RPF0228-James_Kinson_Interview
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00:00:14.840 | Today on Radical Personal Finance, we talk cars with the cash
00:00:19.040 | car convert himself, Mr.
00:00:22.000 | James Kinson.
00:00:22.840 | Welcome to the Radical Personal Finance podcast.
00:00:41.380 | My name is Joshua Sheets and I'm your host.
00:00:43.040 | Thank you so much for being with me today.
00:00:44.940 | Today, we're going to talk about cars, specifically how to make a good decision
00:00:49.480 | about cars. I brought on Mr.
00:00:51.940 | James Kinson, who hosts a very popular podcast all about that specific subject,
00:00:57.300 | how to buy them used and pay cash for them.
00:01:00.700 | And today we're going to argue a little bit about whether you should or not.
00:01:04.180 | All right. I believe in truth in advertising, so I guess I shouldn't quite say
00:01:15.340 | argue, but we do have a little bit of a discussion on the on the topic.
00:01:19.740 | James and I come from slightly different points of view.
00:01:22.400 | And although we agree in the majors, I think you'll enjoy this conversation.
00:01:25.700 | I was able to record this at the recent podcast movement conference in Fort Worth,
00:01:28.800 | Texas. So you'll hear a little bit of the background noise of the interview where
00:01:32.600 | we were doing the interview in a busy, busy hall during the middle of a
00:01:35.700 | conference. But James is a real great guy.
00:01:37.740 | You're going to hear his story right at the beginning of it.
00:01:39.540 | He is recently converted to buying cash cars.
00:01:44.600 | He wasn't always that way, but he's recently been converted to that way of
00:01:48.900 | thinking. And you'll hear that come out in this podcast.
00:01:51.540 | But he's an expert on buying cars.
00:01:53.780 | Having owned over 20 vehicles over the last 40 years,
00:01:57.280 | he's learned a few tricks in his own trades and he's built a podcast helping
00:02:01.900 | others to avoid the big mistakes. Here we go.
00:02:06.480 | So James, welcome to Radical Personal Finance. I appreciate you being here.
00:02:11.440 | Thank you for having me. I'm pleased to be here.
00:02:13.300 | I have been looking forward to having the cash car guy on the show,
00:02:17.300 | the cash car convert. We have a lot of mutual friends.
00:02:20.440 | I know you're doing some cool stuff with your podcast and growing.
00:02:23.280 | Let's kick it off with your story with regard to money.
00:02:26.640 | How did you become the cash car guy?
00:02:28.340 | Yeah. So to me it's kind of an interesting story because I grew up never really
00:02:33.680 | knowing how to handle money.
00:02:39.480 | My dad was one of these guys who would quit a job when he got mad.
00:02:42.980 | He never really worried about it and he always bought new cars or new things
00:02:47.980 | whenever he had more money. So it was always,
00:02:51.720 | he was always upgrading lifestyle with more income.
00:02:57.180 | And so I was raised really poor.
00:02:59.820 | And then as I started in my work life,
00:03:03.760 | I just kind of assumed some of the same things that he told me.
00:03:06.860 | Like you're always going to have debt,
00:03:08.420 | you're always going to have a car payment, all those kinds of things.
00:03:12.660 | So my wife and I, we make a good income,
00:03:15.060 | but I found myself about $70,000 in credit card debt and other ancillary debt.
00:03:20.100 | We had about $500 a month in car payments and I even had a loan against my 401k
00:03:27.860 | at one point. So really some dumb stuff.
00:03:29.740 | Was it just overspending or was there some, you had been disabled,
00:03:32.700 | some specific cause?
00:03:34.140 | Just sloppy, just really sloppy,
00:03:36.020 | not paying attention and just allowing things to get out of control.
00:03:39.700 | And so so we, so, so I, I tripped over Dave Ramsey's book,
00:03:44.180 | Total Money Makeover. So I read that and and I, I told my wife, I'm like, listen,
00:03:49.180 | you got to read this. I think this is going to, you know, this, this,
00:03:51.860 | this makes sense to me. And so she agreed to do it. And,
00:03:55.900 | and so from there I really started consuming all of his content,
00:03:58.900 | read all of his books, listen to his radio show every, every chance I got.
00:04:02.980 | And so finally,
00:04:05.860 | so finally I get to a position where I hear him all the time say,
00:04:10.660 | sell the car and buy a beater. And, and even said at one point, this,
00:04:14.180 | sometimes I think this is the sell the car show. And,
00:04:17.940 | and I realized that I've, I've only bought one new car in my life.
00:04:22.220 | And I've spent most of my life driving used cars. And so I, so I said, you know,
00:04:26.940 | I really know how to buy used cars.
00:04:28.660 | Maybe I could find a way to help people with this because Dave's not telling him.
00:04:33.140 | And I know that if you buy the wrong car, it's more of a curse than a blessing.
00:04:36.700 | So, so, so that was kind of the Genesis of it. And,
00:04:40.580 | and along the way my wife and I got out of debt. We got our cards paid off.
00:04:44.780 | We bought a couple of other cash cars and and now we've got, you know,
00:04:48.980 | like an eight month emergency fund where we've been fully funding our 401ks and
00:04:53.420 | stuff for a long, long time. So that was the one thing we did do right.
00:04:57.140 | Is we did do that. Yeah.
00:04:58.540 | Awesome. So now,
00:05:02.940 | so you've, so what was, it's interesting to me about,
00:05:05.260 | you've kind of taken on this as far as I'm concerned,
00:05:07.940 | like this tiny niche about paying cash for cars and you've expanded it into all
00:05:11.780 | this helpful content. How do you talk about cars that much?
00:05:14.380 | Well, you know, it's kind of funny. I, if you, as, as people listen to my show,
00:05:18.860 | they're always surprised that there's so much more going on there than just
00:05:22.980 | talking about cash cars.
00:05:24.180 | I did do a number of episodes where I'm talking people through how I buy cars
00:05:28.340 | and how I would recommend they do it.
00:05:30.060 | But then I also knew it was about more than that,
00:05:32.420 | that why do I want to drive a cash car? Why do I want to not drive a new car?
00:05:37.260 | And so I gave them some background about that.
00:05:39.460 | But then I also talked to a lot of entrepreneurs and about how they weren't,
00:05:44.740 | they would not have been able to start their business had they not been debt
00:05:49.220 | free. And so I've had a lot of people on, a lot of business people,
00:05:52.420 | a lot of entrepreneurs telling me their stories about that.
00:05:55.580 | And so that's something else I'm weaving into the show.
00:05:58.420 | Yeah, I'm one of those entrepreneurs. If I, you know, if I had a high lifestyle,
00:06:02.660 | um, when I left financial planning and I launched radical personal finance,
00:06:07.260 | it's a, it's a jump in the dark financially wise. It's not a, you know,
00:06:10.940 | if I were any other business,
00:06:12.580 | I would have a careful business plan with projections and whatnot.
00:06:15.340 | But this kind of business, there's no way to do that.
00:06:17.340 | So the only way that you can do that is if you're good with your expenses.
00:06:20.660 | And there have been so many people who are stuck in exactly that situation and
00:06:27.300 | they're not able to make a switch to a business.
00:06:29.540 | Businesses as a rule generally don't make much money in the beginning.
00:06:32.580 | And the reason you hear about the big stories that did is because they're so
00:06:35.780 | rare. They almost never happen.
00:06:37.620 | So ignore the rare unicorn and just focus on what you probably can control.
00:06:42.660 | And one of the things is not to put too much pressure in the first couple of
00:06:46.500 | years out of a business to take too much out. And if you've got a high lifestyle,
00:06:49.820 | you got a car payments, you got a bunch of debt, it, it sinks you.
00:06:53.060 | It does. And I think as I have talked to people and listen to people,
00:06:58.060 | so many people out there, they're, they're in debt to their lifestyle.
00:07:02.180 | They use credit cards, they buy cars with debt.
00:07:05.860 | They may even buy a house they can't really afford.
00:07:08.260 | And they wind up in these situations where they're,
00:07:11.060 | they're just so deep in debt, you know, they,
00:07:13.060 | they may be miserable in their job, but they have no options, no choices.
00:07:17.380 | And so to me, all of the, the,
00:07:20.100 | the debt freedom is about giving you exactly that freedom,
00:07:24.340 | the choice to do what you want to do. If you want to keep doing the job,
00:07:27.500 | you're doing great. You know, if you want to retire and play golf, great. But,
00:07:31.860 | but if you're, if you're not intentional with your spending,
00:07:35.460 | then that's going to be a problem.
00:07:36.780 | And I don't really care if somebody buys a new car or not,
00:07:39.740 | as long as they know that they're trading their future for today.
