RPF0527-How_to_Buy_a_Used_Car
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00:00:30.400 | Welcome to Radical Personal Finance, the show dedicated to providing you with the knowledge,
00:00:34.160 | skills, insight, and encouragement you need to live a rich and meaningful life now while
00:00:39.120 | building a plan for financial freedom in 10 years or less.
00:00:42.720 | My name is Joshua.
00:00:43.720 | I am your host.
00:00:44.720 | I am your fellow financial freedom fighter, working with you as you create and build your
00:00:50.040 | plan for financial freedom.
00:00:51.680 | Today I want to tackle the subject of buying a car, specifically buying a used car.
00:00:59.760 | On yesterday's show, I engaged in a form of satire, perhaps a bit of hyperbole.
00:01:06.520 | I created a show that I hope struck at your emotions.
00:01:10.760 | My intent was to trigger you into thinking, just through the use of something that I hoped
00:01:16.060 | would be entertaining and provocative and yet demonstrate some useful tactics and techniques.
00:01:23.720 | But today I want to be a little bit more analytical and a little bit more of a teacher, build
00:01:30.160 | not with hyperbole but with just systematic thinking.
00:01:34.680 | Sarah in the Facebook group wrote in and asks, "Tips for buying a used car.
00:01:38.160 | I'm a graduate student.
00:01:39.160 | Luckily, I've been able to work and study, so I have no loans and debts or debts.
00:01:42.560 | However, I don't own a car.
00:01:44.000 | I'm planning to move once I graduate and I might need to purchase a car then.
00:01:47.640 | I want to get a used car, but I don't want to buy something that ends up falling apart
00:01:50.800 | shortly afterwards.
00:01:52.400 | I plan to pay in cash."
00:01:53.720 | I know this is a broad question, but do you have some input?
00:01:58.140 | What should I keep in mind?
00:01:59.140 | Are there good places or websites for me to look at for cars or good resources I should
00:02:02.600 | check out, et cetera?
00:02:04.280 | That question came in from Sarah and I'll also reference another question that came
00:02:07.360 | in in the Facebook group about a listener who recently had a car that was totaled and
00:02:13.400 | they're in a situation of – well, let me read you the details because I will integrate
00:02:17.700 | these too.
00:02:18.700 | "I'm seeking vehicle advice for someone who has totaled their car and is averse to
00:02:22.480 | car debt.
00:02:23.480 | Me.
00:02:24.480 | The question is do I purchase a vehicle for about $7,000 for myself to keep going as I
00:02:29.480 | have been or splurge on a family vehicle for my wife and two small children, i.e. a minivan.
00:02:34.880 | The story is I totaled my 2009 Mazda 3 last week and will be getting $6,200 from my insurance
00:02:41.520 | payout.
00:02:42.520 | I have a $12,000 emergency fund, no debt besides the house.
00:02:46.080 | If I utilize my emergency fund to pay out on some other YNAB categories that are long-term
00:02:50.880 | savings goals for home improvements, I could pay cash for a vehicle of around $17,000 out
00:02:55.840 | the door.
00:02:56.840 | It's a scary thought.
00:02:57.840 | My money though, not the bank's, right?"
00:02:59.960 | Anyway, her car is a 2006 Hyundai Tucson with 110,000 miles and good condition that I hope
00:03:06.200 | to own for five more years.
00:03:08.440 | Within two years, we'd like to have a third child which would require a third row for
00:03:11.640 | my wife's car, etc.
00:03:13.400 | So I'll talk through these two examples and give you some advice.
00:03:17.200 | Let's start with used car versus new.
00:03:20.520 | I'm not opposed to buying new cars.
00:03:23.880 | I think you can actually make a very strong argument under certain constraints for buying
00:03:31.400 | a new car.
00:03:33.400 | The first simple and clear argument would be if you have the money and you're rich and
00:03:37.840 | you want to buy a new car, okay.
00:03:40.720 | That's fine.
00:03:41.720 | Go buy a new car.
00:03:42.720 | Who am I to tell you what to do with your money?
00:03:44.400 | You don't answer to me.
00:03:45.400 | I just want to help you think about it and make an intelligent decision.
00:03:49.000 | But of course, I know that you're here listening saying, "Well, is buying a new car an intelligent
00:03:53.120 | decision?"
00:03:54.120 | And I would say it can be.
00:03:56.040 | It can be.
00:03:58.400 | There are times at which if you'll buy a new car, you can get a great deal.
00:04:03.200 | Sometimes if it's a new technology or a factory is offering some special rebates or incentives,
00:04:08.920 | you can purchase a new car and because of the heavy discounting, get a great deal.
00:04:14.680 | Number of years ago, Nissan was selling Nissan Leafs and they weren't selling well and so
00:04:20.200 | they brought out this very big rebate program.
00:04:24.560 | I thought it was a great deal.
00:04:26.040 | When I calculated the numbers, there were good rebates.
00:04:28.880 | By buying a new car, you were able to get good government tax credits on that purchase.
00:04:34.560 | It was a well-built car that had good results.
00:04:37.120 | Because it was a new technology, it wasn't really available in the used market.
00:04:42.040 | It was a substantial savings because of buying an electric car instead of a gas car.
00:04:46.920 | I thought it was a good deal.
00:04:48.120 | It was a good example of a car to buy new.
00:04:52.040 | Sometimes you'll see this in terms of a lease deal even.
00:04:53.920 | A few years ago, I watched the lease deals on the smart car, so-called smart car that
00:05:01.640 | was in the market.
00:05:03.080 | They were offering these crazy cheap lease deals.
00:05:05.680 | For somebody who wanted to use one, I had a friend of mine who was a real estate agent.
00:05:09.920 | They leased one.
00:05:10.920 | They wrapped it nicely.
00:05:12.180 | It was a great showpiece for their business.
00:05:14.360 | I thought it was a good deal.
00:05:16.160 | From time to time, you'll find these inefficiencies in the marketplace.
00:05:18.880 | I alluded in yesterday's show with regard to a pickup truck.
00:05:22.480 | I alluded to something like a Toyota pickup truck.
00:05:26.580 | If you had the money and you were looking to buy a newer pickup truck, something like
00:05:30.920 | a Toyota Tacoma especially, if you don't do the math, the used market for the Toyota
00:05:36.760 | Tacoma pickup truck, one that's a few years old, two, three years old, it's so close
00:05:41.720 | to the new market.
00:05:42.980 | It really is hard to make the argument that you save much money buying in the used market.
00:05:48.720 | Buying in the new market can be a good idea.
00:05:51.740 | New cars are easy to finance.
00:05:54.040 | If you're going to use some form of financing, I think in general you should avoid that,
00:05:59.240 | but there are times in which – my hyperbole yesterday notwithstanding about only idiots
00:06:05.160 | finance vehicles – there are times in which you may choose to finance a vehicle.
00:06:09.920 | I am deeply opposed to that with the exception of some kind of – let me rephrase that.
00:06:18.640 | I try not to make absolute statements, but it's very hard for me to use financing.
00:06:22.640 | I can understand if you can arrange it.
00:06:24.640 | There are ways to make a deal.
00:06:27.480 | If you're the kind of person who has iron discipline on your money and you say, "Okay,
00:06:32.160 | this car is going to cost me $30,000.
00:06:34.480 | I'm going to put this $30,000 over here in the CD ladder and I've got this great
00:06:38.640 | deal, this 0% financing," I can concede that.
00:06:42.340 | Most people overspend because of using financing.
00:06:45.000 | That's what most people do.
00:06:46.520 | If you're not most people, if you have the iron discipline to walk into a car dealership
00:06:51.560 | and not go from the cheap model to the fancier model just because it's only an extra $20
00:06:57.400 | – go for it.
00:06:58.400 | I don't think I have that discipline.
00:07:00.680 | So I'm opposed to financing, but it's not like it's a moral argument.
00:07:04.840 | I'm not saying that it's always wrong.
00:07:06.680 | I'm saying that the effect of financing where you're taking a large amount of money
00:07:10.520 | and you're turning it into a stream of payments can be very harmful because you wind up buying
00:07:14.880 | more.
00:07:15.880 | Anytime you can put something on payments, you wind up buying more than need.
00:07:18.760 | Also, if you're buying new cars, you have all those problems.
00:07:21.120 | So 97% of the time, I'm opposed to financing for vehicles.
00:07:26.000 | But these are some arguments in which new cars can be helpful.
00:07:29.020 | Perhaps you are looking for a technology that's just not available in the other marketplace
00:07:33.760 | or you're shopping for something like an electric car.
00:07:37.240 | That's a good current example.
00:07:39.560 | Perhaps the needs that you have, you need a large four-wheel drive SUV.
00:07:46.040 | Well in that case – and you live in the bush – you might need to buy a new Toyota
00:07:52.240 | Troopy and that might be what you need to do and they just aren't out there in the
00:07:55.600 | used market as you would like.
00:07:57.680 | There are times in which the new is really compelling.
00:08:01.920 | I think there are times in which if you can commit to owning a vehicle for a long time,
00:08:08.120 | you can make the new car – find the case for a new car financially.
