Category Archives for Buying With Impact

Are You Frothing At the Mouth To Get Out Of Debt?

Are you frothing at the mouth to get out of debt? If so, your coffee habit maybe the way to kickstart your savings plan. Coffee is the thing many people crave first thing in the morning to get their day started off on the right foot. Here’s the thing. Coffee isn’t only desirable in the morning. People gotta get their java throughout the day, into the evening, and even at night. It is the largest traded commodity behind crude oil. Americans spend in excess of  $12 billion on coffee sales annually.

If the best things come in the form of morning cup of coffee, and your day is maladjusted until you’ve had at least one cup, you are not alone.

What is your coffee experience? Does it include Sanka, Folgers, drip coffee, or something else? Coffee is a big deal, and so many people leave home to tantalize their tongue with a gourmet experience they don’t know they can achieve right in their own kitchens. In the US people rush from home to stop by any of the big three: Starbucks, Dunkin’, or McCafe. They yearn for the perfectly roasted beans at the right color, the right flavor, and the “just so,” taste on the tongue that they pay [too much] for. It’s the gourmet experience they pay for, but they miss the relaxation of the “at home” experience.

Gourmet coffee is a “thing”. Dunkin Donuts and Starbucks are spending millions to keep up with the growing trend.

Chris Fuqua, Dunkin’s Senior Vice President of Brand Marketing said:

“Coffee culture in the country is getting a little bit more sophisticated by the day,”

… And…

“Customers really understand what craft coffee beverages are.”

Dunkin’ recently released its cold brew and Starbucks introduced its Nitro Cold Brew. Home made, home brewed drinks are coming to the home front for a pleasurable experience, and we’re not talking about beer. “Forward thinking coffee drinkers”, (yes, that is becoming a term), meet home beer brewers, for a new “Paradise By the Dashboard Lights”, experience, (Hello, Meatloaf), that is not legal anywhere but at home.  

Both companies see gourmet coffee as a key part of its future success.

Gourmet coffee is also present in the healthy forum. The buttered coffee trend, combined with mycotoxin-free beans, grass fed butter, and MCT oil, pioneered by Bulletproof CEO Dave Asprey is catching on. Bulletproof recently celebrated its cutting edge healthy brew by opening a standalone brick-and-mortar opening in Santa Monica, CA. If you like ghee, or grass fed butter you can enjoy Kerrygold at $2.79 per 8 oz. at a variety of stores. Upper end could cost $3.99. If you can’t mistake the Bulletproof quality for lesser ingredients, then keep on keepin’ on. The benefits are there. But, if you are okay with arabica beans, which are resistant to mycotoxins, and okay with shopping your own ingredients online (Hello, Amazon), then enjoy the same experience and rivalrous quality, at a much lesser price.

Cost Beans MCT oil Coconut oil 100 % Ghee Total:
Bulletproof $1.29 $0.53 $0.25 $0.81 $2.88
Generic Ingredients $0.95 $0.27 $0.25 $0.19-$0.53 $1.66-$1.99

But, gourmet coffee comes at a high price. Bulletproof is at the high end, at a retail price of $4.25 for a small cup, before add-ins at the Santa Monica brick-and-mortar shop.  I agree with its benefits, and there’s no way I am willing to pay that price for a retail cup, or for its components, no matter how good it is for me. For the rest of this article I am following the Starbucks pricing menu as a median gourmet pricing structure.

Have you analyzed what gourmet coffee is costing you? The chart below may help.

Price of various of gourmet coffees

At-Home Gourmet Starbucks Keurig
Beans Specialty Milk Beans + Milk Cappuccino Iced Coffee Caffe Latte K cup pod
Price $0.19 per 2 oz $0.12 per 2.5 oz $0.31 $3.65 $2.65 $3.65 $0.80
30 day total $5.70 $3.60 $9.30 $109.50 $79.50 $109.50 $24.00

Assumptions: Starbucks, grande size (16 oz.), used unless otherwise noted.

Regular milk is at least half the price of specialty milk.