00:07:44.460 | Right. It's just opportunity costs. And if you ask me the question,
00:07:48.980 | you'd be happy. What kind of car do you drive? I'll tell you my,
00:07:51.780 | my cash cars stories. I drive a Ford F one 50. Okay.
00:07:55.460 | What year? 2006. It's like you're, you gotta establish your reputation.
00:08:00.540 | You know, Ford F one 50 can be,
00:08:02.100 | it might be a 2015 Ford Raptor.
00:08:06.220 | I was, I had the experience recently. I bought a couple of months ago for a long
00:08:12.540 | time. My wife and I've had one car and that was,
00:08:16.060 | I can't stand owning cars. I can't stand the work associated with them.
00:08:19.340 | I can't stand sitting in the tire place on Saturday morning,
00:08:21.940 | wasting a Saturday morning, having somebody replace my tires.
00:08:25.460 | If I, as soon as possible, I will be one of those people who, well,
00:08:29.620 | I'll probably keep an old car around just in case,
00:08:32.180 | but I'll be one of those people as soon as we get to self-driving cars
00:08:35.260 | distributed through an Uber app. Like I'll use that instead of
00:08:38.700 | the, the,
00:08:41.660 | the practical side of me will probably keep the cars around for emergencies.
00:08:45.220 | But but I'm,
00:08:47.020 | I just can't stand owning cars because of the work associated with them.
00:08:50.860 | So for a long time, my wife and I had one car, but then we were,
00:08:54.340 | we came across another, we came across a,
00:08:58.620 | I came across a deal on a 1998 Toyota Corolla and it was owned by a little old
00:09:03.700 | lady and it was in rough shape visually,
00:09:08.500 | but it was in good shape mechanically. And I worked out kind of the value and,
00:09:12.940 | and I was able to get it for $500 out of my pocket and I took on some of the
00:09:17.940 | work associated with it.
00:09:20.100 | So I've been driving this car for a couple of months now.
00:09:23.740 | And the other day I had breakfast with somebody and as we were going out to the
00:09:28.740 | parking lot, I was watching,
00:09:30.420 | he was getting in his car and I'd been giving him some advice and giving him
00:09:34.140 | some ideas. And I was getting into my car and I had to ask,
00:09:37.500 | I was asking myself the question,
00:09:38.740 | here I am getting into my 1998 gold little old lady Toyota Corolla.
00:09:42.780 | I was like, do I feel ashamed about this?
00:09:46.340 | Because it's a, it's an important factor. You know,
00:09:51.020 | there's a level at which if you watch how people handle these decisions
00:09:54.060 | emotionally, usually the emotions have much more to do than the finances.
00:09:57.380 | The reason people buy new cars,
00:09:58.700 | my opinion is more often the fact that their old junkie clunker broke and they
00:10:03.420 | just get so frustrated.
00:10:04.780 | They say I can trot down to the Kia dealership and I can get a loan on a Kia
00:10:08.320 | Rio and $189 a month.
00:10:10.500 | I cannot have to deal with my car breaking down all the time. And who knows,
00:10:13.940 | that might be a good decision. You know, you,
00:10:15.980 | that might be something for $189 you can get transportation.
00:10:19.600 | If you can effectively leverage that transportation,
00:10:21.540 | that might be useful for you,
00:10:22.780 | but it's probably not because probably you're broke in debt,
00:10:26.140 | have no assets growing and now you just bought a $15,000 car that in three or
00:10:30.400 | four years is going to be worth four.
00:10:32.060 | And so you're just destroying your ability to grow wealth.
00:10:35.220 | And as I've watched this, so back to my Toyota, I was getting it.
00:10:39.400 | I was thinking, do I, do I feel like unconscious?
00:10:42.080 | There's still a tiny twinge of that. But the reason as far as like, well,
00:10:46.140 | maybe I should have a fancier car. You know, Harry,
00:10:48.100 | I'm Mr. Fancy Pants financial planner talking about radical personal finance and
00:10:51.560 | whatnot.
00:10:51.960 | But what I immediately thought of is the reason that I have the car and the
00:10:55.900 | reason that I have the car is I can't stand losing money unless I just got so
00:11:00.900 | much coming in. Okay, that's fine. But I'm not there yet.
00:11:04.100 | And I would rather own five rental houses and a $500 car than a $50,000 car and
00:11:09.100 | no rental houses.
00:11:13.100 | And I see this often happens in the way that people frame decisions is they don't
00:11:18.020 | frame decisions in terms of, of accurate decision.
00:11:21.660 | If you were going to give somebody the framing of,
00:11:24.740 | you can either drive a nice car or and have a nice life,
00:11:28.340 | or you can drive a junkie car that breaks down all the time. Well,
00:11:31.940 | what idiot would choose the junkie car that breaks down? Right.
00:11:34.140 | But if you can frame it as you can either drive the nice car and have a life
00:11:38.820 | filled with stress and be broke for the rest of your life,
00:11:40.860 | but have a really nice car or you can drive the junkie looking car and have a
00:11:45.860 | lot of money and have a really peaceful life,
00:11:48.100 | then a lot more people are willing to choose that.
00:11:52.100 | And it's all about the framing of the decision.
00:11:53.700 | Well there it is that,
00:11:55.420 | and I'll tell you another thing that I think about it because I do think people
00:11:59.220 | wrap their egos in their vehicles, right? I mean,
00:12:01.460 | that's how when they have commercials for their vehicles,
00:12:05.420 | the new car dealers don't really spend that much time talking about the
00:12:09.780 | vehicles. They show all these sexy photographs, right? Great lifestyle,
00:12:13.820 | tough truck, whatever it is. So,
00:12:16.180 | so there's definitely a factor there, but, but you know,
00:12:20.500 | between the two options that you put, I'd say there's a C, right?
00:12:23.780 | There's a B and there's C.
00:12:24.940 | I can help people buy cars that they're not ashamed to drive.
00:12:28.740 | Now they wouldn't be 500 I'm going to say between three and $5,000 I can find
00:12:33.260 | you a good,
00:12:33.740 | reliable car that you're likely not ashamed to drive.
00:12:37.780 | And, and, and even at that, even if you are, I say,
00:12:41.620 | do that and then take the money that you would have been making in car payments
00:12:45.740 | or were making a car payments and pay those to yourself first to build up kind
00:12:49.620 | of a car emergency fund. And then secondly,
00:12:52.220 | to buy your next cash car until you get to a point where you're happy.
00:12:56.980 | And my opinion is most people between 10 and $15,000,
00:13:01.860 | there's a point where you're going to find a car that's good enough for you.
00:13:05.700 | You know, unless you just really have an ego.
00:13:09.820 | Because we're talking about need versus want here, right?
00:13:14.820 | And, but even at 10 to 15,000,
00:13:16.620 | there's a certain amount of want because you can definitely get by with
00:13:19.060 | something less, but there's, there's just so many great deals out there.
00:13:23.700 | And I think that the challenge is that people have been raised with this idea
00:13:28.620 | that they're always going to have car payments. Therefore,
00:13:31.220 | why not drive the nicest car I can. And that's why I think, um,
00:13:34.340 | getting into a bit of another area here,
00:13:35.740 | but that's why I think leasing is so popular because people say, what,
00:13:39.780 | well, wait a minute. You mean I can pay,
00:13:41.340 | make the same payment and I can drive a nicer car. I mean,
00:13:44.460 | I can drive a Mercedes or something and pay the same payment I was going to make
00:13:48.660 | on a Toyota. Wow. I'm all in, right?
00:13:51.180 | Give me that for three years for the rest of my life. And, uh,
00:13:54.780 | and I think that's kind of insidious, but, um, but I think that's,
00:13:59.620 | um, to me, I think there is that third,
00:14:02.100 | third option where you can drive a decent car.
00:14:05.340 | You can upgrade it to the point where you're happy with it.
00:14:07.340 | And then you can take those payments you were making.
00:14:09.500 | And then instead of investing them in a car,
00:14:11.300 | start investing them in yourself, uh, in your, your retirement,
00:14:15.340 | in your children's education.
00:14:17.220 | And I view car payments as investing in somebody else's future.
00:14:20.860 | You're investing in the bankers, the auto manufacturer,
00:14:23.860 | you're investing in the dealerships future,
00:14:27.260 | and you're not investing in your own future.
00:14:28.980 | You're driving a nice car for a little while, but, but you're, you're, you know,
00:14:33.340 | you're trading your future for that. And so I tell people, Hey,
00:14:36.780 | take that car payment you're making and pay it to yourself. And over, you know,
00:14:41.540 | 40 years, the average car payment in America right now is $484 a month.