00:08:14.400 | Somebody commented in the Radical Personal Finance Facebook group and shared a picture
00:08:18.460 | of their new Honda Ridgeline pickup truck that they had purchased recently.
00:08:22.680 | This was the second version or the second model that Honda recently redesigned it.
00:08:28.760 | This person had saved for it for years and they paid cash for it.
00:08:31.800 | That's a great pickup truck.
00:08:34.240 | If you can make a thoughtful, intelligent decision and buy a kind of vehicle that you
00:08:39.240 | know you're going to keep for a long time and then you can own it straight from the
00:08:44.080 | factory so you can ensure that all of the proper servicing is done right from the beginning
00:08:49.320 | – I know guys that go and buy a new Honda or a Toyota, immediately swap out all the
00:08:55.640 | fluids for the best synthetic fluids and they drive it carefully.
00:08:59.460 | They make sure that their maintenance schedules are followed to the T.
00:09:03.320 | You can take your vehicle ownership period and push it out to maybe 20 years and have
00:09:09.120 | trouble-free ownership.
00:09:11.360 | The longer you can own that vehicle, the better.
00:09:15.420 | So there are good arguments for buying a new car but that's not what most people do.
00:09:21.260 | Most people just buy a new car because it's convenient, because they want the new car
00:09:24.120 | smell, because it's easy to finance a new car.
00:09:26.200 | So they wind up wandering into the Kia dealership and buying a cheap new Kia and ruining their
00:09:32.320 | financial life.
00:09:33.920 | Somebody like Sarah who's riding in as a graduate student, frequently a non-thinking
00:09:38.760 | person would just say, "Well, I'm going to go and finance a new Kia," and they buy
00:09:42.480 | a car that is certainly a decent vehicle in terms of it's well-made.
00:09:47.800 | It's got a 10-year warranty, et cetera.
00:09:50.520 | But you're buying a cheap car that's an Econobox that probably doesn't have the
00:09:54.640 | level of comfort that you'd want to have for a long-time ownership.
00:10:00.040 | I don't enjoy driving Econoboxes on the interstate at 75 miles an hour and frequently
00:10:06.320 | that chafing of this not being a great car but an adequate car will result in the person
00:10:13.200 | three, four years in going ahead and saying, "I'll just trade this in and move up."
00:10:17.800 | So I think that there are better ways.
00:10:19.000 | In general, I think you want to look for used cars while you are building your wealth.
00:10:27.260 | One last comment.
00:10:29.160 | There is an argument also that could be made for new cars, especially if the vehicle itself
00:10:34.600 | will be financially productive for you, i.e. you run a business.
00:10:40.960 | Sometimes just the simple reality of getting a vehicle and then buying it new, buying it
00:10:46.800 | as part of a fleet, ordering it exactly how you need it because of the equipment that
00:10:50.480 | you're going to run on it, or being able to order it and immediately have it wrapped,
00:10:54.760 | or being able to order it and in the business you're in, the particular newness of the
00:10:59.160 | vehicle matters and it's helpful to you, or being able to order it, have it serviced
00:11:03.400 | by the factory and have a service contract smooths things out.
00:11:07.640 | If you're making money with a vehicle, downtime is a very bad thing and so you've got to account
00:11:14.980 | for that.
00:11:15.980 | And so it may be worth it for you to pay in depreciation rather than to pay in downtime.
00:11:24.000 | There's no guarantees on any of these things but I am encouraging you to think carefully.
00:11:28.680 | Now for most of us who may work a job and who are still seeking to build wealth, I think
00:11:35.000 | you're well advised to steer clear of the new car marketplace.
00:11:40.320 | I do wonder if I would have made that recommendation 30 or 40 years ago.
00:11:45.240 | Frequently people talk about, "Oh, buying a used car, you're buying somebody else's
00:11:49.240 | problems."
00:11:50.240 | In 1970 that may have been true.
00:11:52.320 | It may have been.
00:11:54.600 | I'm not sure of it but it may have been true.
00:11:58.280 | But today in 2018 as I record this, man, vehicles are made so well.
00:12:04.680 | You just don't see vehicles broken down the way that you once saw them.
00:12:09.040 | Vehicles are made so much better.
00:12:11.960 | I don't get this like hating of technology.
00:12:16.120 | For most applications, an electric car is a superior technology to a gasoline car.
00:12:24.680 | Don't hate the electric car technology.
00:12:27.160 | Just calculate if it's right for you.
00:12:29.880 | A vehicle that runs with fuel injection is a superior vehicle design, is a superior engine
00:12:36.240 | design to a vehicle that runs with a carburetor.
00:12:39.480 | No you can't adjust the fuel injection system when you're out on the boonies like you can
00:12:43.320 | with a carburetor.
00:12:44.680 | But the fuel injection system is very unlikely to leave you on the side of the road like
00:12:48.200 | the carburetor was.
00:12:49.960 | There's this weird hatred of modern technologies that so many people have.
00:12:54.440 | New cars are great.
00:12:55.440 | I mean you've got so many new car makers.
00:12:58.040 | Even I may criticize Kia.
00:13:00.320 | I've owned a Kia, Hyundai, but I've owned a Hyundai and had no problem with it.
00:13:05.480 | But I may criticize them.
00:13:07.000 | But man, they're wonderful cars.
00:13:08.880 | They come with a 10-year, 100,000-mile powertrain warranty.
00:13:13.680 | That's amazing.
00:13:15.240 | So cars are made so well today.
00:13:18.600 | I really think and I have good evidence for this as far as objective research evidence.
00:13:24.560 | The minimum life cycle for just any normal car that's cared for, not abused, and that
00:13:31.360 | has the basic maintenance done should be about 200,000 miles.
00:13:35.360 | Really should be.
00:13:36.360 | And it's not uncommon for a vehicle to be able to go for longer.
00:13:38.840 | So back to Sarah.
00:13:39.840 | I would encourage Sarah to buy a used car.
00:13:43.920 | But to shop carefully.
00:13:45.640 | Let's talk about how to shop.
00:13:47.840 | First you need to know what you need.
00:13:49.880 | And one of the biggest things to consider is what kind of vehicle will suit my needs
00:13:54.720 | for the longest period of time.
00:13:57.800 | One of the problems that people make when buying cars is they don't exercise a lot
00:14:01.720 | of forethought.
00:14:03.840 | I remember this a number of years ago watching somebody.
00:14:06.840 | They bought a convertible.
00:14:07.840 | Newly married.
00:14:08.840 | They were hoping to have children.
00:14:09.840 | And they bought a two-seat convertible.
00:14:12.040 | I thought, "Why did you do that?
00:14:15.120 | Did you not ever think about strapping a car seat into a two-seat car?
00:14:18.440 | It just doesn't work.
00:14:20.160 | It destroys your back."
00:14:21.800 | And yes, sure enough, a few years later they wound up selling the convertible.
00:14:24.840 | And it was a poor, cheap convertible that didn't get a lot on the marketplace.
00:14:28.120 | It was a soft top which got destroyed and it was just a dumb decision.
00:14:32.160 | So if you can just do something – if you're willing to be practical and do something as
00:14:36.680 | simple as buy a four-door car instead of a two-door car, that car will last you longer.
00:14:42.720 | And this is a big deal because the buying and selling costs on a large ticket item like
00:14:49.480 | a car are substantial.
00:14:52.680 | In Florida, we have sales tax.
00:14:54.160 | Every time you buy a car, you're going to incur a 6% sales tax or a 7%.
00:14:59.200 | You're going to incur a significant sales tax.
00:15:01.440 | There's new registration fees.
00:15:03.680 | There are new costs of doing the shopping, the time.
00:15:07.080 | And so the longer you can – if you can choose something that is going to work for you for
00:15:10.760 | longer, that's better.
00:15:13.400 | Does that mean that you always get the biggest vehicle possible?
00:15:17.380 | You have two children.
00:15:18.380 | Does that mean you automatically go for a 15-passenger van because you might have more
00:15:21.880 | children and outgrow a seven-passenger minivan?
00:15:24.880 | No, I don't think so because there would be other costs associated with that.
00:15:29.180 | But for Sarah, I would encourage Sarah to at least consider purchasing something that
00:15:34.160 | would be a four-door car at the very least.
00:15:37.560 | Now, I love minivans and I love minivans even for single people.
00:15:41.080 | And here's where you have to consider your personal circumstances.
00:15:44.960 | Knowing nothing about Sarah other than her comment here saying that she's been in grad
00:15:49.240 | school, I would still think a minivan is a wonderful vehicle for her to buy.
00:15:55.220 | For the full version, go and listen to episode 356 of the show called Your Next Car Should
00:15:59.520 | Be a Minivan, Here's Why.
00:16:01.500 | But for somebody who's a graduate student, there's a good chance that a graduate student
00:16:05.540 | would be – after they graduate, would be looking for a job.
00:16:09.400 | In that early phase of a career, there'd probably be quite a bit of movement.
00:16:12.800 | Well, minivan would be a wonderful car for a young woman to own.
00:16:16.000 | It's very practical.
00:16:17.280 | It's very, very safe.
00:16:20.040 | Minivans basically all get five-star crash – modern ones all get five-star crash ratings
00:16:24.420 | on every one.