I’m a bit of a coffee snob. That means I love the coffee experience. It’s a relaxing event for me, to slow down and sip from that cup. I analyze everything from the beans, to the milk, to the sugar. It all matters because it all makes a difference in the experience.  If you are a coffee snob too you may enjoy lactose free milk options like almond, or soy. I enjoy almond milk in my morning brew. There are plenty of sugar options too: honey, agave, coconut sugar, raw cane sugar, stevia, or the good old-fashioned white sugar. If you prefer other options please comment and share your pleasure of add-ins (the above includes regular white sugar, which is so cheap, and I use less than 1/2 teaspoon, I didn’t include a cost for it).

We’re trying to get out of debt here. So, let’s explore how to create additional cash flow while working a plan to save money. It won’t happen by buying a commercial grade espresso machine and opening a coffee shop, at least not without creating a lot of debt first. If your goal is a commercial-type coffee experience without the retail price, then this is where we come full circle. You can have the same quality at home, for a fraction of the price, while saving the retail at-the-counter cost and reinvesting the difference to better your financial freedom. Keeping your choice add-ins at home and buying a couple of startup items could help you put less money into your brew, and brew your saving plan to be debt free.

Startup cost

Start up equipment Cost
Moka Pot $27.01
Nespresso Frother $82.93
Total $109.94
Moka pot

Moka pot

Nespresso milk frother

Nespresso milk frother

Follow those links to order yours on Amazon. Okay, that’s a month worth of cappuccino, but if you are stopping at Starbucks for your morning fix, then you are spending that every month. I have both of those products at home because my spouse and I both enjoy cappuccino, and we aren’t willing to pay the Starbucks price.

If you are married, and both coffee lovers, you spend nearly $220, $1,200 annually, on cappuccino at Starbucks each month–and that’s if you only have one cup. The average American drinks 3 to 5 cups each day, so hopefully you are supplementing this habit somewhere other than Starbucks. Look at the results:

Cost per cup/Savings to pay down debt

1 cup 2 cups 3 cups 4 cups 5 cups more
Starbucks – Cost per cup $3.65 $7.30 $10.95 $14.60 $18.25 $@!%$
30 day total cost $109.50 $219.00 $328.50 $438.00 $547.50 Are you for real?
Cost of beans + milk $0.31 $0.62 $0.93 $1.24 $1.55 $1.86 +
30 day cost $9.30 $18.60 $27.90 $37.20 $46.50 $55.80 +
30 day savings $100.20 $200.40 $300.60 $400.80 $501.00 You’re intensely saving!!!

If you only buy 1 cup per day you are instantly saving $100 each month. If you have a spouse, or buy 2 or more cups of coffee at Starbucks a day, then you can’t afford not to make this initial investment. You’re on the road to saving $200 each month, $2,400 annually, by investing a little time at home and investing your savings in getting out of debt. When the best cappuccino is available at home–why go anywhere else?

Okay, you love coffee, but you’re short on time in the morning. I get it. Mornings are hectic, especially if you have a family and the unpredictability of kids thrown into the mix. What if I told you that in the 8 minutes you spent in the Starbucks drive through, you could have your very own gourmet experience at home? That’s all it takes–8 minutes–the amount of time it takes to boil water.

I grind the beans the night before, premeasure them, and put them in a plastic container, in the freezer. While I am locking down the house at night I fill the moka pot to the water line and have it waiting for morning. When preparing breakfast for the family, or finishing packing lunches I am also brewing the most delectable part of my day. By the time I hear the espresso brewing I turn off the burner and hit the button on the milk frother so that they are ready at the same time. I love the sip more than I can put into words, so while the kids eat breakfast I am sipping on the paradise dream of gourmet coffee that affords me the possibility to get through the day. If you are a coffee connoisseur you understand the dream, and how the experience sets your day into perfect motion.

If you consume serious amounts of coffee, it may take sacrifice in the first month to curb your habit long enough to cash flow the startup equipment. Make the initial investment so that you can save passionately. You might also be saving time by enjoying a shorter work commute, and fuel costs by not idling in the Starbucks drive through that not accounted for here.

Homemade gourmet cappuccino

Homemade gourmet cappuccino

If this is all too snobby for your coffee preference then you aren’t alone. At more than $12 billion annually this business isn’t going away anytime soon, but its trends could be changing again right before our eyes. Can you really taste the gourmet difference? A recent taste test stumped Today show hosts Al Roker, Matt Lauer, and Savannah Gutherie. They preferred the cheap stuff over gourmet. If your tastes are similar to theirs then the expensive stuff tastes “bitter”, and when a higher cost is indicative of a higher quality the bitterness left a bad taste in their mouths. If $1 or so a cup delights your taste buds, then you may opt to stay our of Starbucks and enjoy greater saving potential than is presented here.