00:14:45.220 | So, and most people have two cars.
00:14:47.660 | So there's probably a used car in there for maybe another 300.
00:14:50.340 | And so you take something like, you know,
00:14:52.700 | but five to $700 and you multiply that over 40 years at 8% interest,
00:14:57.220 | you get over a million and a half. Well, just the,
00:14:59.500 | just the four 84 is more than a million and a half dollars over 40 years.
00:15:03.500 | Huge. Yeah. Why do,
00:15:05.660 | why do you think we put so much of our ego,
00:15:09.980 | why we gain so much of our self worth specifically from cars?
00:15:13.260 | Yeah, that, that is a bit tricky.
00:15:15.580 | I think a lot of it has to do with the way Madison Avenue advertises and it
00:15:19.820 | works, right? So you've got, you know,
00:15:21.980 | the smartest advertising people in the world trying to convince you that you
00:15:25.540 | need to have that new car, that it's going to make you more popular, sexy.
00:15:29.380 | The women are going to want you, et cetera, et cetera.
00:15:31.420 | Right. I also think if you,
00:15:34.500 | if I look at the people that get the most destroyed by it,
00:15:38.740 | and I'm one to say you spend your money, how you want to spend it.
00:15:43.300 | And just consider the choices. And if you decide, I mean,
00:15:45.660 | there's some people who really are love cars, but I think in my mind,
00:15:50.300 | you can pick those people out and that's just what they choose to spend money on.
00:15:53.380 | That's fine.
00:15:54.260 | But there's a large portion of the population which seems to be in that
00:15:59.740 | regular cycle. It's not so much that they love the car,
00:16:02.340 | it's just that they do it. And I think sad,
00:16:05.580 | a lot of people just haven't found a place of ego in something else.
00:16:10.340 | We always are drawn a couple of months ago on some of my listeners sent me a
00:16:15.340 | story about this major league baseball pitcher who just signed a couple of
00:16:18.460 | million dollar contractors living in his, his Volkswagen van.
00:16:21.660 | It's quite popular online. We're amazed by people like that.
00:16:25.020 | When I look at them though,
00:16:26.100 | the key in those stories is that people are confident enough in something else
00:16:31.380 | that they don't need to try to project an image of something that they wish they
00:16:35.620 | could. So if you're confident in your career,
00:16:37.740 | if you're confident in who you are and where you are,
00:16:40.940 | if you're confident in the love of your family,
00:16:43.580 | the appreciation of your boss, the love of your clients and customers,
00:16:47.340 | who cares about the car there?
00:16:50.140 | You just get into a utilitarian perspective of what's a reasonable way for me
00:16:53.700 | to get down the road in a way that is accustomed to what my needs are.
00:16:57.020 | Right, exactly. And, and, and you're right.
00:16:59.620 | Most people don't think that way. And, and, and again,
00:17:02.740 | I think it's just the way people were raised. We don't, um, you know,
00:17:07.340 | it's just so normal. I mean, having a car payment,
00:17:09.940 | nobody thinks that's a bad thing. Right. Right. And, and so, um, you know,
00:17:14.540 | people are all over student loan debt right now.
00:17:16.980 | And I know it's a huge problem for real, but did you know that in 2014, uh,
00:17:21.860 | there were more dollars attributed to auto loans than there were to student loan
00:17:26.460 | debt in 2014? I didn't know that. Yeah. Most people don't, right.
00:17:29.780 | And you never hear it, but car payments are normal. It's not an, it's,
00:17:33.180 | it's not a bad thing. Right. And, um, and so it's,
00:17:36.340 | it's not stigmatized in our society. So people blindly go around.
00:17:40.420 | When I look at the average numbers,
00:17:42.980 | the average household earns about $46,000 a year. Uh,
00:17:46.980 | the average new car is $33,000 and, and, and,
00:17:51.060 | and those numbers don't close.
00:17:52.580 | The average wage has fallen about 6% since 2008 cars have gone up
00:17:57.580 | about 12% since 2008. Interesting. Right.
00:18:00.620 | So now what we're doing is we're getting into six and seven year car loans more
00:18:04.260 | as the norm.
00:18:05.100 | So about 30% of cars are leased and about another 30% are extended length
00:18:09.980 | loans. Wow. So,
00:18:11.500 | so to continue to sell these new cars to people and to keep the payments under
00:18:14.780 | control,
00:18:15.620 | more and more people are getting upside down in car loans with these longer term
00:18:19.300 | loans. And on top of that, they're leasing.
00:18:21.900 | So they wind up at the end of a lease with nothing,
00:18:24.060 | which is better than coming in upside down on a car loan after three years and
00:18:27.460 | trying to trade it.
00:18:28.580 | What advice would you have as far as the actual car buying process?
00:18:31.860 | So for me, um, again,
00:18:34.820 | because I have this used car skill that I've learned, um,
00:18:38.500 | and I'm trying to help people, uh, with this Dave Ramsey thing, right?
00:18:41.700 | Where he says buy a beater. I'm trying to help people buy a better beater.
00:18:44.660 | So I have an opinion all the way up,
00:18:46.220 | but let me start at the $5,000 and below car for that one.
00:18:49.660 | What I recommend is you buy from a, uh, an individual, you, um,
00:18:54.900 | you look for a one owner car, possibly two with records.
00:18:59.340 | And, and then you go out and you, uh, meet the,
00:19:04.100 | the individual who actually did the, uh, who owns the car and you want to go to
00:19:09.260 | their home and you want to see what their yard looks like.
00:19:11.780 | Is it neat and trimmed or the bushes trimmed? Is the house clean and painted?
00:19:15.220 | Or is it a wreck? Because I don't care how good the car looks now,
00:19:18.940 | 30 days ago, it looked like this house, right? People are consistent, right?
00:19:22.380 | They tell you who they are and when they do, you should listen.
00:19:25.060 | Right? So, so a lot of my car buying at that level is where I'm really trying to
00:19:29.460 | move the needle. And, and I tell people how to inspect cars.
00:19:33.060 | And I also tell them, take it to a mechanic and have it checked. Right?
00:19:36.260 | Because that's like a hundred dollars and it's like cheap insurance for, for,
00:19:40.180 | because if you buy a three to $5,000 car and then you have a $3,000 in a
00:19:44.820 | transmission problem and you're already doing this because you're in debt up to
00:19:47.620 | your eyeballs. So, so that's the below 5,000 between five and 10,
00:19:53.060 | I say still your individual is your best bet,
00:19:55.620 | but you can find good cars at dealerships. And then above that,
00:20:00.140 | I think you can, you can go to a dealership and find a decent vehicle for sure.
00:20:03.220 | The one thing that I say that it's a little different is that I say buy from a
00:20:08.740 | new car dealership that sells used cars.
00:20:13.100 | And my rationale for that is,
00:20:15.020 | is that they get more trades and they have a big reputation tied to a major
00:20:21.260 | brand. And so they can wholesale a car that's a problem for them.
00:20:25.900 | So why would they keep a car that's not a good car on their lot and sell it to
00:20:31.180 | you and maybe have some problem where you're going to, you know,
00:20:33.500 | they're going to show up on the nightly news, one of these gotcha, you know,
00:20:37.540 | expose. So, so it's just, again,
00:20:40.220 | it's just about making little tweaks to try to move the needle a little more in
00:20:44.980 | line with the person that's buying it. Because I was listening to one of your
00:20:49.060 | episodes on car buying and you were talking about how it's in the information
00:20:52.860 | is asymmetric, right? The person selling has all the information.
00:20:55.940 | While I'm trying to even that out a little bit by saying,
00:20:58.020 | get a car that's got records on it, right? You can do your car facts work.
00:21:02.780 | Then you look at the records that the person has.
00:21:05.100 | And I'll tell you something else. It's almost like poker. You're,
00:21:08.140 | you're buying based on the person as much as the car people you can tell when
00:21:13.180 | you call them,
00:21:14.660 | they have a pride of ownership and they just can't wait to tell you all the
00:21:18.580 | things they did to this car and how, how, how well maintained it was.
00:21:22.300 | And oftentimes you find that they bought another of those exact same model.
00:21:25.860 | So, so those are the kinds of things I do to try to tilt in favor of people.
00:21:31.140 | And obviously, again, I don't care if people buy new or used as long as they pay
00:21:36.740 | cash. Although I do agree with Dave Ramsey and Dr. Thomas Stanley,
00:21:40.860 | that unless you're a millionaire, you can't afford a new,
00:21:43.260 | a new car because the depreciation just kills you.
00:21:45.740 | What if you have to buy quick?
00:21:47.060 | Cause this in my mind is the major problem of the used car market.
00:21:51.140 | So my $500 car, you cannot find those deals on a regular basis.