00:16:25.560 | They're one of the most safe vehicles you can drive.
00:16:28.840 | They're safer than SUVs in terms of on-the-road manners because they have a lower center of
00:16:33.440 | gravity.
00:16:34.440 | They avoid some of the inherent characteristics of an SUV or larger van that make them unstable
00:16:40.200 | on the highway at high-speed maneuvers.
00:16:42.520 | Minivans are wonderfully safe.
00:16:43.840 | They're wonderfully practical.
00:16:45.400 | A young woman who is building her career – I have no indication of her being married – a
00:16:50.040 | young single woman, it'd be a wonderful vehicle because she could use it if she needed
00:16:53.400 | to move.
00:16:54.400 | She could easily downsize her things into that vehicle.
00:16:57.120 | She needs to change cities to go to a job.
00:16:59.080 | She can avoid expensive movers.
00:17:01.600 | She could get everything she needs into a minivan.
00:17:04.360 | If she needed to use it for travel, she would have a comfortable place where she could travel
00:17:07.840 | with her friends.
00:17:08.840 | It would be a wonderful vehicle.
00:17:10.720 | So that would be a great road to go.
00:17:14.280 | Minivans are very, very popular.
00:17:16.080 | There are tons of them out there.
00:17:18.400 | More on that in just a moment.
00:17:19.740 | But at the very least, I would encourage Sarah to purchase something that would be a four-door
00:17:23.200 | sedan or a minivan.
00:17:24.760 | Now if Sarah were living in downtown New York City or downtown Miami, now that advice might
00:17:31.200 | change because now there might be a need for or a benefit from a smaller car that's easier
00:17:37.400 | to park, that's easier to park on the streets.
00:17:41.480 | That would all depend on what her long-term plans are and what her lifestyle is.
00:17:46.680 | So think about it and do your best to look forward perhaps a decade and plan on a 10-year
00:17:53.060 | car ownership lifecycle.
00:17:55.620 | Even if you bought new cars but you just thought in terms of a 10-year lifecycle instead of
00:18:01.880 | a 5-year lifecycle, you would come out financially significantly ahead.
00:18:07.500 | So I would encourage Sarah, think about what type of vehicle would fill your needs.
00:18:13.100 | For most people, the practical, reasonable answer to the question is a four-door sedan
00:18:21.240 | or a minivan.
00:18:24.660 | You may have other purposes.
00:18:26.440 | If you need to tow a trailer, if you need a smaller vehicle, you adjust accordingly.
00:18:31.380 | But for most people, a four-door vehicle will give them years of usage or a minivan.
00:18:37.380 | It would give them years of usage.
00:18:40.700 | Consider for something that's fuel-efficient, of course, but calculate the math.
00:18:45.420 | I love the Toyota Prius.
00:18:47.060 | If I were just going to tell Sarah, "Here's one car you should buy, buy a Toyota Prius.
00:18:51.020 | It's a wonderful vehicle.
00:18:53.300 | It's a wonderful vehicle."
00:18:54.900 | But for somebody who doesn't drive a lot, the excess – the better fuel mileage doesn't
00:19:01.740 | make that big of a difference.
00:19:04.080 | So how much are you driving?
00:19:06.060 | Calculate all those costs and try to understand what type of vehicle would be effective for
00:19:13.980 | you.
00:19:14.980 | Number two, calculate how much money you have.
00:19:18.740 | And here would be my constraints.
00:19:21.380 | First, no debt.
00:19:24.420 | No car debt, no debt.
00:19:27.340 | Pay cash.
00:19:28.840 | In order to pay cash, you'll have to have savings.
00:19:32.100 | If you only have $1,000 or a couple thousand dollars, you can find a vehicle for $1,000
00:19:38.820 | or a couple thousand dollars.
00:19:40.540 | I do think at those prices, you're starting to get where you better become a skilled shopper
00:19:46.660 | and/or you better plan to upgrade.
00:19:50.320 | But it's entirely possible to buy a quality vehicle that is inexpensive.
00:19:57.320 | For quite a while, I had a Toyota Corolla that I had purchased.
00:20:02.300 | It was a 1998 Toyota Corolla.
00:20:04.460 | I bought it from an elderly lady who was selling it because she was no longer able to operate
00:20:11.100 | the manual clutch.
00:20:13.500 | I had always kept my eyes out for such a car.
00:20:16.380 | I always wanted to have just an extra cheap car with very few things to break.
00:20:23.160 | This was the most basic model in existence.
00:20:26.820 | This was a four-cylinder engine with a manual transmission.
00:20:32.040 | Nothing on the vehicle was power and it had just basically been driven around in a normal
00:20:36.820 | usage scenario.
00:20:37.820 | It had about 120,000 miles on it.
00:20:40.060 | A vehicle like that has very few things to break.
00:20:43.680 | I paid $500 for it.
00:20:45.900 | I kept it for a while.
00:20:47.980 | I drove it for quite a while.
00:20:49.820 | Drove great.
00:20:50.820 | It's comfortable for me.
00:20:51.820 | I enjoyed it.
00:20:52.820 | Got me down the road.
00:20:53.820 | Wound up selling it for $1,000.
00:20:57.140 | I replaced the radio.
00:20:58.140 | I think I paid $30, put a new radio in it, $40, something like that.
00:21:02.220 | Other than that and other than changing the oil, I didn't spend one dime on the car other
00:21:06.540 | than gas.
00:21:07.540 | Gas, change the oil a couple times, put a new radio in it for $30 so that would have
00:21:11.580 | a Bluetooth connection so my phone would work.
00:21:14.040 | That was it.
00:21:16.120 | That car is still going fine.
00:21:17.980 | It could still go for another – for years and years because it fundamentally has not
00:21:21.780 | a lot of things to break.
00:21:23.620 | Now, it's got its own problems.
00:21:25.140 | It doesn't look fancy.
00:21:26.540 | It's not – it's perfectly comfortable to drive long distances.
00:21:29.620 | I've driven it – I drove it across the state of Florida a couple times.
00:21:33.580 | It was cheap to drive.
00:21:35.220 | It didn't have a cruise control but I could have installed one if I wanted one of those.
00:21:38.940 | It didn't look great.
00:21:39.940 | If I needed to present a certain image, that wouldn't be a great vehicle to drive.
00:21:45.180 | But you could do it.
00:21:46.180 | That was a $500 car.
00:21:47.980 | I think in general, you probably should get – go a little bit more upmarket to get something
00:21:53.020 | that's a little bit more comfortable for the longer time.
00:21:55.060 | But a few thousand dollars, you can find wonderful cars for a few thousand dollars.
00:22:00.420 | And so here's how I think you should establish your budget.
00:22:04.960 | Your first establishment should be how much money do you have?
00:22:08.540 | Don't go into debt, especially for somebody like Sarah, a young woman getting out of graduate
00:22:14.220 | school, building her career.
00:22:15.740 | Don't go into debt.
00:22:17.260 | If you go into debt, now you start to get locked into a situation.
00:22:20.280 | If you don't have any debt and let's say Sarah gets a job that winds up being unhelpful
00:22:25.480 | for her, it doesn't work, she has bad coworkers, she has an abusive boss.
00:22:30.100 | If she's in debt, she's going to be tempted to stick it out for longer than she should.
00:22:33.640 | She has no debt.
00:22:34.640 | She says, "That's it.
00:22:35.640 | I'm out of here."
00:22:36.640 | She loads up her stuff in her minivan, drives to another city, gets another job.
00:22:40.320 | Simple.
00:22:41.320 | If you have debt, it's not simple.
00:22:44.320 | It's harder.
00:22:45.380 | So no debt, however much money you have.
00:22:47.120 | But number two, if you have a lot of money saved, I think you should, especially in the
00:22:52.480 | early years of your life cycle, your wealth building, you should keep your car purchases
00:22:58.680 | as low as possible, somewhere between 10% of your annual income and 50% of your annual
00:23:04.640 | income, depending on how hardcore you are and depending on the marketplace.
00:23:09.260 | You can't always follow that rule, that arbitrary rule, and get what you need.
00:23:15.060 | For example, I recently shared how I now own a diesel pickup truck.
00:23:19.360 | I have a specific need case that I've voluntarily committed to.
00:23:25.240 | It's not something that I've chosen for a diesel pickup truck.
00:23:28.280 | Well, that makes it harder to buy a $2,000 vehicle.
00:23:31.040 | If I didn't need that diesel pickup truck to achieve my goals, then I could have bought
00:23:35.920 | a $2,000 vehicle.
00:23:38.600 | If you're hardcore, at 10% of your annual income, you can find something great.
00:23:47.300 | If you have an annual income of $30,000, $40,000, $50,000, we're talking about a car of $3,000,
00:23:53.000 | $4,000, $5,000, all day long, I can go to any city in the country, in the United States.
00:24:00.400 | I don't know the context in other countries, but any city in the United States, and if
00:24:04.960 | I have a little bit of time, could find a quality vehicle in that $3,000 to $5,000 price
00:24:11.240 | range.
00:24:13.600 | Now there are times in which it would make sense for you to increase that.
