Q: I’m 24 and I’m finishing up college. I’ve been driving an old, used car for a while now, and I’m thinking about getting a new one. I’ve managed to save up about $30,000 from my jobs, but every time I go to a car dealer they want me to finance a new car instead of paying cash for one. What do you think I should do?
A: Who gives a crap what the car dealers want? This is your purchase, not theirs. Besides, the only reason they want you to finance is so they’ll make a lot more money off the deal.
Dude, you’re a 24-year-old college student who has been smart enough and industrious enough to scrape up $30,000 over the last few years. You don’t need to throw a huge chunk of that into something that’s going to go down in value like a rock. New cars lose 60 percent of their value in the first four years. A $28,000 car would be worth around $11,000 after that period of time. That’s not what I call a smart investment.
You don’t need a brand-new car. Once you’ve got $1 million in the bank, then you can go out and buy a new car. For now, you need to stick with good, used, low-mileage vehicles that are about three or four years old.
If I were in your shoes and had your budget, I’d shop around and pay cash for a cool little $10,000 car. You can get a great automobile for that kind of money, plus you’ll still have the majority of your savings sitting there.
Just say ‘no’
Q: Should I take $20,000 out of my thrift savings account to use as a down payment on an investment property? My payment would be $1,200 a month, and I could lease it for $1,500 a month. It will also give me a better return than if I left it in my savings account, even with all the penalties. What do you think?
A: So, you want to cash out retirement and take a penalty to buy an investment property. And on top of that you’re going to take on debt, too? This is like combining two dumb things into one big mess. I don’t think so.
I understand the allure of real estate. I love real estate. But it’s pretty obvious you’ve never been a landlord. Bringing in $1,500 and paying out $1,200 sounds good to you, but there’s also a lot of risk involved and that’s something you haven’t figured into the equation. Sometimes you have places that just sit there empty. Other times you have renters who don’t pay, things that need fixing, or people who just tear stuff up.
The idea that you’re going to make a bunch of money off this situation is pure fantasy. Don’t go there.
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