If you have a simple life hack for your budget that has resulted in big get out of debt savings, please comment below and share your hack with the community. We’d like to celebrate your success.

Related articles: A healthier coffee

What Does “Afford” Mean, Anyway?

The word “afford” is one that gets tossed around a lot – especially among those considering a large purchase.

I wonder, though: How many of us have stopped to think about what the word afford actually means?

The dictionary defines it this way:

af·ford əˈfôrd/ verb

  1. have enough money to pay for. “the best that I could afford was a first-floor room”
  2. pay for, bear the expense of, have the money for, spare the price of. “I can’t afford a new car”
  3. have (a certain amount of something, especially money or time) available or to spare. “it was taking up more time than he could afford”
  4. be able to do something without risk of adverse consequences. “kings could afford to be wrathful”
  5. provide or supply (an opportunity or facility). “the rooftop terrace affords beautiful views”

Bankers have differing ways to determine the definition; however, the most commonly-accepted way is through the debt-to-income ratio. That is how much of your gross income is (or will be) used to service your debts. Generally speaking, banks look for a maximum DTI between 40 percent and 45 percent.

Depending on how much the purchaser wants the item, he or she may determine just how many meals get replaced with ramen noodles each week and for what period of time.

As you can see, afford is a word whose definition can be quite subjective.

But, wait! Banks use a ratio, and by definition, mathematical ratios are OBJECTIVE. Right?

Well, yes. And, no.

Yes. The mathematics behind the ratio are completely objective.

No. The motivation behind the ratio is rather subjective.

Here’s why:

You’ll notice, I said bankers use gross income for the calculation. Just to clarify, Gross Income is the amount you see on your annual review form from HR – it’s the number you get when you multiply your hourly pay rate by the theoretical number of hours you work each year. It’s the number you discuss when you’re hiring in for a new job.

As in, [Future Boss] Congratulations, Ashley! We loved your interviews and we would like to offer you the job at a salary $40,000 per year.

And, as those of us who have been working at least a year or two know – the only time you’re likely to see that number is on your annual HR form. Since we know you are regularly contributing to your employer-sponsored 401(k) [You are aren’t you?], the income amount on your W-2 at the end of the year will be lower – and you will not have access to any of that money without significant penalties.

Gross income also doesn’t take taxes into account – and you’ve gotta pay those.

Measuring your DTI based on your gross income does no favors to your monthly cash flow.

So, why do banks do it?

Simple, banks use your gross income as the basis for your DTI so they can make more loans. And making loans is how banks make money. So, instead of looking out for you – like many of us have at one time assumed – banks are only looking out for themselves.

Don’t believe me? Let’s look at the math – Objectively.

Let’s assume a maximum DTI of 40% of your Gross Annual Income of $40,000.

Gross Income $40,000
401(k) Contribution – 5% –  2,000
Income Taxes – 25% –  9,500
Net Income $28,500

After your 401(k) contribution and taxes, your $40,000 annual income drops by 28% to $28,500! That means, if you pushed your debt payments up to your bank’s maximum of 40% of your gross – or $16,000 per year – your debt would be 57% of your Net Income.

Mind you, for many people, deductions like insurance and benefits come out of that Net Income further reducing your take-home pay. So, in reality, you could see your debts taking up more than 60% of your take-home – that is, if you trust your bank. (Hint: Don’t trust your bank to look out for your best interests. That’s your job.)

So, before you ask your banker if he or she thinks you can “afford” that new car (or, worse yet, ask the F&I guy at the dealership), you first need to know what your definition of afford is.

Based on my experience, if you have to ask, the answer is “No. You can’t afford it.”

Start by understanding your finances. We can help.

SUM: The Step-Up Method for Buying Your Dream Car

Vehicles are expensive. And for most of us in the United States, they are not just convenience items, they are necessary parts of our lives that allow us to get to work, school, the grocery store, etc. Most of us live our lives, at least in part, out of the reach of mass transit systems, so we need our own, independent methods of transportation. Plus, what says freedom more than hitting the open road with the windows down and the radio up? Well, for most Americans, that is not as freeing as it could be.