00:24:17.720 | Let's go back to Ben's question where he talked about a minivan.
00:24:21.600 | Ben says that I have two young children and we're hoping to have a third child in the
00:24:25.800 | coming years.
00:24:26.800 | So we're considering purchasing a minivan.
00:24:29.200 | In this case, Ben has no debt.
00:24:31.160 | He has an insurance payment.
00:24:32.560 | He has savings.
00:24:33.560 | In this case, I would consider saying, "Let's go a little bit higher than the 10% in order
00:24:39.000 | to have an ideal life cycle."
00:24:40.400 | If Ben bought a $3,000 minivan, he might be putting himself in a situation where that
00:24:45.640 | minivan would start to get long in the tooth after four or five years when he still would
00:24:50.280 | have a lot of value of that minivan.
00:24:52.800 | But if Ben were to purchase a – let's say a $10,000 to $12,000 minivan with cash,
00:24:59.680 | that was – I don't know what his income is but let's just say that were 30% of his
00:25:02.960 | income.
00:25:04.160 | Now he would have a vehicle that could last for a decade easily and would comfortably
00:25:09.280 | accommodate his family and would be very reliable, very new, very fancy, little things that would
00:25:16.720 | probably make his wife happy like having the electric doors.
00:25:19.720 | That's really nice for a mom to have the electric doors.
00:25:23.520 | Little things like having a nice systems built into the vehicle, whatever those things are.
00:25:30.120 | Those would make his life really nice and I think he would find value of going up a
00:25:34.160 | little bit in price so that he could have a longer term of ownership versus following
00:25:38.900 | some arbitrary rule of 10% in order to keep it as cheap as possible.
00:25:43.840 | As long as the total value of your vehicles doesn't go north of half of your annual
00:25:47.980 | income.
00:25:49.800 | So if your annual income is $50,000 per year for your household, you should never own cars,
00:25:55.600 | motorcycles, RVs, snowmobiles, jet skis, boats.
00:26:00.440 | You shouldn't own toys and depreciating assets or if we want to use Kiyosaki's term,
00:26:07.040 | depreciating liabilities.
00:26:08.960 | Just toys that go down in value of more than half your income.
00:26:12.240 | Otherwise, you wind up I think putting yourself in a situation where it's hard to get wealthy.
00:26:17.080 | You become vehicle rich and money poor.
00:26:22.760 | So 10 to 50% of your annual income.
00:26:24.960 | I encourage lower but sometimes you got to go up market a little bit to get something
00:26:29.120 | that's really going to last for you.
00:26:31.680 | So set your budget.
00:26:33.120 | The next thing to consider is what brand and what models are you interested in.
00:26:40.320 | Make sure there is good data that you can consult and whenever you have good data, study
00:26:47.120 | the data.
00:26:48.680 | If you'll just study the data on so many things in life and try to align yourself with
00:26:53.400 | whatever constraints are there with the data, it's a little easier to get good results.
00:26:59.200 | For cars, study the reliability data and buy something that is reliable.
00:27:06.140 | If you want to make it simple, buy a Toyota.
00:27:11.720 | Toyota has over the last decade and a couple of decades earned for itself a world-class
00:27:17.800 | reputation for reliability.
00:27:21.520 | That reputation has been won the hard way.
00:27:24.520 | It's not a false reputation.
00:27:26.240 | It's a real reputation and Toyota very well deserves to be the highest ranked most popular
00:27:34.580 | vehicle brand in the world.
00:27:37.880 | I think that's worth your considering.
00:27:39.120 | If you can't buy a Toyota, buy a Honda.
00:27:42.000 | Honda also has done a great job with reliability.
00:27:46.520 | Now what's interesting, your best resource here is Consumer Reports.
00:27:50.640 | What's interesting is there are other brands and other models that can be very reliable
00:27:56.520 | but it's harder to find that more sure thing with other brands and other models.
00:28:03.380 | If you were going to buy a pickup truck, a medium-duty or heavy-duty pickup truck, of
00:28:07.520 | course, you wouldn't necessarily automatically go right to a Honda.
00:28:15.360 | If you wanted a light-duty pickup truck like the Ridgeline, you would go with a Honda.
00:28:18.400 | Toyota has their Tundra.
00:28:19.920 | That's their biggest one that they do.
00:28:20.920 | But if you needed a bigger one, of course, they're not going to offer it.
00:28:23.400 | Well, now you get into a situation where you can say what model is very reliable.
00:28:27.480 | The Ford F-150 is a very reliable vehicle.
00:28:31.080 | The Chevrolet Silverado is a very reliable vehicle.
00:28:34.980 | You may find that a BMW 5 Series is a very reliable vehicle.
00:28:39.820 | But for a new car buyer like Sarah, I would just say look for a Toyota.
00:28:43.780 | Makes it very, very simple.
00:28:45.620 | You may or may not get lucky with some other model and if you have another model you're
00:28:48.720 | happy with, that's fine.
00:28:50.780 | But I personally would just put my bet on buying a Toyota.
00:28:54.500 | I wouldn't buy a Mazda.
00:28:56.180 | I just buy a Toyota.
00:28:59.380 | If you come to a different solution, at least study your solution and find out why you think
00:29:04.340 | it to be the case.
00:29:05.880 | If you do say, "I'm going to buy a Hyundai Tucson," then know why you're buying it and
00:29:10.360 | understand what the data is on it.
00:29:13.580 | In addition, I think there is good reason to choose a model that is ubiquitous.
00:29:20.940 | Now, here would be where you have to make a distinction between something that's financially
00:29:25.740 | practical versus something that's meeting some other need or some other goal.
00:29:30.680 | If you want a car that is unique, if you're seeking to express your personality with your
00:29:34.180 | vehicle or enjoy a toy of some kind, you might purchase some not so common vehicle and that's
00:29:40.900 | something that you love.
00:29:42.500 | There's all kinds of great options out there and you can still do that and be very intelligent
00:29:47.100 | about it.
00:29:48.100 | A Honda S2000 is a wonderful roadster.
00:29:51.780 | Very fast.
00:29:52.840 | Very fun to drive.
00:29:54.380 | It has a whole interested little consumer or a whole interested little group of aficionados
00:30:01.020 | or a Mazda Miata, for example.
00:30:03.860 | Wonderful little sports car that you could buy.
00:30:06.460 | Just a little harder to find than something like a Toyota Camry.
00:30:09.960 | In general, my preference for practicality is to buy something that's ubiquitous and here
00:30:13.380 | are a few advantages of that.
00:30:15.460 | What you get is you get a vehicle that's easier to find.
00:30:18.620 | The F-150, the Ford F-150 is the most sold vehicle.
00:30:21.940 | It's the most popular vehicle in the United States of America.
00:30:25.100 | I just as soon own a Ford F-150.
00:30:27.260 | They're wonderful.
00:30:28.260 | They're easy to find.
00:30:29.260 | There's a huge market for them.
00:30:30.940 | Because there's a huge market, their prices are very, very stable.
00:30:34.660 | They're well-known, which means it's easy to know if you're getting a value when you're
00:30:38.900 | buying and it's easy to sell it into the market when you're selling, which for somebody who's
00:30:43.560 | not a car person, somebody like Sarah who's looking for transportation, not just a – she's
00:30:50.660 | not trying to join the Mazda Miata weekend roadster club.
00:30:54.460 | For somebody like Sarah who's looking for transportation, that ubiquity can be helpful.
00:30:58.540 | That ubiquity can lower many of your ownership costs.
00:31:02.260 | It makes it easier and cheaper to accessorize if you need to change something out.
00:31:06.620 | It makes it easier and cheaper to find parts if you need to fix something.
00:31:10.540 | That ubiquity is valuable.
00:31:13.140 | And so whenever possible, I would like to own a vehicle that's just the same as everybody
00:31:17.200 | else owns.
00:31:18.580 | I don't have that need that you might need to look different if you do deal accordingly.
00:31:24.140 | But for Sarah, I would say buy something that is relatively ubiquitous.
00:31:29.900 | You also want to buy something that's appropriate to where you live and the lifestyle that you're
00:31:33.300 | going to engage in.
00:31:35.720 | So consider that.
00:31:38.140 | But don't get taken in by things that are just simply flatly untrue.
00:31:43.580 | For example, you don't necessarily need a Subaru because it snows where you live.
00:31:52.260 | Sarah – she's going to live in a place with a lot of snow.
00:31:54.540 | She could do extremely well to buy a normal front-wheel drive vehicle and just put snow
00:32:01.060 | tires on the thing.
00:32:02.500 | You don't need four-wheel drive for the snow.
00:32:06.980 | You don't necessarily need a pickup truck because you own a jet ski.
00:32:10.560 | Your minivan will tow a jet ski just as well.
00:32:13.240 | So just think about the things that you're looking for and then consider, "What am I
00:32:17.780 | likely to buy and what am I likely to own?"
00:32:20.500 | If I lived in rural Oklahoma, I might not own a Prius because I don't know how popular
00:32:25.240 | Priuses are in rural Oklahoma.
00:32:27.820 | I might own an F-150 because it'd be easy to buy, easy to service, easy to sell.
