What if your income is a fraction of the household income? A spouse may make X times someone's salary and when applying for a loan, be limited to what they can borrow by what they make, but the household income and ability to pay is different than the salary indicates. In that case, buying based on one's salary can be a challenge.
@@nokoolaid I believe in loan applications it allows you to list household income. Your credit score will also help you qualify (if its decent) You might get lower rate if your spouse will cosign.
@@labornurse Credit score depends on who is measuring it. Outside of Credit Karma, who used vantage 3, my scores are good to almost very good. Debt load is a little high. I think credit karma uses an old scoring system to make scores lower so they sell more products. It's off that much.
Dang dude! I like how nonchalant and open you are about your personal life. Unlike other content creators, you don’t curate everything to seem perfect, you are being real. Openly expressing your current less-than-ideal life circumstance of trying to sell your car bc u don’t have a job and your dad helping you out, etc. shows what an emotionally strong guy you are. It’s refreshing and makes me further respect, trust and value what you have to say. Go Ray for raising a good kid! Zach, you were RAYsed well! 😂🤙🏼
stumbled upon this channel while trying to research to go buy my own car on my own without my parents and the way you talk with your son about cars and the way you were so involved in his car buying process makes me happy
Gentlemen! I'm your first viewer and Thumbs Up on this one, nice job as usual. This is a great resource and a fun channel. And I'm one of those who keeps their car forever, I love my 2001 Toyota Avalon, had since brand new and zero car payments for many years now = more money for Travel.
While I find the content of your videos to be wonderful, I probably watch more because I enjoy the relationship you guys have with each other. I can't ever recall having conversations like that with my father.
I've never understood why they always use gross income as opposed to net income in these financial "rules". Your take home pay is typically dramatically less than your actual yearly salary. I paid over 30k in taxes last year. That's 30k that would be included in my gross income that I cannot spend.
I agree. I also always wondered why everyone always says use gross income for everything. It doesn't make sense. Except that, the system is designed to set you up to fail. It's designed to put you in debt. So you never get out of debt until you die. I ALWAYS use net income for everything when I'm calculating stuff. Because gross is not a real number. Gross is not the actual amount you can take home and use. Doesn't make sense lol
Calculations are based on gross income because it’s easier to do a quick math. You can use net income but the percentage factor would have to be adjusted higher. Either way should give you the same result.
Its because gross pay is a determinant amount of money. Net income varies significantly from person to person. Pretty hard to factor a debt load when you don't know what the "I" portion of your DTI is.
You can't count both the car payment and depreciation as part of the total cost. That's double dipping. If I buy a car for $20k and it derpreciates to zero, my total cost was $20k not $40k.
You buy a car for 20k 0 down you will be paying ~1500 in 5 years interest at 3% After you pay it all it will be worth around 8-9k Realistically (more than 10% per year unless you really treated as a king). Will be spending around 6k on gas(60kmiles) and 10k on insurance Your total will be almost 30k cost of ownership on 5 years or 6k per year without any maintenance included and you still have 8k that will continue to depreciate around a 10% a year I don’t know where he came out with 15k a year
@@Libretad-cw4cb you cannot count gas as an expensive for buying the car. Gas is something of an overhead since most people have cars so they can go to work
I love the the complicity you both have with each other, seems like a true loving father and son relationship. I also like how gentle both of you come across. Nos as to the content and the subject covered, it's really great. I've been watching many of your videos. Normand from Montreal, Canada
Thanks guys, great information! Since vehicles are depreciating assets, my preference is to concentrate my funds into something that appreciates; like my house or equities. I don’t need the newest or fanciest car on my block, as impressing someone just isn’t my bag. I still drive my 2004 Toyota Camry, and will until the wheels fall off.
Groovy i hear you. Last April I went and Traded in an empty money pit a 2013 BMW X5 for my 2013 Lexus ES 350 with only 30,000 miles. In hindsight yeah I should’ve bought an older model ES maybe an ES300 or even a ES330 from anywhere from 5k to $10k. Yeah these would’ve had 75 k miles or more but knowing how they are so reliable and dependable it still would’ve been a good enough car. Now I have 4 1/2 years left on my used car loan and yeah it’s a bit high at $597/month but it does not exceed the 10% of my monthly gross income, it’s well below that so I feel good. I know I won’t be selling my 2013 ES350 after it’s paid off, I’m gonna keep it until the wheels fall off !