According to a recent study by Experian, the average new car payment in America is $503 per month for 68 months. As anyone who has been in bondage to debt can attest, monthly payments are the furthest things from freedom.

We just said that cars are expensive. We just said that cars are necessary. Doesn’t the combination of those two things mean that car payments are just a fact of life?

Absolutely NOT!

You can have both the freedom to travel AND the freedom from car payments. That is, if you’re willing to put in a little work.

Our Step-Up Method (SUM) requires a little work,but it is well worth it to be one step closer to Financial Freedom.

Our SUM begins with you saving as much money as you can, depending on your transportation needs to buy that first debt-free vehicle. While you are saving, be looking for the type of vehicle you want to purchase. This will educate you on what to look for and what to look out for and what you can expect to get in your price range. When you’ve saved enough – or as much as you feasibly can – start looking for the best deal on a car in that price range. Work your best deal – probably with more than one seller on more than one vehicle – and buy that vehicle. Keep saving while using (and caring for) this vehicle.

This is important: Do not make any unnecessary upgrades or customizations. No stereo systems. No tinted windows. No custom wheels and/or tires. You don’t have the money for that. Any money you have will be set aside in your car fund for necessary repairs and maintenance and/or your next vehicle.

If this vehicle does not meet your longer-term needs, keep saving. As your savings builds, start the shopping process over, looking for your next step-up vehicle. When you’ve built up enough to get you to the next level of vehicle, put your vehicle up for sale and sell it for as much as you can get for it, put that money with what you have saved, and negotiate your best deal on your next step-up vehicle.

Repeat this process until you’re driving the vehicle that is the right one for you and your situation.

If you did your homework and you negotiated shrewdly (but fairly), odds are that by the time you’ve saved enough for your next step-up one (or both) of two things has happened. Either a) you’ve managed to save enough to move up in vehicle within a few months and your vehicle has not gone down much – if any – in value or b) you have taken longer to save but have gotten significant use out of your vehicle in the meantime, which has far exceeded any additional drop in value since your purchase.

In either case, you need to make sure you do your homework and work hard to protect the money you’ve put into this vehicle. It may take more time to get the best deal, but remember: You worked hard to save the money for this car, and you’ll have to work hard to keep your money.

Sure, CarMax makes it easy to sell them your vehicle. They will give you a written offer even! The problem is, they don’t want to buy your vehicle for any more than they can buy a similar vehicle for at an auction. Given a little bit of time and effort, there is no doubt you will be able to sell your vehicle yourself for more (probably $1,000’s more) than what a dealer will pay for it.

If there is one rule here – well not only here but in life in general – it is this:

Convenience costs money

Dealers make it convenient for you to sell them your car, because they know you don’t want to put up with the hassle of selling it yourself on Craigslist. They also make it convenient to come to their lots and shop hundreds of vehicles to buy your next one, because they know you don’t want to put up with the hassle of shopping on Craigslist. Let’s be clear: These things will cost you money.

(Note about safety: I’ve done a lot of buying and selling on Craigslist, and never had a problem. However, sites like Craigslist make it easy for creeps to prey on people. Take precautions when meeting with people to buy or sell items – especially when dealing with large amounts of cash. There are plenty of resources out there on how to be safe in these situations, go check out some of them before agreeing to meet someone. Also, check fraud is becoming more common, so take caution when selling items to people. Always agree to meet in person. Never take a personal check. Never take a check for more than the purchase price and agree to give cash back to the buyer or his/her driver or delivery company – these are scams. We will write something more in-depth but take these, and other, things into account when buying and selling.)

Can You Afford to Drive a Used Car? (Part 4)

In Part 1 of this series, we talked about new-car depreciation, in Part 2 we talked about the benefits of buying a used vehicle and in Part 3 we discussed some of the tradeoffs to consider when not buying a new car. In this last part, we will talk about things you can do with all the money you’ll save by buying used.

Though we’ve already talked about Certified Pre-Owned (CPO) warranties as compared to new car warranties, one thing we haven’t discussed is buying a used car without a warranty. This leads to one of the most heated of used-car-buying topics: “I can’t afford a used car because I can’t afford to pay for repairs.”