00:32:32.540 | You figure out where you live and what's appropriate for where you live.
00:32:36.740 | Now when it comes time to actually buying the thing, where do you go and how do you
00:32:41.700 | get it?
00:32:43.980 | Well there are a number of different sources.
00:32:47.100 | Basically they would boil down to a dealership or a private party.
00:32:53.040 | Now dealership could mean different things.
00:32:55.700 | The basic value of a dealership, whether that's a new car dealer, used car dealer, is selection
00:33:03.980 | and the fact that they're probably going to have what you need when you need it.
00:33:08.540 | If you need to buy a car today, you may need to go to a dealer because you can drive in
00:33:13.940 | with a friend and you can drive out with a car.
00:33:16.340 | They're going to have something.
00:33:19.280 | If you need to buy a Toyota Camry today, you go online, you start searching and you find
00:33:25.020 | a dealer that has one.
00:33:28.340 | That dealer is performing a valuable service in the marketplace of selection.
00:33:33.540 | They're providing vehicles that are available when you need them.
00:33:37.840 | They're also going to be compensated for that service.
00:33:42.840 | That compensation usually comes in the way of a few extra thousand dollars, depending
00:33:47.900 | on the value of the car, that you're going to spend in order to pay the dealer their
00:33:51.560 | price that they have for the car.
00:33:55.040 | That may be worth doing, especially if you're shopping for a specific vehicle.
00:34:00.780 | Back to Ben.
00:34:01.780 | Let's say that Ben decides that he wants to buy a Toyota Sienna minivan and he's looking
00:34:06.120 | for one that is three to five years old.
00:34:09.300 | He's looking for one that has fewer than 100,000 miles.
00:34:12.320 | He wants electric doors on both sides and he wants the eight-seat model.
00:34:18.240 | When it comes on the dealer's lot, because Ben is specific, he probably should just go
00:34:23.840 | ahead and buy it from the dealer.
00:34:25.120 | Now, strike a good deal.
00:34:26.460 | Do your best to get a good bargain.
00:34:28.440 | But there's more value for Ben in buying that specific minivan that can last him for a decade
00:34:35.640 | versus waiting for one of those to show up in a deal.
00:34:39.120 | Meanwhile, he only has one car and they're trying to figure that out.
00:34:43.160 | If you've got time, however, it is a good option for you to wait in the marketplace
00:34:49.080 | and to shop from a private party.
00:34:52.280 | There are random approaches to this and there are less random approaches to this.
00:34:56.940 | The random approach is just to go and drive down the road, especially some secondary road
00:35:01.120 | or out in the country.
00:35:02.480 | I always like to look at cars that are for sale on the side of the road because usually
00:35:05.720 | that's a great deal.
00:35:07.600 | You might find somebody who's just reselling their car.
00:35:10.240 | They put a sign on it, selling it by the side of the road.
00:35:12.300 | You can get a great deal that way.
00:35:14.160 | But the finding of that is very random.
00:35:16.800 | It's hard to predict where that Toyota Camry is going to be.
00:35:20.240 | It's hard to predict and to say, "Oh, that minivan or that SUV that I'm looking for is
00:35:23.960 | definitely going to be there."
00:35:25.320 | And it's very hard to predict that it has those options.
00:35:28.880 | A great way to do it is, of course, to use the value of the internet and some of the
00:35:33.240 | newer versions of classified ads.
00:35:36.040 | Classified ads had their place.
00:35:37.720 | Today, most of that has been replaced locally.
00:35:40.520 | Now, there are a few options here.
00:35:43.440 | The big one, of course, that everyone knows is Craigslist.
00:35:46.600 | In some of my recent secondary market transactions, I've learned that at least in my area, Craigslist
00:35:52.520 | is starting to fade in terms of its usefulness.
00:35:56.360 | The most impressive place that I have found a huge selection of vehicles has been Facebook,
00:36:03.080 | the Facebook marketplace.
00:36:04.920 | I hadn't paid much attention to it, but over the last few months, I have done a lot of
00:36:09.080 | transactions in the Facebook marketplace and I have been very impressed.
00:36:13.560 | It has been much more fruitful than Craigslist.
00:36:17.280 | Here's my theory as to why.
00:36:19.120 | Most people have Facebook on their phone and it's so easy for them to just snap a picture
00:36:23.960 | of their car, put a quick title and description and post it, that a lot more people are using
00:36:29.680 | that.
00:36:30.680 | The Craigslist interface on a phone is very clunky, doesn't work very well, and so you
00:36:35.520 | have to work to put it on Craigslist.
00:36:37.280 | Facebook is easy.
00:36:38.280 | They got a cell phone, boom, it's done.
00:36:41.200 | So I would encourage you, figure out what you want and then shop heavily on something
00:36:45.360 | like Facebook.
00:36:47.960 | When buying a used car, I think there is a good argument to be made for buying used from
00:36:52.560 | a private party.
00:36:54.160 | Here are some reasons why.
00:36:56.120 | When you buy from a dealer, it's very hard to know the backstory of that car.
00:37:01.280 | Usually a dealer has a car either because they've taken it on trade from somebody who's
00:37:05.920 | upgrading or because they've bought it at an auction, but you don't know why it's at
00:37:11.000 | that auction.
00:37:13.280 | It's hard to know the history.
00:37:15.440 | The vast majority of cars are going to be fine, totally fine at a dealer.
00:37:22.440 | The vast majority are.
00:37:24.680 | But there are going to be cars out there in the marketplace that somebody was having trouble
00:37:31.600 | with it.
00:37:32.600 | They fixed a couple of things and they said, "I'm getting rid of this thing."
00:37:35.680 | They trade it into the dealer.
00:37:37.380 | That dealer takes it.
00:37:38.380 | They may put it on their lot and resell it or frequently they'll send it down to the
00:37:41.280 | auction.
00:37:42.280 | It goes through the auction.
00:37:43.280 | Another used car dealer buys it.
00:37:45.080 | They bring it in and they sell it.
00:37:46.320 | Now a used car dealer, most of them are going to stand behind their vehicles to some degree.
00:37:50.680 | They might fix some things that are wrong and they're going to stand behind it to some
00:37:53.240 | degree.
00:37:54.320 | But it's hard to find out the history and be very confident in it.
00:37:58.040 | You can, of course, check the car facts.
00:37:59.640 | That doesn't tell you much about it, though.
00:38:00.840 | It just tells you what was actually listed in the report.
00:38:04.520 | I would much rather pay extra for a vehicle to buy it from somebody who's been a long
00:38:10.700 | time owner.
00:38:13.720 | Whenever I know somebody who's selling a car, I always ask the details in case I might be
00:38:18.740 | interested in buying it because if I can know the person and know the ownership history
00:38:24.120 | of it and get an accurate report of what's wrong with it or what's right with it, that's
00:38:29.360 | a really, really important thing.
00:38:31.680 | You can do that often with the technique of driving down the road in the country or looking
00:38:36.500 | on Facebook.
00:38:38.640 | If you can deal with a person, then most of your skills, your normal interpersonal skills
00:38:43.360 | will be useful for you.
00:38:45.220 | If you're dealing with a dealer in a dealership, now you're into that more kind of combative
00:38:50.600 | bargaining.
00:38:51.920 | Are they honest?
00:38:52.920 | Are they dishonest?
00:38:53.920 | Use those skills that we don't use every day.
00:38:57.120 | So if you look on Facebook, let's say Sarah is looking around and she says, "You know
00:39:00.000 | what?
00:39:01.520 | Josh was right.
00:39:02.520 | A minivan is the best car for a grad student to buy.
00:39:07.360 | A minivan gives me safe, reliable, comfortable transportation.
00:39:11.040 | A minivan is comfortable for a cross-country road trip because it's heavier than a little
00:39:16.360 | car.
00:39:17.360 | I can carry more things with me.
00:39:18.360 | I can use this minivan to move around the country if I need to.
00:39:21.120 | I don't have to rent U-Haul trucks.
00:39:22.520 | I can get a small trailer if I need to and hook it up.
00:39:25.120 | This will be comfortable.
00:39:26.120 | I can load up my girlfriends.
00:39:28.480 | We can put the paddle boards on the roof and go spend a weekend at the beach.
00:39:32.000 | Like Josh was right, a minivan really is the perfect vehicle for everybody.
00:39:36.120 | No matter what, I'm going to get one."
00:39:38.240 | And of course she takes my advice and says, "All right, I've got about $5,000 saved.
00:39:42.360 | I want to buy a Toyota minivan, so I'm going to start shopping."
00:39:45.200 | And so Sarah goes on Facebook and she just starts looking every day, Toyota minivans,
00:39:49.200 | starts interacting with people, asking questions.
00:39:52.040 | And then she finds somebody who's selling a Toyota minivan.
00:39:54.700 | She goes to see it and she finds herself talking to Ben, 10 years down the road, who's selling
00:40:00.520 | his Toyota minivan because now they've had five children.
00:40:03.520 | They can't fit in it anymore.
00:40:04.520 | She says, "Ben, how's it going?"
00:40:05.520 | "Well, it's good.
00:40:06.520 | My children have beat this thing up inside a little bit, but it's been a good vehicle
00:40:09.640 | for us.