00:21:56.180 | Generally a car in the thousand, a couple thousand range. I mean,
00:21:59.540 | usually it's a piece of junk that you don't want to drive. Right?
00:22:01.740 | Those deals are not available. That's purely a timing thing.
00:22:05.020 | That was why I bought it because I have looked for, for at least 10 years.
00:22:10.220 | I've had my eyes open for a four cylinder manual,
00:22:13.380 | tiny little car that was cheap, that was in good condition with manual windows.
00:22:16.500 | You can't find them.
00:22:17.860 | And that's the problem often is that people can be in crisis in a crisis
00:22:22.020 | situation. And the process you just, you just described takes time.
00:22:26.140 | It takes effort, it takes work and it takes money.
00:22:28.780 | How do you do it when you're in a hurry?
00:22:30.180 | Yeah, I, I don't know that there's a great answer when you're in a hurry.
00:22:34.340 | Although I will tell you, and again,
00:22:36.740 | when you talk about finding a really good car below, you know, $2,000,
00:22:41.900 | I think that does require a lot more work, right?
00:22:44.700 | But I would challenge that between that three and $5,000 range,
00:22:48.020 | it's not that difficult to find good cars. Now it's a lot more money,
00:22:51.660 | obviously. But, uh, you know,
00:22:54.180 | for somebody who's just in debt up to their eyeballs and they're just really
00:22:56.860 | struggling, um, you know, I, I think it's going,
00:22:59.260 | they're going to have to do some things to, to pull that cash together. And,
00:23:02.940 | and again, I would advise them, um, uh,
00:23:06.020 | to take their time and buy the right vehicle so that they don't get themselves
00:23:10.500 | in even more trouble than there are in. Right. So, you know,
00:23:13.940 | making a quick decision on it, um, it can work. Uh, but,
00:23:18.500 | um, but, but I'm trying to,
00:23:20.940 | I guess I'm trying to cover a couple of things for people, right?
00:23:23.140 | I'm trying to get them in a car that they're not necessarily ashamed to drive so
00:23:26.980 | that they will do the right thing longer and not have a car breakdown. I,
00:23:31.260 | I'm with you. If, if a car, um, doesn't look good, but it runs good,
00:23:34.820 | I can still live with that. Um,
00:23:37.340 | I went through a car situation where I went through a divorce years ago and it
00:23:41.100 | was very, very painful.
00:23:42.020 | I had a Lexus LS 400 at the time that as the divorce drug out and progressed,
00:23:47.020 | I couldn't afford, and it was killing me and I couldn't sell it because it was
00:23:50.580 | part of the joint community property.
00:23:52.020 | And so when I sold that car as soon as I could, um,
00:23:56.380 | a friend of mine knew somebody who had a Saab 9,000, 900,
00:24:00.820 | and it was at that time about 12 years old, but it was in great shape.
00:24:06.540 | Um, both inside and out and mechanically.
00:24:09.300 | And I got it for $2,000 and like you say, that was just kind of,
00:24:13.300 | I knew a friend of a friend. It was a good, I was kind of lucky about that.
00:24:16.540 | But I will tell you, once I made that switch,
00:24:19.980 | having had the pain of those car payments and I went to that vehicle,
00:24:23.460 | I just felt so much smarter driving it. Right. So you,
00:24:26.940 | I did have a little ego issue, right? I'm driving.
00:24:30.060 | I went from a Lexus to this Saab and,
00:24:33.860 | but I just felt like I was looking at all the other cars and I knew there were so
00:24:38.100 | many people out there driving nice vehicles because they can't afford it. Right.
00:24:41.700 | And I've read all the Thomas Stanley books. So I,
00:24:43.780 | and by that time I had already read millionaire next door.
00:24:45.820 | So I knew that even though I see people driving Mercedes and Lexus and so forth,
00:24:50.820 | I know most of them, uh, they're not saving any money that they look wealthy,
00:24:55.660 | right? That's the income affluent as Thomas Stanley would put it.
00:24:59.180 | And that those people, uh, they're not really, um,
00:25:03.100 | they're not really rich. They're in debt up to their eyeballs. They're, you know,
00:25:06.340 | if they lost their job for a month, they would probably be in deep,
00:25:09.540 | deep trouble. And, and, uh, so, but it's just kind of funny.
00:25:13.620 | I learned that lesson and then of course I immediately forgot it when I sold the
00:25:17.300 | Saab two and a half years later, I went right back to a car payment. Yeah,
00:25:21.260 | exactly.
00:25:22.580 | I don't know what it is about human nature, but you're not the only one.
00:25:31.300 | No, lots of, and again,
00:25:32.940 | I just think society accepts a car payment as being normal.
00:25:37.420 | Nobody's sounding warning bells, not many. I mean, you can find articles about,
00:25:41.420 | uh, about the, um,
00:25:43.060 | the bubble that's being created by the car loans and subprime borrowing,
00:25:46.740 | but you know,
00:25:48.100 | it's not going to have nearly the impact that the housing crisis did.
00:25:51.900 | And so most people aren't even writing about it. Yeah.
00:25:54.700 | I have been seeing some articles about it as far as subprime car loans being a
00:25:58.780 | new, a new area of debt. And it's definitely,
00:26:03.420 | it's a, it's a beast because once you get into it and when you've,
00:26:09.860 | I don't know if you do any, do you do any personal financial coaching?
00:26:13.100 | Like for individuals? Okay.
00:26:13.940 | I've been in a few of those situations working with somebody and when you're
00:26:17.820 | trying to unwind a series of bad decisions,
00:26:20.980 | cause I think in general,
00:26:24.820 | many times you always have to, I'm, if you've listened to my show,
00:26:29.220 | I'm always very hedgy because I could tell you stories of a person specifically
00:26:34.220 | who,
00:26:36.020 | she looked great all the time and drove a big fancy Mercedes.
00:26:40.220 | And when I did financial planning, she was broke, broke, broke, broke, broke.
00:26:44.060 | And the only thing she had like was the, was the Mercedes.
00:26:47.940 | But then on the other hand, where I live, it's an extremely affluent area.
00:26:52.140 | And so you can't assume, Oh, there's someone driving the Mercedes.
00:26:55.340 | For all you know,
00:26:55.940 | the person made a couple of million bucks last year and an $80,000 Mercedes is
00:27:00.180 | whatever.
00:27:00.580 | They go buy a new one every year and it makes no difference to their financial
00:27:05.500 | life because the numbers are so extreme.
00:27:07.140 | So I always try to be careful to them and to talk about that.
00:27:10.100 | But talking about someone who's a median income, maybe two median income.
00:27:14.620 | So, so family, two $45,000 incomes in the household,
00:27:18.660 | $80,000 ish so double median income of household.
00:27:23.180 | When you get into that world,
00:27:24.820 | what happens is you're not rich enough to where you can just take care of cars
00:27:29.020 | and it's no big deal.
00:27:29.860 | And you're probably not setting enough aside to where you're going to be so
00:27:33.300 | rich.
00:27:33.700 | And so that's where the car payments are really devastating because it's
00:27:37.700 | primarily the fact that you're,
00:27:40.660 | you're buying a lot of car that's depreciating in value.
00:27:44.180 | And I think of it like this,
00:27:46.780 | take the ratio of the amount of money you're putting in a Roth IRA and take the
00:27:51.140 | ratio of the amount of money that you are spending on a car.
00:27:53.900 | So if you buy a $40,000 car and then,
00:27:57.540 | so let's see if I can do this math in my head,
00:27:59.100 | $40,000 at 15% depreciation would be 1500 times four would be $6,000 depreciation
00:28:04.100 | in the first year.
00:28:06.800 | So you buy a $40,000 car and you suffer $6,000 depreciation in the first year.
00:28:11.220 | Meanwhile, you're over here very excitedly putting $5,000 in the Roth IRA,
00:28:16.300 | but you just wiped out the $5,000 with the car.
00:28:18.700 | And people don't think about that as a perspective.
00:28:20.900 | Everyone is very, I mean, I'm feeling good about myself putting $5,000,
00:28:25.180 | but over here about a $40,000 car.
00:28:26.900 | So in the median income space,
00:28:29.460 | it's primarily about the lost potential wealth and it's less about the financial
00:28:33.700 | emergencies. And my observation experience,
00:28:36.260 | the emergencies come in divorce and business bankruptcies and dual layoffs.
00:28:41.100 | Most, many families are not,
00:28:43.580 | are not so crazy that they just got loads of debt.
00:28:46.180 | But when you drop down a little bit and you drop to maybe one median income
00:28:49.780 | household or you drop down to just a little bit lower in the income space,
00:28:54.260 | what happens is it starts to pile up.
