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Smart Shopper Percentage of monthly income spent on a car?
390 messages, Last post on Mar 21, 2009 at 5:50 PM
You are in the Smart Shopper Forum. Your Hosts are kirstie_h & tidester
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Replying to: kyfdx (Feb 28, 2008 2:22 pm) 
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Replying to: joesmith2 (Feb 26, 2008 9:51 pm) Older cars carry higher liability premiums than new cars with the new safety doo-dads. Prime example, full coverage with $100,000 policy on the 2005 Honda CR-V is $640/year, but a liability only coverage on the 1988 Prelude is $450/year. The $200/year difference is not enough for me to not have the better vehicle. I own the Prelude outright, and financed the CR-V for 5 years in 2005 at 2.9%. Had I paid cash for the CR-V, I would have had lost an opportunity to earn risk free 5.05% on that stash. So, by financing I was basically given money to buy the vehicle at a rate lower than what risk free rate was at the time, and until recently. Even now, the risk free rate is at 3.5%, 0.6% higher than what I am paying in interest to Honda. When you try to justify personal choices with numbers, you have to take into account the cost of lost opportunity for your money that you sunk into a depriciating asset. So, you bought the Grand Maquis for $15,000. Had you financed it through Ford Credit you would have probably gotten 0% rate on it. Hence, you lost the opportunity to make more money with this $15,000, and now it is worth nothing because it depriciated. Had you finainced at 0% you would have still had the $15,000 plus the earnings, and you would have had the vehicle fully paid off. My advice: DON'T MAKE CAR PAYMENTS. You can not make categorical statements like that until you evaluate the whole situation, rather than focusing on just the small part of the whole grand of scheme. I am only half your age, so I may have missed something.
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Replying to: joesmith2 (Feb 29, 2008 9:46 am) Joe, I don't want you to think that I am picking on you. But.... Define what is a foreign car. Is a Chevy made in Korea a foreign car? Is a Honda made in Ohio a foreign car? Most of the "foreign" cars are actually made here in the USA out mostly US components, so the dollar fluctuations will not affect them as much as the "domestic" cars which are either made in Mexico or Korea out of Mexican or Korean components. Even the vehicles assembled here in the USA by the UAW workers are made of Mexican, Korean and Chinese components. As to buying a Honda and selling it in 6 months, if you are talking about inflation, then yes, you will get the same monetray number, but the purchasing power of that same amount will be less than what it was 6 months ago, so you are just fooling yourself. However, Hondas do retain most of their value for a long time. I bought a 1999 Civic for $15,000, sold it 2.5 years later for $12,000, then bought a 2002 Civic for $14,500 and sold it 2 years later for $12,500. If you were to take the difference between the price I paid and the money I got back, it was cheaper than leasing, since it works out to about $80/month.
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Replying to: blueiedgod (Mar 04, 2008 11:35 am) The only thing I will take issue is the cost of money. I can always get 4% on 15k. 4% of 15k is $600/year, or another $50 per month. So, it cost you $130/month, which is still cheaper than leasing (but not by that much). |
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Replying to: blueiedgod (Mar 04, 2008 11:28 am) Being an old guy, I still think of American cars as being big gas guzzlers and foreign cars as being little fuel efficient cars, so referring to “foreign” cars was inaccurate on my part. And we all know about foreign content in domestic cars. However it doesn’t really have anything to do with my argument, which is about a new, little fuel efficient car verses an older large car. “If you buy a car and sell it for what you paid for it, because of inflation, the buying power of the money you receive isn’t the same as the buying power of what you spent…” That’s true, but had you just kept the money laying around you would have lost that buying power anyway. “You can not make categorical statements like that …” (about not making car payments) Isn’t THAT a categorical statement itself? Sure, you can make car payments, and invest the money you could have used to pay cash for the car. You can make a profit. Of course you can also lose your money, then you don’t have the money AND you have a car payment. There are people that get a job, buy a car on time, make payments, get raises, and easily pay off their car. But, if you get a job, get raises, don’t lose your job, it’s pretty hard to screw up. What happens if you get laid off? You’re looking for a new job, you miss a payment or 2, then you look outside one day and your car is gone. Then even if you get a new job, you can’t get to it. “I am only half your age, so I may have missed something.” That is an extremely intelligent observation. The hardest thing in the world to do is to save money. Just try saving $15,000 to buy a new car. If you do, you’ll likely not spend it on a new car. After working that hard to save $15,000, you’ll think about spending $5,000 on a car and keeping $10,000. I’ve made a lot of bad decisions in my life. I’ve been divorced 3 times. But one decision I’ve made that was good was to not make car payments. I’ll say it again. If you pay cash for a car, you own it. If you make payments, it owns you. 