For the sake of clarity, please allow me to restate my position on vehicle financing: I am in favor of only one method of financing a vehicle: 100% down. That is paying for the vehicle either with cash or trade or both, but not with any type of loan.

Yes. It is possible to do. I’ve done it several times. Read about The Step-Up Method here.

I say this almost facetiously, but with a sense of seriousness: Did you know you don’t need a car loan? Yes, really. And you don’t have to be rich to own your car.

What happens if you don’t have a loan on your vehicle?

The thing that most people notice right away is that they don’t have to make a monthly loan payment. Let that sink in for a minute: No. Car. Payment.

Recent data from Experian indicate that the average new car payment in America is $503 per month. Just imagine what you could do with an extra $503 each month!

This gets to the heart of the issue we’ve taken four articles to get to.

The argument we commonly hear about people not being able to afford a used car is because they don’t have enough in savings to cover a major repair should one arise. (In all honesty, some of the people we speak with don’t have enough in savings to cover an oil change and have financed “service packages” with their new cars to cover such routine maintenance.)

By eliminating the car payments that most people are already making, those folks would have an extra $503 per month to put in savings to go toward any major repairs. The huge benefit here is that cash in savings could go toward shoring up the financial stability of the entire household – not just the car. When you make a car payment, you’re only covering the car. When you put the money in savings, you can take care of the car, or the house, or the doctor – you name it. Literally. Cash in savings is yours. You get to apply those funds to whatever you want.

That’s just one step down the path to Financial Freedom!

Can You Afford to Drive a Used Car? (Part 3)

In Part 1 of this series, we covered the impact of depreciation (OUCH!) and in Part 2 we talked about the benefits of buying a used – even a Certified Pre-Owned (CPO) – vehicle. In this third part we will discuss some of the tradeoffs to consider when not buying a new car.

One thing for us all to keep in mind is this: Every car was a new car. And every car will be a used car.

Yep. Even my first car, a 1981 Ford Escort, was once a new car. Hard to believe, I know, but it is true, someone once chose to buy that Smurf-blue, four-door hatchback with matching Smurf-blue vinyl interior and a one-speaker AM radio over any other car on the lot. (I still can’t come up with a reason for that choice, unless pickin’s were really slim.)

Along that same line, even the shiniest, top-of-the-line 2017 Rolls Royce will be a used car (albeit a very nice one)… as soon as the ownership is transferred.

If you really think about it, having a “new car” is a myth. A vehicle only classifies as new until it has its first owner. So, why are so many people willing to pay so much for a myth?

Most of the arguments we hear are that repairs are so expensive that people neeeed the new car warranty. However, as we explored in Part 2, we saw that CPO vehicles can be a substantial savings over the cost of a new vehicle – and they can carry extended warranties on the most expensive parts of the vehicle. As far as the bumper-to-bumper aspects of a new car, most buyers of new cars have already dealt with any hassles related to curing the annoying squeaks and tweaks that commonly occur with new vehicles. With those out of the way, the drive train is the biggest area of concern.

However, given the high manufacturing standards in this era of modern manufacturing, the vehicles of the last five, 10, or even 15 years are far superior to those coming off the assembly lines in the 70’s and 80’s. Which is where, in my opinion, most of our trepidation about the mechanical reliability of our vehicles comes from.

Growing up, I can remember my parents having discussions about how close one of our vehicles was getting to the dreaded 100,000 mile mark. Heck, back then, the odometers didn’t even have six digits on them – which led many to believe that even the manufacturers didn’t expect them to last more than 99,999 miles. Like many people, I grew up believing that any vehicle even approaching 100,000 miles was living on borrowed time.

This is not the case any more. Most CPO warranties cover drivetrains up to 100,000 miles. Even some factory warranties cover vehicles with that many miles on the odometer. We are driving our cars, trucks and SUVs more than ever before, and they are holding up better than ever before.

So, why not buy used?

The biggest argument I’ve heard against buying used is Technology. Whether it the ubiquitous Bluetooth connectivity that extends our hands-free lifestyle into our vehicles, or the nearly-standard backup cameras in new cars that were on overpriced option just a few years ago, or those cool heads-up displays… The list goes on.

