Who's Minding Your Money?

A Great Investment Idea

I have an excellent investment idea for you. All you have to do is invest $33,900 in this particular investment and if you don’t have the full amount right now I will allow you to make payments of $611.72 per month for the next sixty months. This means that you would really end up paying $36,703.20 for the investment by making payments. Now here is the best part, I can absolutely guarantee that after two years that your initial investment will be worth $18,999. That same investment at the end of four years will be worth $16,995.

So what’s wrong with paying $36,703.20 over a five year period for an investment that will be worth $16,995 at the end of four years?

The great investment that am talking about is a 2011 Camry, every year hundreds of thousands of individuals go out and do exactly what was depicted in the above-mentioned scenario. So why would any rationale person do such a thing?

There could be many reasons why someone would lose money on purpose, for most people they never really sit down and do the math before purchasing a vehicle. When it comes to personal finance, it is important that when you make big decisions you should consider not only the immediate impact but the big picture as well.

I realize that for some this message will fall on deaf ears and no matter what I or anyone says about purchasing automobiles people are going to do what people do. My hope is to shed a little light on a topic that people are very passionate about.

“Those who are changed against their will are of the same mind”

My wife and I recently found ourselves having to purchase a new vehicle. Fifteen years ago we purchased a 1997 Camery, and drove it till it had 346,000 miles (that’s not a typo), so I think it was time to move on. The reason I chose to write about purchasing a car this month is because there is a lot of mis-information when it comes to purchasing an automobile.

For example, we were at a party and I mentioned that we were going to purchase an automobile and this time around, I was looking to purchase a vehicle that was a couple years old with low miles. My friend made the comment that she was always told to “buy only new cars, because when you buy used cars you are buying someone else problems”

This is a common misconception when it comes to purchasing automobiles. I have a difference of opinion from the mainstream about purchasing cars. Having driven a car for 346,000 miles, I am not afraid to purchase a vehicle that is a couple years old with a few miles on it. By taking such an approach, you could save 30 to 40 percent off the price of the car and get a great vehicle in the process. Yes, I said you could save as much as 40% of the cost of a new car by buying one that is two years old with a few miles.

Here is an example of what I mean; cars depreciate the most in the first two years in some cases to the tune of 32% or more. Let’s look at the example of the 2011 Toyota Camery, a 2011 Camery cost $33,996 depending on the package you get. On the other side a similar 2009 Camery with just over 19,000 miles on it sells for $18,999. That is over 35% difference in price. The average American can’t afford to take a 15% decrease in net worth yet every year the calendar changes and their car gets older.

So now you have to ask yourself, is it worth taking a hit on your net worth to have the right to drive a brand new vehicle. The biggest hurdle that most people have to get over is thinking that you are buying a lemon. I am convinced that not every used vehicle is a lemon. Sometimes people sell their cars for good reasons; let’s look at that same friend that I was talking to at a party.

During our conversation, she went on to say that her and her husband were also looking to get a new vehicle as well. As is turns out they were getting a new vehicle because their family had grown and the needed more room. So I asked “you are about to trade your car in because you need a larger vehicle to accommodate your growing family, do you consider the car that your are trading in a trouble vehicle?” she said of course not we just need a bigger vehicle.

My point exactly, they were trading in a two-year-old Honda with low miles to get a slightly larger vehicle and there is nothing wrong with their car. The big picture is that over your working lifetime most people well sell and purchase several cars during that same time period. I have always said that a car is a WORTHLESS investment. Yes because it is worth less and less every year. There was a study done in a book titled “The Millionaire Next Door” By Thomas J. Stanley, Ph.D, William D. Danko, Ph.D. this book studied individuals who had accumulated more than $10 million in wealth, and the study revealed people who are wealthy choose not to put money things that go down in value very often to include cars.

Most millionaires chose to drive two-year-old cars. So what does this mean? It means that we will drive our cars no matter what it cost even if we have to sacrifice our future to do it. It’s that desire to satisfy here and now that keeps us from ever winning in the long run.

This article was written by Lonnie R. Mathews for the Who's Minding Your Money blog. Lonnie is an author and speaker in the area of personal finance. To learn more about Lonnie or to contact him visit www.lonniemathews.com