00:28:55.940 | And so you buy a Kia Rio and then you drive that for four years and then you
00:28:59.700 | trade that in, but you trade it in and you got a little bit more payment.
00:29:02.460 | You go into the next one, next one, next one.
00:29:03.980 | And then you've got a situation where you've got a $30,000 car and $42,000 of
00:29:08.860 | payments. And now you're trying to say, I got to get out of car debt. Well,
00:29:12.420 | how am I going to do that? I got to come up with $12,000 out of pocket.
00:29:16.060 | I got to sell the car in the private market. I got a range of a,
00:29:19.940 | a transaction in which the title and have the title. I got to sell it.
00:29:23.620 | And I got to come up with $12,000 of cash for now.
00:29:26.300 | I've got to get an unsecured loan plus, or I got to save 12,000,
00:29:30.140 | which is unlikely. Plus now I got to get caught up.
00:29:32.580 | I got to come up with money to go and buy a cash car.
00:29:34.980 | And that's where it's just devastating to try to help somebody unwind it.
00:29:38.580 | It is, it is. And that's, yeah, I, I,
00:29:41.380 | I'm hoping I can catch people before they get to that point or,
00:29:44.500 | or even the more affluent people just to make better decisions. Uh,
00:29:48.620 | because there's so much pressure when you make a lot of money to live a fancier
00:29:53.820 | lifestyle, you live in a, a, a neighborhood where it's more than norm.
00:29:57.780 | Like you were talking about where the, where the Mercedes are. And, and, uh,
00:30:01.340 | you know, although I do find it interesting that about 50% of the Mercedes are
00:30:05.140 | leased. So people really, you know, they're not paying cash for them with their,
00:30:09.500 | with their millions in most cases.
00:30:11.620 | I would, I would lease a Mercedes if I were a millionaire though,
00:30:14.620 | even though it's financially not from the convenience perspective. I, I can,
00:30:19.220 | that's the situation in which I would lease. Um,
00:30:21.940 | just from the pure convenience perspective of it. Yeah.
00:30:24.820 | It's definitely more expensive, but it's, but when your time is,
00:30:29.860 | is in other places, like I, if I were,
00:30:32.900 | if I were driving a standard car like that, I mean,
00:30:37.060 | if I were driving a standard car like a Mercedes, just a sedan,
00:30:39.940 | these kinds of things. Right. And if I was extremely wealthy, I would lease,
00:30:44.020 | um, simply because of the convenience factor,
00:30:46.580 | assuming I had enough investments in other places. Sure. Sure. Um, so, but,
00:30:49.980 | but that's not that's, that's after becoming wealthy.
00:30:53.060 | And the problem is when you're the kind of person who makes decisions that make
00:30:55.300 | you get wealthy, then you're less likely to say, I'm going to do a decision.
00:30:59.220 | Exactly. And what I'm,
00:31:00.380 | what I find more than not is that people want to look wealthy before they are
00:31:05.580 | wealthy and therefore they never become wealthy. Exactly.
00:31:08.340 | So it becomes this horrible thing. And, and again, I mean,
00:31:11.940 | I learned all the wrong lessons and lived it that way for a long time.
00:31:14.900 | My wife and I make a really nice income,
00:31:16.580 | but we were just some really stupid stuff with our money. We weren't being,
00:31:20.100 | you know, we played tennis tournaments all over Texas and that was costing about
00:31:24.020 | 700 bucks a month. And, you know,
00:31:25.940 | we were doing on top of everything else that we had going and we have some
00:31:28.780 | rental property and we hit some hard times on our rental properties and, you know,
00:31:32.100 | cause we were working and traveling so much,
00:31:33.620 | we weren't paying attention to those. So that got us in some trouble. So,
00:31:36.420 | you know, we had all these things pile up and, you know, like I said,
00:31:40.140 | we just look up and we've got all this debt. And so I, you know,
00:31:43.780 | I'm trying to, you know, talk to people who, who aren't wealthy,
00:31:47.420 | but they make a good income and they, you know, I mean, I,
00:31:50.860 | I want to help everybody,
00:31:52.340 | but I think I have the most potential to help people who have an income and,
00:31:57.220 | and can just make better decisions.
00:31:58.660 | If they can just get their ego in check and say you know, I don't, you know,
00:32:03.500 | I guess it's, you know, Thomas Stanley used to put it this way.
00:32:05.900 | You've got the income affluent guys who drive a Mercedes,
00:32:09.220 | but they tend to drive the lower end Mercedes. Right.
00:32:11.460 | And then you've got people who are really wealthy, the, uh,
00:32:14.860 | the balance sheet affluent and they don't just own one Mercedes,
00:32:18.580 | they own five and they're all paid for and they're all, uh, you know,
00:32:23.020 | the highest end models of various sorts, or maybe they have five cars,
00:32:26.180 | ones of Mercedes, ones of Ferrari, ones of whatever.
00:32:28.060 | So the people who are trying to look wealthy can't really do the job anyway.
00:32:32.980 | They buy one of a low end and that doesn't really represent what the wealthy
00:32:37.620 | are really doing. Uh, and, and, and then of course, you know,
00:32:40.660 | a lot of the wealthy people, um, uh, tend to drive in the,
00:32:43.540 | in the last book Thomas Stanley wrote about it. Um, in the last year, uh,
00:32:47.860 | a Ford F one 50 and a Toyota Camry were the two most popular vehicles purchased
00:32:52.700 | by millionaires. Now these are, you know, a deck of millionaires, right?
00:32:56.340 | So they're not the billionaire Donald Trump type glittering rich. Yes,
00:32:59.900 | that's right. That's the term he used. Exactly.
00:33:01.860 | And that's an important distinction. And I should clarify my leasing comment.
00:33:05.820 | Um, I'm assuming in that case, glittering rich. Yeah.
00:33:09.780 | If I were glittering rich, the point is most of us,
00:33:13.300 | maybe there are a few people, most I'll pick on, um, our mutual,
00:33:18.260 | uh, uh, mentor, Dave Ramsey. Okay. Um,
00:33:22.340 | we've all, we've probably all seen the pictures of his house, right? Okay. Um,
00:33:27.940 | the man lives in a mansion and it's beautiful.
00:33:30.060 | And I think if that's what he wants to do, great. Yeah. Um,
00:33:33.060 | but I'm not impressed by the fact that he drives a used car.
00:33:36.940 | If he still does, I don't know.
00:33:37.980 | Or the fact that he owns a car and doesn't lease it because the AC bill for his
00:33:42.380 | house is way bigger than the depreciation on the leased car. Yeah.
00:33:46.380 | And that's the point I'm making not to be mad at Dave. He can do what he wants,
00:33:49.180 | but it's a matter of scale.
00:33:51.060 | And so the reality is most of us are going to have some things in our life that
00:33:54.940 | are not the most efficient and there's a lifestyle considerations. Um, you know,
00:33:59.780 | I don't know if you stayed at this hotel, but at the Omni,
00:34:02.900 | but there's probably a motel six 30 miles away that we could stay at. Yes.
00:34:06.980 | And we could stay there for $30 a night instead of whatever the cost is here.
00:34:10.740 | Right. So just because, so what happens,
00:34:14.180 | what I object against in the finance space is that people often have the idea
00:34:18.260 | that you should always spend the least amount of money.
00:34:20.180 | Well I'm not staying at the hotel.
00:34:21.740 | I found an Airbnb that was close enough so I could save some money,
00:34:24.340 | but it's not the motel six because I'm not in the stage where I still need to be
00:34:28.140 | at the motel six. Right. And so the things about buying and leasing,
00:34:31.220 | once you are already wealthy, then you can make the decision,
00:34:34.740 | but you can't do as Dave would say,
00:34:37.100 | you can't do poor people's stuff and expect to be poor people. Excuse me,
00:34:41.420 | expect to be rich people. You're just going to keep poor.
00:34:43.300 | And cars are one thing that keeps many people poor.
00:34:47.060 | And so once you become the kind of person who recognizes that,
00:34:51.020 | then the importance of the car just kind of diminishes for most people.
00:34:54.260 | So once they're rich, it's like, well,
00:34:55.740 | I don't care whether I drive a Toyota Camry or not and I'll just go buy a
00:34:58.980 | Toyota Camry and every seven or eight years I'll go ahead and just buy a new
00:35:02.260 | one. It's not a big deal.
00:35:03.300 | Yeah. There was a billionaire on, uh,
00:35:05.700 | on Fox news the other day that I was watching and he, or Fox,
00:35:10.020 | excuse me, Fox business. And he was talking about the fact that, uh,
00:35:13.580 | that his car, he's got three cars,
00:35:17.100 | two of them were really old and one of them he finally got enough that it had a
00:35:21.700 | Bluetooth capability in it. And that's his fancy.