The truth of the matter is that technology is advancing at unprecedented speeds, and more and more technological advancements are making their ways into our new cars. If you are one of those who cannot live without the latest and greatest technotoys, I’ve got some bad news for you: You’re in for an expensive and disappointing life.

Today’s latest and greatest options will be next year’s standard equipment. Or may even be obsolete altogether (Facebook app for your car anyone?).

Take my 2011 Toyota Camry, for example. It has an AM/FM/CD stereo with AUX input. But it does not have a backup camera, Bluetooth, or one of those cool features that scrolls the name of the song and artist across the LCD readout. Would I like those features? Maybe. Probably. Well, yeah, I would like them. However, it’s a Camry, so a backup camera is definitely not a necessity – I can just turn my head and look behind me like my forebears did in their covered wagons and Plymouth Furys. And, through the marvels of modern technology (gotta love Amazon), I picked up a Bluetooth adapter that plugs into my AUX jack for $10 – it is definitely not as convenient as a native Bluetooth receiver, but it works well and was cheap.

I just can’t figure out how to get that scrolling readout without changing out my whole radio unit for an aftermarket one. That is an option that I could use to not only add the native Bluetooth and artist/song title scrolling, but a backup camera as well. I’ve seen these at Car Toys for around $1,000. For me, the “benefits” of such an aftermarket stereo do not justify the high sticker price. However, I’ll be the first to admit that I’d rather spring for a $1,000 stereo that will upgrade my car to the latest technology than spend thousands more to buy a vehicle that comes with these features.

What about you? Can you still justify the expense of a new car? Or do think you can  afford to drive a used car?

This feels like the right place to end this article, but not yet conclude this series. Please read the conclusion piece – Part 4 – where we discuss what you can do with all the money you’ll save by buying used.

Can You Afford to Drive a Used Car? (Part 2)

The question, as the title says, is: Can You Afford to Drive a Used Car?

In Part 1, we learned how expensive it is to buy a new car. Depreciation Sucks! 

You may or may not have ever thought about it in this way, so I’ll walk through the thought process slowly.

Let me establish my position: I do not believe in buying new cars. Most people (like me) simply cannot afford to buy a new car “just because”. The new car smell is simply not in the budget of people like me.

Take for example the car I’m currently driving. I purchased my 2011 Toyota Camry (probably the most popular car that year too) USED in 2011. I was spending up to two hours each day sitting in traffic and I just couldn’t justify the fuel expense for the 1994 Chevy Silverado 1500 Z71 I was driving at the time. I heard an advertisement on the radio that a local dealership had a shipment of 2011 Camrys in stock, so I went to investigate.

I ended up trading my 2004 Z71 with 90,000+ miles and $6000 in cash for a Certified Pre-owned 2011 Camry with 32,000 miles. Granted, I had traded a car and some cash for a car that I traded for a car and some cash for the Z71 – over a couple years, but I owned the truck free and clear.

When I drove into the dealership, I had a printout (from NADA.com) of what my truck was worth. I handed that printout and the keys to the truck to my salesman and said, Here’s what I want for my truck. I’ll give you what you’re asking for the car. Can we make a deal?

The salesman took me to the lot where I had my pick of several colors of 2011 Toyota Camry. I chose the one with the least mileage (color didn’t mean much to me). After test driving that one (it reeked of cigarette smoke), I asked for the one with the next lowest mileage. After driving a couple, I decided on one. I said, If I get what I want for my truck, we have a deal.

They made the deal, I wrote a check for $6,000 and I drove my “new” car off the lot.

The year was 2011.

That’s right. In 2011, I bought a 2011 Certified Pre-owned Toyota Camry with 32,000 miles. It still had a little bit (4,000 miles) of the factory warranty left, and even with my [very clean] trade-in I saved more than $6,000 off the sticker price of a new one. Here’s the best part: The drive train (i.e. the most expensive part of the car) is still covered under the CPO warranty for another 9,000 miles. (As of 6/2016)

Even better than that, I’ve never had a major mechanical problem. I’ve replaced the tires twice, and that’s it. I may need to charge the A/C this year, but that shouldn’t cost more than a couple hundred bucks. AND I have that much in my car repair fund – after all, it can’t cost more than a couple hundred bucks to fix the air conditioner.