00:40:10.640 | I replaced the timing chain at such and such a miles or I've changed the oil on this level.
00:40:16.800 | There's a little bit of a noise coming from the right front, but that's just, here's the
00:40:19.760 | reason why."
00:40:20.760 | Well, now she can interact with Ben, the seller, and actually understand what's happening with
00:40:25.840 | it.
00:40:26.840 | She can then, of course, check the Carfax.
00:40:29.560 | She would take down the VIN number.
00:40:31.320 | She would run it through Carfax or one of the competitors.
00:40:34.640 | And with that data, she would be able to confirm, "Yes, indeed, this vehicle has been registered
00:40:39.020 | to Ben for the last seven years, just like he said."
00:40:41.520 | Okay, now I know that Ben's probably telling me the truth.
00:40:47.520 | Now she can start to interact and find out something that's real.
00:40:51.240 | Now Ben may very well be willing to give her a little deal.
00:40:55.040 | After all, she just graduated from grad school.
00:40:57.320 | She's buying her first car.
00:40:58.680 | She's getting herself set up at her first job after grad school.
00:41:02.280 | She wants to give her a good deal and help her to get a good start in life.
00:41:06.240 | But on the flip side, if I were Sarah, I would be willing to pay an extra $500 for that vehicle
00:41:12.680 | that I was confident in the history.
00:41:14.560 | I could see Ben and his wife and his children.
00:41:16.720 | I could know that this car wasn't in Hurricane Harvey and now it's on a dealer lot and it
00:41:21.400 | was flooded.
00:41:22.560 | I could be confident.
00:41:23.560 | Yes, they've had it for seven years.
00:41:24.760 | I'm sitting here at their house.
00:41:25.960 | They're not lying to me.
00:41:27.880 | All the external data bears out.
00:41:29.960 | I would pay $500 extra to buy the vehicle of a known history because that would substantially
00:41:35.120 | lower my risk with buying the vehicle versus the dealer who may or may not be able to know
00:41:41.400 | that the electrical system got fried because there's an intermittent problem and every
00:41:45.680 | now and then when the car is sitting out there at night, the lights start turning on because
00:41:51.480 | it was sat through Hurricane Harvey.
00:41:56.480 | The problem for Sarah is that buying process is going to take a while.
00:42:00.840 | But if she has time and she has money, that can go fine and she can look.
00:42:06.360 | Now as she's looking, she should be understanding the prices.
00:42:11.080 | Looking is cheap.
00:42:12.080 | Calling people is cheap.
00:42:13.360 | Interacting with Facebook Messenger is cheap.
00:42:16.320 | Finding out what's going on with this.
00:42:18.560 | Now Sarah, what you should do is of course check the marketplace.
00:42:22.400 | When you've narrowed down on a type of vehicle that you're looking for, a range that you're
00:42:26.100 | looking for, you start looking at ads.
00:42:28.640 | Look everywhere.
00:42:29.640 | Look on Craigslist.
00:42:30.640 | Look in the classifieds.
00:42:31.640 | Look at autotrader.com.
00:42:32.640 | Look on OfferUp.
00:42:33.640 | Look on Facebook.
00:42:35.000 | Run the Kelley Blue Book, kbb.com.
00:42:37.600 | Run the Edmunds values.
00:42:39.240 | Try to get an idea of what this thing is worth and start to understand, okay, Toyota minivans
00:42:44.560 | of this certain age, these many miles, they go for about this much money.
00:42:49.040 | When you do that, it'll give you confidence.
00:42:51.920 | Your goal is to develop confidence about the market so that when you see the vehicle that
00:42:56.640 | you think is right for you and when you strike the vehicle that's right for you, you can
00:43:00.160 | move fast because as a buyer, you want to put as many helpful things in your pocket
00:43:06.400 | as possible.
00:43:07.400 | When you're negotiating, price is only one point of negotiation.
00:43:11.640 | If you're willing to move fast, that can be an additional point of negotiation.
00:43:16.040 | If you show up at Ben's door, Ben's selling his minivan that his family has outgrown and
00:43:20.800 | you've got cash on you, you may be able to say to Ben, "Listen, I know you've got this
00:43:25.360 | thing listed for $4,500.
00:43:29.200 | You probably could get that if you keep it on the market, but I'd really like to buy
00:43:32.560 | it right away and I've got with me $3,800.
00:43:37.220 | Would you be willing to take $3,800 in exchange for selling it quickly?"
00:43:42.640 | You don't know Ben's circumstances.
00:43:44.400 | He might say, "No, Sarah, I'm in no hurry.
00:43:46.280 | I'm going to wait for my $4,500."
00:43:48.880 | Or he might say, "Yeah, I'll take the $3,800."
00:43:52.440 | But Sarah, you should be prepared for that.
00:43:55.180 | You should be prepared.
00:43:56.180 | You should have studied the market.
00:43:57.180 | You should know this is a deal.
00:43:58.940 | And if this is a deal at $4,500, it's fairly priced for a good vehicle, you may be willing
00:44:04.120 | to pay it.
00:44:05.960 | Or you might say, "No, it's just not worth $4,500.
00:44:08.680 | It's worth $3,800."
00:44:10.760 | Do your shopping in advance digitally because once you start actually going and looking
00:44:17.500 | in person at a vehicle, that starts to incur time and expense.
00:44:22.420 | The expense of time, the expense of going to see something, and then the expense of
00:44:28.000 | getting it inspected, which would be my next point.
00:44:34.700 | When you're looking at a vehicle, it's important just to look at it.
00:44:38.020 | And most of the time, if you'll just simply look at it, you'll be able to see, is this
00:44:42.440 | thing cared for or is it not?
00:44:44.840 | Check for all the little things.
00:44:46.060 | Go online, look for some checklists of how to investigate a vehicle.
00:44:51.240 | But just look to see, is this thing cared for?
00:44:54.360 | Look to see if the story rings true.
00:44:57.200 | If Ben has children, look in the inside and say, "Is this thing beat up appropriately
00:45:01.640 | for children?"
00:45:03.680 | Just use your nose and sniff around and say, "Does this work out?"
00:45:08.420 | You have an intuition.
00:45:09.760 | You have an ability to judge somebody's story.
00:45:12.560 | What I frequently will do in this situation is I'll just ask the questions multiple times.
00:45:17.080 | And listen, ask one question, tell me what's the background of the vehicle, what's the
00:45:20.720 | story.
00:45:21.720 | And then when you start to hear those details, start to question again the details.
00:45:26.280 | Question if there are multiple sellers involved.
00:45:29.000 | Question each of them separately.
00:45:30.600 | See if they are telling the same story.
00:45:33.380 | Ask a little bit more details.
00:45:35.060 | For example, a pickup truck that I purchased was being sold because there had been a death
00:45:39.820 | in the family.
00:45:41.020 | So I asked the story from a couple people that were involved in the transaction.
00:45:45.000 | And then after the story was found out, I changed a couple of details.
00:45:48.360 | And so you said such and such happened?
00:45:49.840 | No, no, no, that was wrong.
00:45:51.480 | And check to see if the story changes.
00:45:53.560 | Most people aren't going to be able to keep those facts straight.
00:45:57.040 | So if you could just listen to somebody and think, use that intuition that you have to
00:46:00.840 | try to get a sense of if somebody is being honest.
00:46:04.840 | Many people, probably most, are simply going to be honest when they're selling a car.
00:46:10.560 | And especially if you're buying at private party where you're talking to the owner, they're
00:46:14.440 | just going to tell you here's what's going on with it.
00:46:18.740 | But you do want to get it inspected.
00:46:20.320 | The way to do that is make sure that you're confident that this is a car that you want
00:46:24.620 | to buy.
00:46:26.140 | Go ahead and talk to the owner and try to strike the deal.
00:46:30.240 | So let's say that Ben is selling it for $4,500.
00:46:32.920 | You say, Ben, listen, I'd like to buy the car.
00:46:36.640 | I know that you could probably get $4,500 if you keep it on the market.
00:46:40.280 | But if you'd like to sell it today, I know this is really what I'd like to have.
00:46:43.520 | Would you be willing to sell it today for $4,000 cash?
00:46:47.520 | And when you're dealing in this market, you should be dealing with cash, $20 bills, $100
00:46:52.360 | bills, et cetera.
00:46:53.520 | Cash speaks.
00:46:54.520 | Now, I've never found that actually splaying out the cash necessarily makes that big of
00:46:59.120 | a difference, kind of the dramatic thing of let's put these bills here.
00:47:02.120 | Maybe some people with more flair than I have can make that work.
00:47:04.880 | I've tried but it hasn't really worked for me.
00:47:07.920 | But dealing with cash means that the transaction is simple.
00:47:10.480 | Once you buy the car, it's going to be simple.
00:47:12.520 | It's going to be owned.
00:47:13.960 | If Ben says, yeah, I'd be willing to take $4,000 if you take it today, then you say,
00:47:18.240 | OK.
00:47:19.240 | But my only thing is I need to get it inspected.
00:47:22.040 | I've always been able to have it when I've done it and I've made the mistake enough to
00:47:25.880 | know I'm not good enough of a mechanic to not get the vehicle inspected.
