead directed him to a used car, telling him that he didn't qualify for a new car and that a used car would be in his best interest.  Amazing how a buyer's best interest can change that quickly.

Buck could buy the used car with the $4,000 cash he has from the insurance settlement.  He could get liability insurance on a used car which would keep his car insurance premiums low.  He could put the $430.00 a month into the bank for two years while he rebuilds his credit.  After two years, he would have $10,000 and better credit.  If he were to put the 10k down on a 19k car and get about 7% interest, his car payment would be $178.00 a month and he would end up paying $1,700 in interest.

If he continued to pay the $430.00 a month on this new car, he'd have the car paid off in 16 months and only pay $400 in in interest.

He could also just buy a car with cash at $10,000 which would last him more than two years.  He could continue to put $430.00 a month into the bank for his next car which could be more expensive and still paid for with cash.

Starting today, Buck could never have to borrow money for a car ever again.   

"Accept that you'll always have a car payment."

Have you ever heard that?  I have.  It takes five years (or 6 or 7 now) to pay off a car and when it's paid off, it's time to buy a new one.  Not only have I heard it but a few years ago, I believed it.  I had been brainwashed by some unknown source but that source is probably someone that collected the interest I was paying on my car loans. 

My thinking has changed of course as I now see the game that is being played and have a better understanding of the rules.

If you follow my Money Choice plan, you can pay off every debt that you have in 5 years.  Every single debt including your house in 5 years.  In the time that most people pay off one car, you can be completely debt free.  I'm going to say it one more time because it's important to understand how powerful the brainwashing is.  People are taking 5, 6, and 7 years to pay off a car only to start the process over again when they could actually pay off everything they own in the same amount of time.  And this has been taught as being "normal".  Are you getting the picture?  Do you think there are people out there collecting your interest that want you to think that it's just the way of life to pay extra for everything for the rest of your life?

Here's another thought for you.  If you didn't have any debts, no house payment, no car loans, no credit cards, how long would it take you to save up to pay cash for a car?  Less than 5 years?  Less than 3 years?  Less than 2?  Depending how much you make and how much the car costs, maybe even less than 1 year. 

You can buy a car in one or two years but for some reason you just have to "accept that you'll always have a car payment." 

Not me.

Letting It Sink In Some More

Yesterday, even after posting about the car payments, I could not get it out of my head.  A lot of times, once I post, it's done.  When I blog, it seems I'm more of a cut/paste guy instead of a copy/paste guy.  I take what's in my head and put it down on paper and then I move on to thinking about other things.  Yesterday, my mind kept going back to this car payment thing and this is what occurred to me.

Granted my wife and I have been doing this plan for 9 months now so we have a little headstart but . . .

My coworker is going to pay off a couple of debts in the next few months so that he can afford the payments on the H3.  This summer he's going to go in and convince a bank to buy an H3 and he'll buy the car from the bank with interest over a 6 year period.

In those 6.5 years, following our plan, my wife and I will have paid off every debt we have including our house and will have time to save up to pay cash for a car of equivalent value to an H3.  We'll own the car and have no payments on anything.

Of course, that means that we have to go for 6.5 years of not driving that car.  Somehow I think we'll survive.

Tomorrow, some more about cars and brainwashing.

My Thinking Has Changed

It's a process of course and I'm not sure at what point you say that you have changed how you think.  The transformation is ongoing.  My wife and I are still learning about money and will continue to change how we think about it.  Some of the things we do are designed in a great part to do just that.  There are milestones though that you pick out and last night was one of those.

I was listening watching the crowd last night as we were waiting for the concert to start.  Some coworkers were nearby talking about buying a car.  One of them is going to buy a brand new H3 this year.  I wasn't really paying too much attention but I heard that the payments would be spread over 72 months.

Inside, I just cringed.  72 months.  That's a big promise.  Many people don't even keep their cars for 6 years.  This guy might.  I don't know.  It doesn't matter. 

A year ago, I wouldn't have even thought twice about this.  Car payments are just a part of life.  6 and 7 year loans for cars are becoming more common.  There is nothing out of the ordinary about this.  Now, just the thought without really thinking it through just makes me want to yell out, "Don't do it!"

This morning, in giving it more thought, I can't help but think about the situation my wife and I are building.  We should have everything in our lives, including the house, paid off in 45 months.  At that point, saving up for a vehicle will be easy and I'll pay cash for every car I buy for the rest of my life.

Being on this program really changes how you think.  And that's a good thing.