00:35:24.020 | It was like a 2008 or something. And this guy's worth 3.9 billion. And,
00:35:28.220 | and the, and you know, even I am looking at that saying, why,
00:35:32.300 | why wouldn't you buy something that's new and drive it? It's just not,
00:35:35.780 | it's just not a priority for him. Right. And, uh, I mean, and I am a car guy.
00:35:39.980 | I mean, I like cars a lot.
00:35:41.220 | I've owned a lot of sports cars when I was younger and stuff. And, uh,
00:35:44.700 | and I've learned a lot of lessons along the way around that stuff. Um,
00:35:48.300 | and so it's, it's, I'll be honest, it's really easy for me. Um, you know,
00:35:53.020 | being in my late fifties to say, um, you should drive a, a,
00:35:57.020 | a lesser car and be smart about it and stuff when I'm not out there trying to
00:36:01.020 | find a girlfriend, you know, I'm not out there, uh, you know,
00:36:04.100 | trying to meet people and I'm not starting my career where I may need to impress
00:36:07.380 | people. Um, you know, that sort of thing. Um, and, and, and, and again,
00:36:12.380 | even at my age, uh, with all the things I've learned through my life,
00:36:15.780 | I still feel that twinge of ego every now and then,
00:36:18.780 | or the desire to have something that's nicer.
00:36:21.340 | And my wife and I could go out and pay cash for, um, you know,
00:36:24.340 | some very, very nice vehicles, but we don't want to do that.
00:36:27.780 | That's not what we're choosing to do. And, and, and that's, I, I,
00:36:31.180 | I want to educate people that they have the choice that, uh,
00:36:34.780 | car payments are socially acceptable in the, in our society.
00:36:38.020 | And I think they should get a lot more focused because I think it destroys the
00:36:41.820 | wealth of these, you know, median to middle to high income people.
00:36:46.700 | Um, you know, the lower end people, I mean, when we were really,
00:36:49.540 | really poor, we couldn't afford, uh, we couldn't get a loan. You know,
00:36:52.980 | I bought my first car for cash cause I didn't have any credit. But these days,
00:36:57.380 | um, and you were talking about the median income.
00:36:59.500 | So the average household income is about 46,000.
00:37:02.060 | The median income for an individual in the United States is $27,000.
00:37:06.220 | So it's a very low number. And so you think about that,
00:37:09.860 | half the people in the country make less than that.
00:37:11.900 | Go out here and see what kind of cars you see driving the streets.
00:37:16.460 | And, uh, you will see a,
00:37:18.380 | what appears to be a lot more than half of them driving new or newer vehicles.
00:37:22.620 | And that's the thing that's got me concerned. Um, and again,
00:37:26.620 | I wouldn't have come to any of this if, if,
00:37:28.220 | if Dave hadn't been telling people sell the car and buy a beater. Um,
00:37:31.980 | because I, I wouldn't have thought of it this way, but once it hit me,
00:37:35.700 | I was like, okay, the, these car payments are killing these people.
00:37:39.220 | He's telling them just go buy a beater. And I'm like, if they buy the wrong one,
00:37:42.780 | it's right. It's, it's again, I'll, I think I said it earlier, but you know,
00:37:46.340 | it's more of a curse than a blessing. Right.
00:37:48.140 | And I wanted to try to help people make decisions that would bless them.
00:37:52.060 | But you know, there's still lots of unanswered questions.
00:37:54.900 | You still have to take a second job or whatever to save the money to get it.
00:37:58.740 | You have to suffer a little bit for that.
00:38:00.460 | Maybe you do have to start at a $500 car and work your way up to,
00:38:04.340 | to a two or three or $5,000 car. Um,
00:38:07.540 | but I got to tell you if you're $70,000 in debt and 50,000 of it is two cars,
00:38:14.100 | you can put a real dent in that,
00:38:15.980 | in your situation by going to a cash car.
00:38:20.140 | And that's the other thing I think it helps move the needle for people. Uh,
00:38:23.220 | when it, when we were $70,000 in debt, that was really unsecured debt.
00:38:26.620 | Our car payments were on top of that. Right.
00:38:28.620 | So here's a topic.
00:38:30.980 | Don't feel any need to agree with me because I'm interviewing you. Uh,
00:38:34.820 | but this is something I've struggled with and it connects to the three to $6,000
00:38:40.940 | car level and it also connects to leasing. And here's the, here's the scenario.
00:38:45.380 | I've tracked, I've kept records on my cars.
00:38:49.580 | Um, total cars. Here's all the cars I bought in my life.
00:38:53.060 | First car I bought was a 1993 Honda Accord,
00:38:56.020 | a 993,000 miles when I bought it, $2,000 purchase price,
00:39:00.420 | sold it with 315,000 miles on it. And, uh,
00:39:05.140 | $1,100. Uh, that car cost me, I amortized out all of the costs.
00:39:09.500 | That car cost me total, not including fuel or insurance,
00:39:13.420 | but just simply the cost of ownership.
00:39:15.020 | That car cost me somewhere around $250 a month.
00:39:18.700 | By the time I accounted for all the repairs, um,
00:39:21.820 | I bought a 2006 Ford expedition.
00:39:24.260 | I can't remember what I paid for it or what I sold it for.
00:39:26.340 | That one was a pretty decent deal as far as no major repairs,
00:39:30.220 | but it was a butt kicker on the depreciation. Um, it had already,
00:39:34.260 | I think it was 12. I bought it for, sold it for 7,500 and I put 50,
00:39:38.540 | 60,000 miles on it, something like that. Uh, so I lost a bunch there,
00:39:42.100 | bought a Hyundai Entourage minivan, five grand, uh, paid for that.
00:39:46.500 | And then I bought my $500 car. Um, so I'm, I,
00:39:50.140 | that's where I'm at this stage of my wealth building journey.
00:39:52.780 | I'm not willing to waste money on more expensive cars,
00:39:55.860 | but I try to keep records and try to figure out, am I making good decisions?
00:40:00.500 | Now, most people don't keep records on cars and that's where it's so difficult
00:40:04.220 | to get good data because you get into this marketplace and it's okay.
00:40:07.540 | Like my Honda Accord, when I replaced the timing belt, that's $900 repair,
00:40:12.260 | but that's gotta be done every a hundred thousand miles.
00:40:13.740 | That's not the car breaking down. That's just normal maintenance.
00:40:15.540 | Yes, exactly.
00:40:16.380 | The question I've had and I did this analysis for a friend of mine who his car
00:40:21.300 | was like a 2000 and six, um,
00:40:25.740 | Accord something like that.
00:40:27.460 | Almost it was the perfect car that probably you would suggest or like this
00:40:32.900 | perfect good enough car, five, $6,000.
00:40:36.380 | And we were going over his repair bills and he's someone, he takes care of cars.
00:40:40.820 | He's not extravagant, but just repair bills. And I averaged out the depreciate.
00:40:44.460 | I pretended we sold it and I averaged the depreciation and the repair bills and
00:40:48.380 | it came to $360 a month, something like that.
00:40:52.180 | And I'm sitting there looking at that and I'm saying, this is, this is what,
00:40:55.660 | this is the car that I would suggest to somebody.
00:40:57.860 | This is that perfect good Honda Accord quality brand name,
00:41:01.620 | not going to break whatnot.
00:41:02.660 | I'm looking at this list of repairs and I'm thinking like, this is nuts.
00:41:06.340 | So back to leasing, I looked at it, I said,
00:41:08.940 | here are the financial ramifications I'm ignoring.
00:41:12.700 | This car has cost my friend 360 something dollars a month,
00:41:18.300 | about that number.
00:41:19.140 | And he's driving this 10 year old Honda Accord.
00:41:23.340 | He could go and lease and there are some sweet lease deals out there,
00:41:27.660 | especially if you can get them on a deal.
00:41:29.340 | And this is where I, why I don't like the always buy, always lease rule.
00:41:32.980 | A few years ago, the Chevy Volt, the Nissan Leaf, some of these, I mean,
00:41:36.420 | the carmakers, when they got to move a car, they dumped the lease cost.
00:41:39.540 | And if you can get some incentives and whatnot, you can really do well there.
00:41:42.980 | But I'm looking at it and saying, just, he just trots down. I mean,
00:41:45.780 | it's 300 and something dollars a month here and it's 300 something dollars a
00:41:49.460 | month here,
00:41:50.220 | but here he's got to deal with all these repairs and then all these things.
00:41:52.940 | And I'm wondering if the advice, the long winded way to give you some details.