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Replying to: joesmith2 (Mar 05, 2008 9:40 am) All the cars that I have purchased since 1986 have been paid in cash. When I go to the dealership, I know that I am going to write a check for the amount of the purchase price. Last year's purchase was $15k including taxes and fees out the door. It was hard to write the check because I know how hard it was to save that much money to pay for the vehicle. And the vehicle was a GREAT deal! (After 25 years of used cars, I had to keep tellig myself that this was my last car for the next 15 years. And I will know in that period if Toyota products are truly better than their domestic counterparts. It is a lot easier to spend $350/month for 39 months because those are small payments to make ... even if you are making them forever. |
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An article today on Kiplinger's Personal Finance, linked by Yahoo, basically the 10 tips are: Buy a Used Car Buy a Sipper, Not a Guzzler Re-Shop Your Car Insurance Drop Collision & Comprehensive Coverage Raise Your Deductible Join Policies (car & homeowners) Shop Around for Gas Use a Gas Rebate Credit Card Hop on the Bus, Gus Car Pool 4 of the "tips" are "pay less for insurance", 2 are "don't drive", 2 are "buy cheap gas", the other 2 are "buy a cheap car that doesn't use much gas". What a useless article. My tips to cut car costs would include: 1) Pay cash for your car. You'll save the finance charges, and you'll be allowed to drop your collision & comprehensive coverage (Kiplinger's says to drop them, but doesn't address the fact that you can't if you're financing). 2) Lie to your insurance company about how many miles you drive per year, i.e. lower it. "How many miles do you drive to work?" Answer: "I work from home". 3) Don't get any tickets and don't have any accidents. If you do get a ticket, fight it in court. I've beaten half the tickets I've gotten just by showing up. Sure, you have to miss work, but you get to say you haven't had any tickets in the last 3 years. 4) Tell your insurance company your car is for "Farm Use". I used to work for GMAC Insurance, and rates are lowest for "Farm Use" vehicles. Just because you don't live on a farm doesn't mean you can't say Farm Use. I know farmers who live in apartments, they store their equipment on a farm somewhere and hire themselves and their equipment out. 5) Ask your insurance company how you can get a discount. Ask over and over. I got a discount from Geico by taking a "driver improvement" class. The class was one day, most of the people there were ordered by the court to go. I saved enough in one year to pay for the class. Also, insurance companies give discounts if you belong to certain college alumni associations. Many of these alumni associations don't require you to have ever taken a class to join. No, I don't feel guilty about lying to the insurance company. I never have any claims, so it's free money for them. The reason I don't have any claims is because I work real hard at not having accidents. Right now I'm working in Philladelphia, driving a car that is a "Farm Use" vehicle in Michigan. Because of this, I drive very carefully. Not having collision insurance makes you drive more carefully.
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Replying to: joesmith2 (Mar 06, 2008 7:00 am)
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Replying to: joesmith2 (Mar 06, 2008 7:00 am) |
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Replying to: joesmith2 (Mar 06, 2008 7:00 am) I never have any claims, so it's free money for them. In that case, one wonders why you bother to have insurance. Oh, that's right, it's compulsory. Just be aware that one day when you do file a claim it will likely be denied when the insurance company discoveres your true mileage. tidester, host SUVs and Smart Shopper
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