You should ALWAYS consider gas and insurance part of that 10%. Too many clowns in this world just buy based on the payment and it puts them years behind where they should be financially.
As to the advice on leasing, it depends on what is important to you. Leasing is not the way to have the lowest costs since you never get to the point where you don't owe money every month. If lower cost for the life you own the car, buy a 2 or 3 year old car and let someone else eat the largest depreciation costs. Each year the amount that depreciates is lower. If you are a handy person and can do much of the maintenance/repair yourself, you win some more. Most of the card manufactured today have at least 100,000 miles in them, so keep it for 8 to 10 years. If you want to pay for shiny new every 2 - 3 years, lease.
I agree. The problem is few pay cash so they finance a vehicle with a lease or finance a purchase but never keep a vehicle long enough to pay it off. They continue to trade it in every 2-3 years, always having a payment and in a sense, are renting a vehicle like a lease. They never put any money down and the constant trading in too soon means negative equity is added to the new vehicle. Eventually, they have so much negative equity that they are stuck and can't get another vehicle. To absorb the negative equity, the customer has to get a more expensive vehicle with a higher payment. Or, the customer wants to lower their payment but they can't since, the banks won't do the loan and the customer doesn't have money down to reduce the negative equity.
Wow..i didnt know about this 10% thing. I bought my car instinctively according to this principle (well almost . Its 11% in my case) in november 2019. E class e220 cdi 4m 2015 model . Earn 82500€ annually and estimated expenses per month are 700 to 750 per month including depriciation, diesel, insurance, road tax, maintainance and repair. Good video! Btw i can still save good amount of money despite being a bit over 10% . I bought my car with cash 20.000€ without credit
I've Leased in the past , Big issues were 1. setting myself up for a fair buyout 2. Getting realistic mileage limitation ! Hard to get something like 18,000 miles which is fair
This is all true and good information...BUT I would push people in the direction of not just looking at the payments, but look at the bigger picture. Don't focus just on montly payments, try to think about total costs and buy cheaper if the total price is too much. Try to put yourself in a situation to avoid leasing because it's more expensive than owning. Think about your wealth goals and how a car helps you get to them and thinking about it in just terms or what you can afford monthly is NOT well thought out enough.
Good comments on leasing. It isn’t always cheaper though: especially on sports cars the lease rates can be ugly depending on specials etc. I bought a 2019 Miata but the lease offers are terrible on those. Also I want to say, from personal experience, that car loans are easy to get if your credit is good, irrespective of your debt ratio to some extent. Much easier than a mortgage.
This retiree paid off his 1965 Mustang, purchased in 1970 for $1014, in one year. My current 1997 Jeep was purchased for cash in 2009. Both still run. In between, I had several company cars - Buick, Nissan Pathfinder and 300ZX Twin Turbo, etc. But I kept the Mustang all these years as a backup!
You should decide what you need in a car and then see what that will cost you. Buy for your needs rather than for your ego. I looked for a Honda CR V Touring last month. I bought a new 2019 Honda CR V LX AWD and added $1,000 worth of upgrades to it to give it the qualities I wanted.
Right, we live in a debt based economy. Problem is, most are way over leveraged right now. People are learning the hard way, that being in perpetual debt never leads you to financial health. It inevitably leads to collections, repos, bankruptcy, and foreclosures when the caca hits the fan. The worm had turned. I got fed up with debt and I am going the Dave Ramsey way. Took me a while, but I am now DEBT FREE. Never again. I drive a 5 year old basic reliable PAID OFF car that gets me from A to B. You know what I have? Cash leftover with every paycheck. A 12 month emergency fund. And saving more each month. What wasn't mentioned is the ENORMOUS opportunity cost of that $500 per month over time with compounding interest. Especially if you are younger. That $500/mo will easily become hundreds of thousands, and eventually millions of dollars over time. Like Dave Ramsey says: "Hope you like your car."