00:41:57.340 | But the question is I'm wondering if my advice needs to change and I'm trying
00:42:01.780 | and I'm wondering that by looking at the numbers of how expensive it is to fix
00:42:06.620 | many cars and the days of being able to pull pop the top pop the hood on your
00:42:11.620 | 1986 Chevy pickup truck and replace the alternator for 30 bucks down at Benadotto
00:42:17.020 | parts. Those days are going away.
00:42:19.820 | And I wonder if it's not better to be up in that beginning curve where the car
00:42:23.900 | is just going to work and you've,
00:42:24.940 | at least you've got a fixed cost instead of the unknowns. What do you think?
00:42:28.420 | Do you think our advice is going to need to be changing as time goes by?
00:42:31.060 | It might as you get self driving cars and some things like that.
00:42:34.460 | I think it could have to change and I,
00:42:36.860 | that's going to be a really sad day because if people don't have the option to
00:42:41.380 | control the cost, they're definitely going to lose their wealth to, to cars.
00:42:45.100 | You know, unless in your scenario,
00:42:47.700 | maybe they're using Ubers to come and pick them up with driverless cars.
00:42:51.060 | Maybe that'll help defray the cost some. But, um,
00:42:54.980 | but, but I, uh, I haven't, um, uh,
00:42:58.620 | gone back and calculated on how many of my vehicles,
00:43:01.100 | but I just did with my truck not terribly long ago. And, uh,
00:43:05.420 | in terms of repair bills and I've owned the truck now, uh, it's four years.
00:43:10.140 | It was three years at the time I did it cause I did it about a year ago and I
00:43:14.340 | had only done standard maintenance kinds of things,
00:43:16.500 | oil changes and stuff like that. I had done the brakes myself. Um, so I,
00:43:20.060 | so I spent about $400 on the brakes would have been about 11,
00:43:23.260 | but I've had no major repairs that vehicle I haven't,
00:43:26.660 | I've only driven it about 60,000 miles.
00:43:28.620 | So I haven't driven it enough yet to need to do a timing belt or something.
00:43:31.780 | But you're, you're right. That is part of the normal maintenance. But, uh,
00:43:35.660 | you know, unless somebody is going to do, um,
00:43:39.100 | a lease where they're always going to have a car payment. And I,
00:43:41.660 | and I have a friend who was big on the leaf. They, they had, um,
00:43:45.300 | $198 a month car payments for the lease. Right. And, uh,
00:43:50.380 | and, and the thing that, the thing to me that's insidious about that piece is
00:43:54.620 | that that gets you into the lease. And now when you get the next car,
00:43:58.060 | maybe there's not a deal, right. And now you're, you're hung up. Right. But,
00:44:01.260 | but, but, you know, for some people that will be an option. And so, you know,
00:44:05.260 | like I said earlier, my deal is I really just want,
00:44:07.140 | want people to go in with their eyes wide open. I do think,
00:44:10.220 | and I agree with you that, you know,
00:44:11.700 | I would have recommended the guy get the Honda and so forth, but you know,
00:44:15.300 | like anything else, Hondas can make some bad cars too. So, um, I don't,
00:44:19.300 | I don't know the circumstances of him buying, but I think, um,
00:44:24.180 | and Todd trusted her.
00:44:25.300 | And I talked about this when I had him on my show a while back that he never
00:44:29.780 | buys a car until it's like four or five years old,
00:44:31.740 | because he wants to know the track record of that individual vehicle and as well
00:44:36.220 | as the model. Right.
00:44:37.060 | And so if you can get records and you can see that somebody has maintained it
00:44:41.980 | well over a hundred thousand miles, like my truck had 109,000,
00:44:45.260 | I wound up buying it from a dealer because it was, um, you know, I don't know,
00:44:48.660 | I think I got it for $14,000 and it was, um,
00:44:51.860 | and so I didn't have a lot of history on that one,
00:44:53.860 | but I really like being able to look at the history and see that somebody has
00:44:59.220 | done all the things that you're talking about. They've owned it since it was new.
00:45:02.700 | They did the timing belt at a hundred thousand and so forth. And then, you know,
00:45:06.940 | I think, um, you know,
00:45:08.500 | just past a hundred is a good place to buy because that gives you a good runway,
00:45:13.220 | right. So that you can do that. Um, and, and if some,
00:45:16.540 | some people may do it early so you can kind of look at that, um,
00:45:19.300 | that people will, will want to sell a car at a hundred. I, a guy,
00:45:23.900 | I interviewed Jim Munchback who was a, um, uh, uh,
00:45:27.140 | master mechanic said he calls it the a hundred thousand mile myth. And, uh,
00:45:32.140 | and so he says, I've gotten a lot of sweet deals on cars,
00:45:34.780 | buying them at a hundred thousand miles. So I think that's a good spot.
00:45:37.620 | Used to be the lifespan. Yes. I think two 50 is the new hundred.
00:45:41.340 | Yeah. Yeah. I'm with you on that. And that's what I tell people is that, uh,
00:45:45.460 | especially, uh, if,
00:45:46.900 | if somebody has got a car that's paid for and they're coming to me saying, Hey,
00:45:50.180 | should I buy a new car? And I'm like, well, let's do the math. And, and I,
00:45:54.220 | I use Edmonds, uh, depreciation tool, right?
00:45:56.740 | So it actually says most of the time it's like 20% the first year.
00:45:59.580 | And I know it varies, you know, like a Hyundai, right.
00:46:01.580 | It's probably gonna appreciate more than a Lexus, et cetera. But, um, but,
00:46:05.100 | but it, it, it,
00:46:05.980 | it almost never makes sense to trade in a vehicle based on a single repair,
00:46:11.140 | right. Given, and buying new, because you know,
00:46:14.100 | a $33,000 car based on Edmonds, uh,
00:46:17.300 | loses about $8,000 in depreciation. And then on top of that, uh,
00:46:21.620 | now you're going to make the $484 a month car payments.
00:46:24.780 | You're $13,000 out the first year.
00:46:27.180 | Median income is 27 for individual. The math doesn't work, right?
00:46:31.780 | You're never gonna get that. And, and, and those are the, and oftentimes,
00:46:36.340 | those are the people buying. I mean, my first car,
00:46:38.900 | I made $8,000 a year and I bought an $8,300 car. I mean,
00:46:43.700 | maybe I made 8,500, right. And I bought an $8,300 car.
00:46:47.260 | I was living at home with my parents. I mean,
00:46:49.380 | but that's what people don't get about the millionaire math.
00:46:52.020 | And I wish people would focus on it. If the guy who's,
00:46:55.420 | let's say you've got $10 million. If you go out and buy a hundred thousand
00:46:59.100 | dollar car, and if you take that ratio, I'm not gonna try to do it in my head,
00:47:02.700 | but you take the ratio of what that means.
00:47:04.980 | If you make a hundred thousand dollars a year and you take the percentage that
00:47:08.300 | a hundred thousand dollar car would be of the millionaire,
00:47:10.140 | that's the kind of car you can afford. And the same thing with houses.
00:47:13.380 | People look at a million at a mansion, like, like Dave Ramsey,
00:47:16.180 | whatever his mansion cost him. I guarantee, well, I can't care. I hope,
00:47:20.580 | I'm pretty confident that if you were to compare his net worth to his house,
00:47:24.700 | it would be way, way, way,
00:47:26.580 | way less than me with my $250,000 house compared to my net worth.
00:47:31.340 | And the point is people,
00:47:33.740 | you get rich by buying investments and not consumption items. Bingo.
00:47:38.300 | Yeah, it's pretty simple. It really is. And so, you know,
00:47:42.220 | and you said it's that opportunity cost.
00:47:44.340 | So every dollar you're putting into that car payment is something that you're
00:47:46.980 | not putting into your retirement. You're not putting an investment property.
00:47:50.180 | You're not investing the stock market.
00:47:52.100 | You're not investing in your child's future. And, and, and, you know,
00:47:55.460 | it goes back to the old, uh, you know, if you want to see where somebody's heart is,
00:47:58.860 | look where their, their money goes. Right. So, uh,
00:48:01.660 | some people just love their cars more than they love anything else in their life.
00:48:04.660 | And, and, and, and again, there's no stigma about it in society.
00:48:08.460 | I have a friend who went through Dave Ramsey's financial peace university,
00:48:12.020 | sold a Mercedes and got a Honda CRV. And he,
00:48:16.500 | he says now when he drives around and he looks at all these fancy cars, he says,
00:48:20.340 | he, he pictures them with a bubble behind them, dragging, uh,
00:48:23.460 | some debt behind them at some level. Right. And, and, and, and, and you're right.