On the other hand, I know several people who have told me that they “… can’t afford to drive a used car.” That is, they don’t have sufficient funds set aside to cover warranty items – AND they want to drive vehicles that are “nicer” than a Toyota Camry.

Let me address that last part first.

In my opinion, there is nothing – and I mean NOTHING – nicer than a car that you own. I don’t mean a car that has you name on the title… with a bank as lienholder. No. I mean a car that has your name on the title and NO ONE as lienholder. In other words, a car that you OWN.

“… Condo paid for. No car payment.” – Notorious BIG, Hypnotize

Parked next to each other, my 2011 Camry may not look as nice as someone else’s 2014, 2015 or 2016 Whatever. However, when I’m not making a monthly payment and the other person is, you’ve got to wonder what your definition of “nice” is. To me, it is SUPER NICE not to make a payment.

So, why am I trying to compare a five-year-old car with a brand new one?

The two have more in common than you might think. They also have some BIG differences, which we will cover in the next installment.

Can You Afford to Drive a Used Car? (Part 1)

It seems like so many around me are being bitten by the New Car bug. I’ll admit, there have been times – even recently – that I’ve heard that bug buzzing around me. A few weeks ago, I think I even got bitten.

It’s a good thing I found the antidote!

Maybe I should clarify, when I say new car, at least in my case, I mean different car. I certainly don’t mean new as in zero-miles-fresh-from-the-factory new – at least in my case. You see, I’m a staunch advocate of buying used – not just cars, but that’s what we will talk about here.

With a background in finance, I understand a thing or two about depreciation, and it seems that nothing depreciates as quickly as a new car. According to the most recent figures on GoodCarBadCar.com, the top-selling new car in America is the Toyota Camry.
So, let’s look at NADA.com to see how quickly one of those depreciates.
Here is what we get on a brand-new 2016 Toyota Camry:

Blog - Car 2016 Camry NEW pic

Here’s the difference if we take that same car, title it to someone drive it only 100 miles and then try to sell it (keep in mind that for many people, 100 miles is enough to get from the dealer to home and back):

Trade-In

Base

Mileage Adj. Option Adj.

Adjusted Value

Average

$17,375

$675 $0

$18,050

Let’s say you got a deal on the car and bought it at invoice price we won’t even include dealer doc fees and the other add-ons they have. Then, you got it home and decided you wanted to trade it in for a different car – mind, you haven’t even taken the plastic off the back seat yet. What happened to the value of the car?

OUCH! You lost $3,000 just driving it home!

The odds of that happening are slim, and most dealers will work with you if you get home and are unhappy. But, theoretically, you’re taking a BIG slug of depreciation by putting your name on the title of a new car.

Let’s look at a more realistic scenario. Let’s say you bought the 2015 version and you’re now ready to trade it in a year later. Again, we will assume the base version Toyota Camry LE only this time we will put $12,500 miles worth of use on it.

Blog - Car 2015 Camry USED pic

Trade-In

Base

Mileage Adj. Option Adj.

Adjusted Value

Average

$15,375

$950 $0

$16,325

What a difference a year makes! Put some more miles on the car, allow some time to go by and watch the price drop! Discerning eyes will realize that our 12,500 miles was well below the amount of mileage expected on a 2015, increasing our value by $950. Even with the mileage adjustment, though, we’re still talking an additional $1,633 in depreciation over the course of a year.

Now, I know there is a big difference between the trade-in value of a vehicle and the price you pay a the car dealer. So, let’s look at the figures:

 

Trade-In

Base

Mileage Adj. Option Adj.

Adjusted Value

Average

$15,375

$950 $0

$16,325

Clean Retail

$19,075

$950 $0

$20,025

You’ll notice that the Clean Retail Adjusted Value is not much different than the actual purchase price of the car in the first place. Well, note this: There is a $3,700 difference between the “Average” trade-in value (what the dealer paid for it) and the “Clean Retail” value – that means there is at least $3,700 worth of negotiation between the posted price and what you’ll actually pay for the car.

That is a lot of money!

Why am I bringing this up anyway?

The reason is that people are constantly telling me “I can’t afford to drive a used car. I have to buy a used car [so that any repairs are covered under warranty].”

We will cover more in the next installment.