You and I are twins and sewn from the same cloth so I agree and live a debt free life too! As Dave Ramsey would say, we are weird but it's a good kind of weird. Just be sure to have a budget to spend a certain amount of money per month for experiences and spending that might not make sense. Not to be morbid or depressing but life is a roller coaster and a ride we have little control over. So, many of us that save, invest and work our butts off all our lives to retire well many not live long enough to enjoy the fruits of our labor. Or, health issues or an injury prevent us from living the life we dreamed of. I'm 47 and in good health but I've seen this happen to friends and family so you have to live for today and smell the roses while saving for a future you hope to make it to.
You two are not like most people and I don't mean that in a bad way, but most people are either unwilling or unable to discipline themselves to live like that. Bless you for having that discipline and good for you. Stay safe, Ray
Been watching for a few weeks great videos guys lots of helpful info! One day I will own a truck it's just so hard to justify the purchase when it's a want not a need.
I enjoy your videos but I don't like leases because I keep my cars long after they're paid off. However your observation of not paying more for a car than you can afford is really great advice. Keep up the good content. I also enjoy the father/son interaction you two have.
Leasing's not bad as long at you are not straining to make the payment. Even if you own a car outright you will still have a payment. Wires and tires and oil and grease and sensors and hoses, etc. I just had a credit card -- 6mo same as cash and spread it out -- car payment.
I like to buy personally. Pay it off then pay yourself the car payments after and throw it in the stock market. Then you have a large down payment later if you want or keep it running in the stock market. It isn’t for everyone but works well if you don’t mind keeping the car longer.
Lease payments do appear to be lower as a monthly payment, but from what I gather is that there is more $$$ out of pocket upfront and potentially more $$$$ on the back end due any cosmetic issues or excessive mileage.
I’m on my second lease with Ford and I’m allowed up to 5 dings in each body panel and 3 tears in the upholstery. My tires can be worn almost to the wear bars. I would have to pay .20 a mile for every mile over 10500 or whatever mileage you set your lease up for. It may not be for everybody but it’s great for me.
My last car payment was about 1990. I was 28 and not wealthy but striving towards a comfortable life. Fast forward 30 years and I have no house or car payments. Am getting ready to retire comfortably thanks to not spending as much as I could afford, but spending the least that would get me by comfortably. FYI : I have had many nice things and paid cash for all of them.
James great job and good for you. Very few people have the discipline to be able to do what you have done. Please enjoy your impending retirement. Stay safe, Ray
This a great video, I always talk finances to my apprentices, Rule of Thumb on buying a house, Rule of thumb on a Car, How much to put in your 401K etc etc , I agree with your opinion on Leasing, never done it but as a Dealership Tech for 28 years it is sometimes THE THING TO DO. You might not have the best luck with your car and in that case you can move on in 2 or 3 years and be on to the next clean , new, updated possibly different brand car and if you still love it in 3 years, have the option to buy the car.
Thank you so much for confirming this is Wednesday. You are the only RU-vid channel to provide this information and I've looked and looked and looked. In fact, I stop listening after you tell me what day it is. Maybe you should save that tidbit for the end of the show as your outro? And I then I'll have to watch the whole show!
Edmunds has a "True Cost to Own" calculator which gives you a 5 year estimate on many cars 2014 or newer. Definitely worth looking at for someone considering their first car who may not be aware of all the expenses!
little footnote: car insurance rates go up if the insurance company thinks you are an irresponsible, reckless person. Shop for car insurance rates before you buy a car. Things that the insurance company thinks are reckless are buying a sports car instead of a bland sedan, being single instead of being married, and being a male less than thirty years old. Things that the insurance company thinks are responsible are being married, being over thirty, and being female under or over thirty.
Great video guys! Thanks. 6 months ago I struggled with leasing or purchasing. I decided to try a lease based on exactly the same thought process in your video.