00:47:29.960 | I would make the deal and depending on the vehicle, depending on where it is, if you're
00:47:33.600 | out in the country, it's one thing.
00:47:35.360 | But get it arranged to get it inspected.
00:47:37.560 | Usually, you can find and arrange an inspection by somebody close by.
00:47:42.000 | One time I bought a vehicle in Atlanta.
00:47:44.080 | I just simply looked around and I found somebody nearby and I made the deal.
00:47:47.480 | I'm going to take it to a local shop.
00:47:49.760 | It's better for you to spend $150 at some local shop just to get it inspected than to
00:47:56.520 | get it a little bit cheaper and not have it inspected.
00:47:59.280 | It'll be worth it to know if there are any problems.
00:48:01.800 | And it's especially worth it in advance.
00:48:04.680 | Even if you got to do something close, it's not your normal mechanic, it's worth it to
00:48:07.800 | get it done in advance.
00:48:10.640 | Sometimes you could hire a mobile mechanic or ask your mechanic to come with you.
00:48:14.400 | But I would get it inspected by a mechanic.
00:48:17.520 | If you have a friend who is knowledgeable and experienced and works on cars, that may
00:48:21.940 | be a good person to have come with you.
00:48:24.640 | And there are people who would be far more thorough than a mechanic and far more effective.
00:48:28.920 | If you don't have that, at least take it for an inspection.
00:48:31.640 | It'll be well worth your time and your money.
00:48:34.880 | Usually the buyer will expect that.
00:48:36.720 | You may leave another car with them, leave some keys.
00:48:39.800 | You may need to put up collateral.
00:48:41.620 | What I have done at times is said, "Our deal is for $4,000.
00:48:46.520 | Here's the deal.
00:48:47.520 | I'll give you $100 deposit that's nonrefundable to show you how serious I am and $1,000 refundable
00:48:54.240 | deposit with you while I take the car to get it inspected.
00:48:57.120 | You keep the title, of course.
00:48:58.200 | I'll take the car."
00:48:59.740 | So that person has $1,100 of my money.
00:49:01.640 | If I take it to the mechanic and I come back and it's in great shape, then I'll go ahead
00:49:05.560 | and pay the balance.
00:49:07.160 | If I don't want the car, then they'll give me my $1,000 back.
00:49:10.200 | I'll give them the car and they'll keep my $100 deposit.
00:49:13.720 | You don't even always have to do the nonrefundable deposit.
00:49:16.440 | But those are the types of things that I would have ready and planned of how to do it.
00:49:21.820 | So take it to a mechanic.
00:49:23.600 | Get it inspected before you do the deal.
00:49:26.360 | Depending on what you find from the mechanic, you may do the deal under the original terms
00:49:30.600 | or you may need to renegotiate the deal.
00:49:33.640 | Most people who are selling a used car don't know that much about its actual condition.
00:49:38.800 | They may have fixed the things, but yeah, there's the sound from the right rear tire,
00:49:42.580 | but they don't know why that's there.
00:49:44.680 | And so find out from the mechanic.
00:49:46.060 | Get an itemized list of what's wrong with it.
00:49:49.400 | And then you've got to approach this reasonably.
00:49:51.800 | Here's where your market research is so important.
00:49:54.520 | Sometimes you'll find a substantial problem with a vehicle and you're well within your
00:49:59.800 | prerogative to use that as a negotiation point.
00:50:04.040 | Listen, we've got our deal here for five grand, but man, this thing needs $2,000 worth of
00:50:10.600 | expenses.
00:50:11.600 | I don't know if you knew this about it, but I'm just not willing to do that.
00:50:14.200 | Will you take $3,500 for it?
00:50:16.720 | The seller might take that or they might not.
00:50:20.320 | Be prepared to walk away if the list is long.
00:50:23.280 | Far cheaper for you to lose a $100 deposit and an afternoon going to look at a car and
00:50:28.880 | taking it to a mechanic than to buy something that's going to result in hundreds or thousands
00:50:33.280 | of dollars of repair bills later.
00:50:37.440 | Don't worry about losing the $100.
00:50:40.040 | Don't buy something that's a bad deal.
00:50:41.720 | But frequently you'll find, "Hey, this thing checks out."
00:50:44.620 | You may negotiate another couple hundred dollars off and you buy the vehicle.
00:50:49.160 | The process of buying a vehicle is very, very simple.
00:50:53.140 | Basically all you need is the title.
00:50:56.160 | Now technically most people would advise that you also get a bill of sale and that's a good
00:51:00.880 | idea.
00:51:02.180 | But really all you need is the title.
00:51:06.240 | There's a phrase in legal circles that possession is nine-tenths of the law.
00:51:09.280 | If you're going to leave with a vehicle, keys, and a title, you pretty much got what you
00:51:14.120 | need.
00:51:15.120 | The wrinkle might be if you're buying a vehicle that has been financed.
00:51:19.880 | If the vehicle has been financed, it's owned by the bank, the seller is not going to be
00:51:23.920 | able to give you the title.
00:51:26.400 | That might be good for you when you're buying something that's newer.
00:51:31.060 | You will find that a seller who – sometimes you'll find someone who's trying to sell
00:51:36.200 | a car.
00:51:37.200 | They owe money on it.
00:51:38.200 | They just want to get out of the debt.
00:51:39.560 | In that case, then what you'll do is you'll sign a bill of sale between you and the buyer.
00:51:45.120 | Go online.
00:51:46.120 | You can type it up yourself.
00:51:47.120 | You can write it up on a legal pad, whatever.
00:51:49.220 | Just write up a bill of sale.
00:51:50.560 | You'll give them the money and then you'll arrange with the bank and the bank will send
00:51:54.920 | you the title.
00:51:56.400 | Just do a web search and you'll find that.
00:51:58.120 | It's very simple.
00:51:59.120 | I do like to buy cars that are a little bit older.
00:52:01.680 | I think that there is a sweet spot in the market.
00:52:04.760 | Depending on the model, there's a sweet spot in the market when you start to get to
00:52:08.120 | a 10-year-old car because cars that are older than 10 years old are not really able to be
00:52:15.760 | financed, at least not in conventional financing.
00:52:18.440 | For someone like you, Sarah, if it's 2018, if you go and you look, a vehicle that's 2008
00:52:24.840 | is a very – or older – or newer, is a very serviceable vehicle, but it's not financeable.
00:52:32.500 | But usually in that space, you'll have – that car will be paid off.
00:52:37.680 | There's nobody that's doing 10-year loans on cars.
00:52:41.460 | That's a sweet spot.
00:52:42.460 | Usually if you're shopping in that range, you're not going to have to come up with
00:52:45.860 | a big – the person will have the title.
00:52:49.140 | You need the title issued from the state, the vehicle and the keys, and then you just
00:52:54.100 | give them the money.
00:52:56.180 | In this situation, I think cash is the best.
00:52:59.220 | When you're dealing at the lower end of the market here and I'm talking cars of
00:53:01.980 | $2,000 to $6,000, $8,000, something like that, $10,000 perhaps, cash is the best.
00:53:08.740 | As a seller, I would not accept a cashier's check or checks for vehicles in that range.
00:53:14.740 | I want cash.
00:53:16.220 | Just even with a cashier's check, it's a very good thing, but it's still – I
00:53:20.980 | was burned one time on doing that.
00:53:23.740 | So I would only deal in cash.
00:53:26.580 | So cash is just simple.
00:53:27.580 | It's clean.
00:53:28.580 | You can do the transaction and you're done.
00:53:30.540 | You need to walk away with the title and the car and a bill of sale is fine.
00:53:35.380 | Drive it home.
00:53:37.900 | Take it down.
00:53:38.900 | Get it tagged.
00:53:39.900 | Get your own title and you got your vehicle.
00:53:43.380 | It's really pretty simple.
00:53:44.620 | I can't think of any more practical information than I have given you.
00:53:48.980 | So Sarah, if you were my sister, I would say take the money that you have, keep it low,
00:53:56.860 | buy either a Toyota Prius, a Toyota Camry or a Toyota Sienna minivan.
00:54:02.740 | You can buy them for – get – look in that 8 to 12-year-old range, somewhere between
00:54:08.740 | 80,000 to 120,000 miles.
00:54:11.580 | Even more is fine.
00:54:13.820 | Here's one comment for you on miles.
00:54:17.060 | Miles make a huge difference in the market price of the car.
00:54:22.300 | I have access through – I have had access to the auction systems and the dealer auction
00:54:30.620 | systems and I went through and did an analysis one time on the actual market price and for
00:54:35.940 | dealers, miles make a huge, huge difference in the cost of the car.
00:54:42.540 | So if you can go with higher miles, it makes a big, big difference.
00:54:46.380 | But as a car owner, I am not so concerned with miles.
00:54:52.700 | Each part of the car has different things that are going to have wear and problems.
00:54:58.220 | So certainly, a vehicle with a lot of miles is going to have functionally more wear than
00:55:04.860 | a vehicle with fewer miles.
00:55:07.620 | But it may not actually be a problem.
