Opinion. The Road To Riches Is As Simple As This: Drive A Crappy Car
Absolutely everyone seems to be giving conflicting advice these days about personal finances.
New York Times editor Tim Herrera called this the summer of bad personal finance advice, thanks in part to a comment by Suze Orman, a best-selling author and financial advisor who, from now on, may always be remembered for saying this:
“If you waste money on coffee, it’s like peeing $1 million down the drain.”Suze Orman, CNBC
Most people would rather drive a piece-of-crap car than give up their morning coffee, according to analyst Jared Dillian, an investment strategist at Mauldin Economics.
“Tell people to give up coffee (as Suze Orman does) and you will alienate the people you are trying to help,” Dillian wrote in a Market Watch column.
“Here’s some money advice: just buy the coffee,” says Herrera, who does not appear to have much financial advice experience beyond being a New York Times editor — respect for that. He spoke with authority when he wrote, “No, skipping your morning caffeine boost will not make you a millionaire.”
Dillian backs that up.
“Your financial well-being is not the product of a million small decisions, but two or three big decisions,” wrote Dillian, who is a former head of ETF trading at Lehman Brothers.
Dillian is a big fan of cheap cars paid for with cash. “A car can bankrupt you. Or you may get to watch helplessly as it gets towed out of your driveway. And don’t get me started on leasing, the extended warranty of auto finance,” he said.
The ideal scenario, Dillian said, is “Get a gently used Toyota, pay cash, drive it forever. You win the personal-finance game.”
- Glen McMillian, old gearhead and mechanic on old cars and trucks: “I know a dozen or more people who never earned big money but still got to be millionaires by way of living modestly and saving and investing their money long term. As a rule, if they do buy a new car, it’s not an expensive model, and they drive it a long time, 10 years or longer. New cars are extraordinarily expensive status symbols, when you get down to the nitty-gritty. It’s not just depreciation eating your money, it’s taxes, finance charges, and full coverage insurance premiums.”
- J.P.W. Gordon, attorney: “Cars are often one of the biggest reasons why people who have “money,” go broke. They’re often perceived as status symbols, practically always depreciate, and when you’re new to money, you often buy some of the biggest/fastest, and most expensive car to maintain. It’s all about attitude, just because you can afford a nice car, do you want to spend the bulk of your money on them?”
- Gordon Miller, entrepreneur and investor: Yes, the sweet spot in price versus value is 2–3 years old with less than 30,000 miles. A car can lose up to 30%-40% of the initial value over the first 3 years. Most millionaires pay cash for everything and never finance so a $60,000 car that they can buy for $40,000 offers real value. I can also say that having had 54 cars in the last 27 years, the best deals I have done have been on used cars.
Listen to GHOGH with Jamarlin Martin | Episode 39: Tunde Ogunlana
Jamarlin talks to family wealth advisor Tunde Ogunlana, CEO of Axial Family Advisors, about estate planning and Snoop Dogg’s comment that he doesn’t need a will (“I don’t give a f— when I’m dead. What am I gonna give a f— about?”). They also discuss the growing college debt bubble, whether more free tuition will help solve the problem, and why MBAs are like the bachelor’s degrees of 30 years ago.
Weighing in on the buyer side, Quora contributor Jonathan Moynes wants you to know that wealthy people buy expensive cars too: “Relative to their income, they are cheaper than you might think,” Moynes wrote. “Taken as a percentage of income, the average BMW owner spends less on her (or his!) car than does the average Honda owner. So the BMW may cost twice as much as the Honda, but the average BMW owner makes more than twice as much as the average Honda owner.”
The sweet spot on buying a used car “is usually a 3-year-old lease return from the car maker’s dealer, that has been maintained at the dealership,” according to mechanic and car enthusiast Mohtashim “Moti” Ahmed on Quora. “Most financially smart people will let someone else pay the high initial depreciation.”
Dillian gets the last word because he survived Lehman: “You should have $1 million before you buy a new Beamer or a Benz,” he wrote for Market Watch.