00:48:27.900 | It's not always the case. There are rich people who, you know, uh,
00:48:30.860 | can make whatever choices they want and it, and it doesn't impact them.
00:48:33.900 | Dave Ramsey tells a great story about a guy who's, um,
00:48:36.740 | who's worth like several billion dollars and he gives away, um, you know,
00:48:40.540 | like $300 million a year or something.
00:48:42.540 | And he bought $120,000 vehicle and some of his more conservative Christian
00:48:47.820 | friends like lambasted him for it. And Dave Ramsey's like, as a percentage,
00:48:52.100 | that doesn't move the needle for this guy.
00:48:53.700 | It's just like me buying a latte at Starbucks. Come on people. Right. Yeah.
00:48:57.780 | So, so it is about that scale. If you're making, you know,
00:49:01.380 | $50,000 a year as a, as a household, um, you know,
00:49:04.940 | you probably should be driving $5,000 cars.
00:49:07.620 | It's 10% of what you make every year. Right. I mean, yeah,
00:49:11.220 | I was just going to say, I've, I think rules are thumb.
00:49:14.140 | I think the first place I stole it from Sam at financial samurai.com,
00:49:18.540 | he wrote about the 10% of income rule. And as soon as I read it,
00:49:21.780 | I immediately said, yep, I'm going to take that one. That's the number.
00:49:24.300 | You make $50,000 that you can, you can buy, you can own cars.
00:49:28.060 | Dave Ramsey would say 50% of your annual income should be the total value.
00:49:31.740 | That's his number. That's fine. That's better than many people.
00:49:34.340 | I like the 10% number. This is the radical personal finance.
00:49:37.780 | I like the 10% number. Take your annual income. If it's a hundred thousand dollars,
00:49:41.380 | you're allowed to own cars that are worth $10,000. Right.
00:49:44.140 | And if you do that over time,
00:49:46.740 | what's happening is you're putting so much extra money toward the investing side
00:49:51.780 | of the equation than you are towards the consumption side that your ratio,
00:49:56.780 | your net worth is just going to massively increase much more quickly.
00:49:59.660 | Now, if you want to make it 50% fine, but the point is have a number.
00:50:03.460 | And I like rules of thumb like that as a starting place.
00:50:06.620 | Because with that, think about how every person, if you,
00:50:10.260 | if every person is listening, they can't, you can't unhear that.
00:50:13.020 | What I just said. So if you go and you're thinking,
00:50:16.060 | everyone did the math automatically in their head, as soon as I said it,
00:50:18.540 | I make a $6,000 car. Well, without that,
00:50:21.820 | you trot down to the Toyota dealership and you're thinking, all right,
00:50:24.700 | Toyota Camry, I get this thing. It's $24,000. It's two years old.
00:50:28.380 | This is really great. I've, you know, I'm buying,
00:50:30.340 | and even if you're paying cash for it, I'm buying a cash car, a Toyota Camry,
00:50:33.740 | $26,000. This is against two years old. It's already lost.
00:50:36.980 | You know, depreciation is great. It's a good deal.
00:50:38.780 | I got a good service package. I'm making a great decision. Maybe. Yeah.
00:50:42.860 | But you're still facing the fact that as compared to your income,
00:50:48.100 | you're buying an expensive car, right?
00:50:50.460 | Better for you to buy a $6,000 car,
00:50:53.060 | raise your income to 260,000 and then go get your Camry.
00:50:58.300 | And by having a different starting point,
00:51:00.420 | it completely changes the decision paradigm.
00:51:02.740 | And I think people make a better decision. I do too. I do too. I mean,
00:51:05.540 | there's no challenge to the status quo out there. I mean, you know,
00:51:09.780 | I have a friend of mine who, uh,
00:51:11.260 | he's got his MBAs and he's in the finance world and banking and all that.
00:51:15.380 | And he's like, I really like what you're doing. He goes, but man,
00:51:18.540 | you are taking on two of the most powerful entities,
00:51:21.420 | the car manufacturers and the advertisers.
00:51:24.340 | You are in an uphill battle, my friend.
00:51:26.660 | That's right. You got a good enemy and a good enemy is a good,
00:51:29.780 | is a good thing. Well, James,
00:51:31.260 | tell everyone about your show and where to get it and the name and kind of what
00:51:34.740 | you talk about.
00:51:35.380 | Cause I think it'll be a good resource for the listeners who would like to dig
00:51:38.460 | deeper into some of your content.
00:51:39.660 | Sure. So, uh, it's cashcarconvert.com. Uh,
00:51:43.260 | you can also find me on Twitter at cashcarconvert. Uh,
00:51:46.740 | I have a Facebook page, uh, which is cashcarconvert.
00:51:49.580 | And then I also have a cashcarconvert community on Facebook.
00:51:52.140 | So it's a private, uh, community, but you know, just ask to join.
00:51:55.900 | I'm just trying to keep the spammers out and the show itself. Um, I,
00:52:00.100 | I detail how to, how to step by step by an inexpensive car.
00:52:04.460 | And then, um, I have people on who, uh,
00:52:08.300 | make choices that have allowed them to have entrepreneurial careers.
00:52:11.820 | And I do some inspirational things as well, because I think, uh, uh,
00:52:16.540 | as Tom Corley talks about rich habits, you know, it's our habits that,
00:52:20.500 | that really, uh, define who we're going to be in the long run.
00:52:24.620 | And so I want people to be people of excellence. And as part of that,
00:52:28.060 | I think they should drive a cash car. And, uh, as I say,
00:52:30.980 | invest in themselves, not others.
00:52:33.020 | Keep fighting the good fight, man.
00:52:34.340 | We need more of you and fewer of Madison Avenue. Thanks for coming on.
00:52:37.740 | The car decision you make will have a profound impact
00:52:44.700 | on your financial life. If you're not yet a multimillionaire,
00:52:49.900 | if you're a multimillionaire, well,
00:52:51.900 | it's not probably going to have that big of an impact unless you buy a
00:52:54.780 | collectible. It's a few hundred grand, but for most normal cars, uh,
00:52:59.380 | you need to be a multimillionaire by the time, uh,
00:53:01.380 | before you start to get into that world. So I hope this has been helpful to you.
00:53:05.100 | I hope it's helpful to you to think about it.
00:53:06.740 | I hope you can look at your own decisions and either feel good about them,
00:53:10.180 | or maybe just consider if you'd like to change something, uh,
00:53:13.260 | if you'd like to change something, get after it, uh, go check out James's show.
00:53:17.020 | It can be a great resource. He dives deep on this subject. Uh, and I love,
00:53:20.980 | check out some of the interviews he's done, uh, where with people,
00:53:24.580 | and talking about the impact that this has made on other entrepreneurs.
00:53:28.620 | I know for me, if I had car payments,
00:53:30.740 | I couldn't do what I'm doing as far as an entrepreneur. I mean,
00:53:33.020 | just imagine trying to come up with, what are we at with Patreon? A couple,
00:53:37.380 | just over a couple thousand bucks a month.
00:53:38.940 | Imagine if I had seven or $800 a month of car payments in my household,
00:53:42.380 | that would be the bulk of my income from the show, uh,
00:53:46.260 | put towards car payments. That doesn't work. Uh,
00:53:49.380 | but by not having car payments and thankfully I've never had one,
00:53:53.540 | but not having car payments, it frees up time.
00:53:56.700 | So I ought to tell James to interview me on his show. James,
00:53:59.980 | send me an email and come interview me on your show and we'll talk it.
00:54:03.740 | I'll tell you my story. I'll be one of your entrepreneur stories or wait a year
00:54:06.620 | until, uh, until we hit the big leagues. And then, uh,
00:54:09.300 | and then I'll be glad to come on. So thank you all so much for listening.
00:54:12.020 | Check out cash car convert.com for all James's info.
00:54:15.460 | And you can find them in all the podcast directories. Uh, I'm sure.
00:54:18.100 | So wherever you listen to me, you could probably find him.
00:54:20.380 | Just search cash car convert. If this has been useful to you,
00:54:24.300 | I would appreciate your financial support and your patronage for details on
00:54:28.220 | that. Please go to radical personal finance.com/patron,
00:54:30.940 | bunch of ideas and options there for you, uh,
00:54:33.980 | to be able to support the show directly.
00:54:35.700 | Radical personal finance.com/patron has all of that information.
00:54:39.500 | And I would thank you if this information has made a difference in your life.
00:54:42.820 | Here's the deal. Think about how much money I've saved you every day.
00:54:46.420 | Take about 10% of that a month on a monthly basis, and then send it to me.
00:54:50.740 | And then I can put gas in my car and keep doing the show for you. Cheers.
00:54:56.300 | Y'all.
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