00:55:10.180 | I would rather buy a vehicle that's been used steadily and has 100,000 miles because
00:55:15.260 | the person had a 100-mile commute every day where every day it's been warmed up.
00:55:21.940 | It's driven long distances.
00:55:24.660 | So that burns off the water and the fuel.
00:55:27.060 | It keeps the vehicle in good running order.
00:55:28.700 | It's been – had regular maintenance.
00:55:30.100 | I'd rather buy that vehicle with more miles than one that sat around and the person has
00:55:35.140 | been in and out of town.
00:55:36.140 | They haven't used it regularly and who knows what's going on with it.
00:55:39.900 | It's one of those things where there's just not a strong argument one way or the
00:55:43.980 | other.
00:55:44.980 | The other thing I would say is that how many miles are you going to put on it?
00:55:47.460 | If you're not going to put so many on it, you can buy a minivan or a Camry or something
00:55:51.660 | with 120,000 miles and it's got another effective lifespan of 180,000 miles.
00:55:57.460 | You'll never go through that period of time.
00:56:01.620 | With vehicles, some things will need to be fixed and replaced based upon the years of
00:56:06.700 | ownership.
00:56:07.860 | Some things will need to be fixed and replaced based upon mileage.
00:56:11.060 | You'll need a new battery based upon the age of the battery.
00:56:15.140 | The miles are not such a big deal.
00:56:16.580 | It's the age of the battery.
00:56:18.540 | And so having a vehicle with more miles, that's not a problem.
00:56:22.820 | You're going to need to replace your brakes based upon the miles, not based upon the age.
00:56:28.100 | But maybe those brakes were just recently replaced.
00:56:30.840 | With tires, there's a component of age and miles.
00:56:33.900 | But in general, most of the stuff, as long as you buy a car that's relatively inexpensive
00:56:38.540 | and you're prudent, you don't have payments.
00:56:42.740 | I've really never gotten burned.
00:56:45.020 | The only vehicle I've ever gotten burned on is the one that I replied previously with
00:56:50.580 | where I talked about the mistakes.
00:56:52.620 | And that was a unique situation, not a normal situation like this.
00:56:55.900 | And it was my fault.
00:56:58.020 | I forgot the last piece of advice, Sarah, that I need to give to you is calculate your
00:57:01.740 | ownership costs and run things like insurance.
00:57:04.340 | So you should get insurance quotes on the things that you are considering buying.
00:57:09.500 | And you should consider what those insurance quotes will be.
00:57:12.680 | What I have learned with insurance is sometimes the vehicle choice is more important than
00:57:18.260 | the value of it.
00:57:20.500 | With a car insurance company, the value of the vehicle is a known quantity.
00:57:26.800 | If the vehicle is totaled, then they know how much that's going to be worth.
00:57:33.860 | But the liability payments are the lesser known quantity.
00:57:39.220 | And so sometimes you could have much cheaper insurance for a vehicle that is more modern,
00:57:44.460 | newer, has the modern safety equipment than for a vehicle that is older and doesn't have
00:57:50.100 | a lot of safety equipment.
00:57:51.940 | My '98 Toyota Corolla that I owned for a while, that I bought for $500, had what I
00:57:57.860 | consider to be very expensive insurance.
00:58:00.660 | I only kept liability coverage on it, the legally mandated liability coverage.
00:58:05.120 | But because it didn't have modern airbags, it had analog brakes, but it didn't have a
00:58:10.060 | lot of the modern stuff, I think statistically it's not a very safe car to drive.
00:58:15.340 | And so it would result in potentially higher medical liability for the insurance company.
00:58:19.780 | If we compare that to some of the minivans that I have owned, the minivans were very
00:58:24.780 | inexpensive to insure.
00:58:27.100 | I bought a – a number of years ago I bought a 2007 Hyundai Entourage minivan.
00:58:32.860 | It was very inexpensive to insure because it had five-star crash ratings all around
00:58:37.500 | minivans – all around airbags, et cetera.
00:58:41.980 | Number of years ago I bought a 2004 Toyota Sienna minivan for $3,000.
00:58:45.460 | I think it was rock solid, works great, still drive it.
00:58:49.420 | But it had great, great crash ratings.
00:58:51.140 | So the insurance costs are very low.
00:58:54.100 | So calculate those costs in advance.
00:58:57.040 | And if you're thinking about buying something, make sure that you know what those costs are.
00:59:01.980 | Now back to Ben's question as we finish.
00:59:05.180 | Ben is considering replacing his car and keep going like they are without robbing any other
00:59:10.680 | categories of their budget, not buying – not paying debt, or going ahead and buying a Toyota
00:59:16.860 | or Hyundai minivan for cash for his wife to drive and then for him going ahead and taking
00:59:21.660 | over the Hyundai Tucson until it dies.
00:59:25.700 | So Ben, in short, I would say if I were in your shoes, I would go ahead and purchase
00:59:31.700 | the minivan.
00:59:33.540 | When you're in a situation like that where your car is totaled – this happened to my
00:59:36.980 | wife and to me a number of years ago.
00:59:40.820 | We had at the time a Ford Escape and a Ford Expedition.
00:59:44.540 | We had a Ford Escape and a Ford Expedition.
00:59:47.420 | And when you are in a situation where you have ownership of vehicles, generally doing
00:59:54.340 | nothing is the best financial course.
00:59:57.180 | Usually just staying with what you have is the best.
00:59:59.880 | You own these vehicles, just keep them.
01:00:02.820 | So don't make any changes.
01:00:05.380 | But when you have an accident and we had an accident – I had an accident.
01:00:10.580 | We were together but I had an accident.
01:00:12.500 | We were in the Ford Escape.
01:00:14.300 | We wound up being totaled by the insurance company.
01:00:16.820 | Now you need to make a whole new decision and that's what you're doing.
01:00:21.160 | So now you wipe everything away.
01:00:23.780 | You start with a blank slate and you say, "Now, looking forward over the coming years,
01:00:28.320 | what is going to meet the needs of our family in the best way possible?"
01:00:32.580 | What we did at that time was buy a minivan.
01:00:34.740 | I had already known that I planned to buy a minivan.
01:00:36.540 | There was no reason for me to sell the vehicles that were working great and buy a minivan.
01:00:40.780 | We bought a minivan.
01:00:41.780 | It was a great decision.
01:00:43.140 | For all the reasons that I have exhaustively discussed.
01:00:47.480 | But what I would do if I were in your shoes, I would buy a minivan.
01:00:50.700 | I would try to – I would not invade my emergency fund unless I found a screaming deal after
01:00:56.900 | I analyzed the market and I would not take out debt.
01:01:00.640 | So I would use the insurance payment.
01:01:02.460 | I would seriously consider using other funds but I would try to buy something that is going
01:01:09.320 | to last for the longest period possible and to be new and in good condition but not particularly
01:01:15.540 | fancy.
01:01:16.540 | With young children, I hate having fancy stuff.
01:01:19.180 | I would much rather have an older vehicle that I'm not worried about, that we can go
01:01:23.620 | to the beach, we can go to the park, we can put the – they're going to get it dirty.
01:01:27.420 | So why buy a new vehicle that's just going to beat up, be beat up?
01:01:30.940 | So with anywhere from $6,200 to $6,000 to $10,000, man, you can buy a great car in that
01:01:38.240 | range.
01:01:39.240 | Thank you for listening to today's show, you radical you.
01:01:44.600 | Before you go, I have one question for you.
01:01:47.080 | Was there an idea in today's show that helped you?
01:01:50.000 | Were you inspired?
01:01:51.000 | Were you motivated?
01:01:52.000 | Did you get an idea on how you can earn more or spend less money or invest more wisely
01:01:56.920 | or perhaps protect yourself from catastrophe and insulate yourself from financial disaster
01:02:02.520 | or just improve your life and your lifestyle?
01:02:04.520 | Well, if so, I have three requests for you.
01:02:07.640 | Number one, take action.
01:02:10.840 | Listening doesn't improve your life.
01:02:12.840 | Doing, however, can revolutionize your life.
01:02:16.720 | Number two, take the idea or concept that you learned from me and go and teach somebody
01:02:22.480 | else.
01:02:23.680 | If you want to really learn something, go and teach it to others.
01:02:27.340 | That ripple effect of you to someone else will systematically transform your life and
01:02:32.760 | the lives of all those around you.
01:02:35.000 | Number three, if you thought there was financial value in what you just heard, I'd ask you
01:02:39.700 | to come by and pay for it at radicalpersonalfinance.com/patron.
01:02:43.740 | Now however much you want to pay, that's up to you.
01:02:46.180 | But if the show is worth a dollar a month, come by radicalpersonalfinance.com/patron
01:02:50.160 | and sign up to support the show at a dollar a month.
01:02:52.480 | If the show is worth $20 a month to you, I'd be happy to have your $20.
01:02:56.400 | Hey, if it's $1,000 a month, write me a check.
01:03:00.040 | Don't send it to me on Patreon, but I'd be happy to have that as well.
01:03:04.280 | radicalpersonalfinance.com/patron is where you can do that.
01:03:07.160 | Thank you.
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01:03:38.080 | [MUSIC PLAYING]