It’s Called “Personal” Finance for a Reason

Personal Finance is one of those things that’s different for just about everyone.  Sure, some parts can be strikingly similar like saving money and spending less than you earn, but for the most part, it’s a different beast for every person or family.  One family may not value things that their friends do, and it will reflect in their spending habits and money management.  I’ve been thinking a lot lately about one thing that I did that flew in the face of all the personal finance advice that I have read and seen, and I’d like to go into depth more about why it has worked out well for me.

The decision to buy a car will confront all of us at some point, and if you’re in your 20s like me, it’s probably the most expensive thing that you will buy until you buy a house (excluding that education that we took out loans for).  Due to this, there is TONS of advice out there for people who are looking to buy a car, related to how much they should spend, what capabilities they need and whatnot.  Most of it is great advice for 95% of the population, and if you follow it, you’ll end up just fine.  The biggest spokesperson for some of this advice is a  titan of personal finance, a person who (some believe) stands below, but quite close to the big man (or woman) upstairs: Dave Ramsey.

Dave has a lot to say about cars, and for good reason.  During the time when Dave was losing all his money, there was 1 thing he felt like he absolutely had to keep, and it wasnt his home.  It was his Jaguar.  To keep up appearances that people had expected of him, he felt he NEEDED to have the jag, even though it was a huge money pit for him.  Dave learned a valuable lesson as the car was (I think) repossessed some time later.  Dave is now completely against the buying of a new car for anyone at any time (unless they can pay cash, I’d assume).  This is because most vehicles typically lose a large percent of their value after you take it home from the dealer (its around 30% I believe).  This, coupled with the american habit of wanting a new car every few years means that you’re borrowing to pay for something that will lose much of it’s value right away and will stay at that lower value until the typical consumer trades it in for a new one, and the process starts over.  Dave calls this a “Stupid Tax” , meaning that you only pay the tax if  you’re stupid.  For 95% of the population, I think Dave is completely right.  If they took this advice, they would probably be much better off buying a car that is a year or 2 old.

My issue with this is that it’s a blanket statement, and many of you who make blanket statements know that they are most likely going to be eaten at some point.  If you say X always leads to Y, you are begging for someone to prove you wrong.  In my case, Dave’s advice wasn’t the most applicable in my situation, and I feel like he left out a few of those things that were present in my situation that are not present in everyone’s situation, and I’ll list them below with a bit of explanation.

  1. Dave Says that you should buy a used car because you’re going to trade it in a few years down the road.  What I’m assuming he means by this is that you’re not going to ” drive it until the wheels fall off ” and the car absolutely wont go another mile.  Who could blame you, anyway?  You could end up driving around a 25 year old car.  I was taught that you bought a new car if you could afford one, and you drove it for 15 years or more. My parents have done this for as long as I can remember, and I picked it up from them.  If you buy and hold a new car, a new car isnt a bad purchase, it’s just a purchase like any other.  You’ll lose a lot of value in the beginning (but it’s only paper value), but if you plan on rolling in the car until you’ve got to take it to the scrap pile yourself, who cares if it loses some value 30 minutes after you bought it?
  2. It’s also common knowledge that your car will depreciate after you drive it off the lot, and you’ll be upside down (owe more than  you can sell the car for) for the next year or so.  This is true for most cars but not for trucks.  Trucks are (no-no-)notorious for holding their value years down the road.  When I was test driving vehicles, I test drove a truck that was 3 model years old (it was a 2007) that was fairly nice with some extras, but nothing terribly fancy.  They were trying to sell it for about 3500 less than what they wanted for that same truck that was brand new.  Curious to see how my truck was holding it’s value, I checked it on kbb.com recently.  I don’t recall my exact sales price (but it was less than $25,000) but the value of my truck currently is $22,000 and the total cost of my loan was somewhere in the mid to high 23’s.  As it sits right now, If I sold the truck, I could make approximately 3500 on it, because I’ve been paying a small bit extra each month, and because the value didn’t tank when I drove it home.
  3. My future.  I went to the readers of Debt Free Adventure and got advice similar to what I’ve listed above.  It was all great advice, it just did not take into account one of the most important things about money: My (or your) personal future goals.  In the future, I would like to do a few things, most of which involve needing a truck or at the very least, something with high ground clearance and 4 wheel drive.  Where I live, 4 wheel drive is also almost a requirement due to adverse weather.  Along with possibly using this truck for a business that I’d like to create, I’d also like to purchase some land and work it.  I’m thinking of raising some sort of animals or growing alfalfa, but I have not really decided.  This is something I really want with my life and I know it’s in the future, so I figured why not get a truck, drive it around nice and new for a while, then when I purchased land and started a business, turn it into a work truck.  Whenever I see one of those really old beat up trucks on the road, I tell myself that soon my truck will be beat up and super awesome like the one I’m looking at.

The way that I see it, I made a pretty good decision and was able to balance my needs and wants and fly in the face of some sound financial principles.  Even though this is still debt and I still don’t like it, It sure beats waking up in the middle of the night wondering if my car will start so that I can get to work later that morning.

So readers, do you think I’m in an alright spot considering I broke a cardnial rule of Personal Finance?

If you were in a similar situation where you were going against most of the PF literature that you have read, would you be able to go through with it?  Admittedly, mine was easier because ‘normal’ people buy new cars, and typically people who buy used ones get looked at like they’ve got 3 heads.  But the question remains, Could you still go it alone?