Oops hit send too soon. Anyway I drive out in a $40,000 vehicle with an affordable monthly payment and a check for $15,000 for my trade. I’m on my second lease now and I love it
I drive a 12 year old car I do my own repairs if I couldn’t turn a wrench I’d be getting raped financially by a dealer or mechanic 🧰 I like buying them older all the depreciation is gone and you can buy one out for a few thousand no payments
@@ewxlt It depends, my friend has 2004 audi a4 1.9tdi no repairs for 4years. about 100km, 350k on clock. But i bought passat b5 1.9tdi for 300€ not runing, becouse someone put some crap in tank, had to clean whole sistem. over a year later now and i have changed a lot of parts, all together about 1200€: Cluch Intercouler miled engine head gaskets front radiator One suspention spring All brake discs and pads Handbrake wire Turbo boost valve controler Intercoler pipe glow plugs Alternator Lots of suspension parts... But for now car is in great condition, good that parts are really cheap and i can work on it by myself
Right! try to pay as much as possible in cash. It's very costly otherwise and I'm not sure that 'most can't do that'. After all, making payments with interest AFTER the purchase, you're still paying for the car (and then some!) We should all do our darnedest to reverse it by saving those payments ahead of the purchase. A much happier merry - go - round to be on.
I always bought my cars and after it was paid off in 4 years I would trade it in. 4 years ago my salesman asked if I ever considered leasing since I only drive about 8000 miles a year. I traded my vehicle and got a 3 year 10500 mile lease with no money down and left driving a
You should do a video on how Leases can screw you. Like origination and termination charges. How leasing a foreign is better than a domestic, or how to stick with one grand and bring it in 3-4 months in early, so that BMW or LEXIS know you are a 10-20 year customer
Great video. Problem with leasing is getting nickel and dimed when you turn it in. I know people who before returning their lease spend 2k on new tires and fixing dings and dents.
Thanks for the kind words. I believe that it is important to laugh several times a day and if we can help with that and provide good information, then well, we've done our jobs. Stay safe, Ray
The problem with focusing on monthly payments is dealers are now going beyond 72 months for financing. Your car will never be paid off with this arrangement. Then it will be out of warranty with many years of payments left. You’ll always be upside down in the vehicle. Stick to what you can afford in a 4yr finance, maybe 5 if you are keeping it for at least 10. Leasing isn’t a bad option either. You can generally return the vehicle before serious maintenance becomes an issue.
It really depends on a lot of factors, one of which is how much you are willing to gamble. Very often defects show up while under warranty and then you will have no real repairs for many miles. Many of today's cars will go 120-150k miles without repairs other than maintenance. With typical milage being about 12k per year, they is easily ten years so why not spread the payments? That assumes you can get low interest rate loan and spend one time fee gap insurance. No you do not want to stretch a loan at much over five percent interest, but what does it matter at two percent loan and five hundred one time gap ins. fee? so you have payments for seven years instead of five? Cost difference is minor but payment is easier. Always do your research and know all of the costs and then decide what works best for you. Most people fail on the first two parts and get totally hosed, but that is not the same issue.
It's fascinating all your knowledge and about an industry (Car sales) where most of us equate the experience with a trip to the dentist. A shame that it can still feel adversarial. Could you do an episode about the slang - some of the lingo we might find interesting in the business? I remember years ago as a kid going shopping with my dad and his younger brother for a used car. The salesman for right on the phone with someone over the inventory and asked if there were any "Creampuffs or Baby dolls" I'll never forget the guys name- Gano Cornwell, Reliable Chevrolet Springfield, Mo. Must have continued to send postcards keeping in touch for 20 years.
I have a 2004 maxima paid cash new. V-6 great engine, 3 years ago had my mechanic go over whole car, $1900 and it's like a new ride. maxima is a great value.
Why would you pay cash for a 100k car if interest rates are this low? Invest the 100k and pick up 6 to 7% after taxes vs 3 or 4 % you are paying for the car payments. Also you can deduct a part of that interest in many cases. Credit is a great thing if you know how to use the system.
Great content! Question, if a truck has been on a lot for 90 days, how low would you offer them? It's a base 2019 Raptor so it's not the most desirable model.
Agree with two of the comments here, the owner isn't paying the car's price plus depreciation, it's simply their total outgoing expense. The other comment was about how payments are based upon gross income. As was noted, if you're dumping a bunch into your 401K - which you should - and taxes, and health insurance, and dental, etc, etc, the real number, the "net income" amount, could be about HALF what's being presented. So, yeah, owing a car is darned expensive, and we all just pretend that it's fine. As an aside, my parents grew up during the Depression, and they'd be rolling in their graves hearing how easy we are with outgoing expenses. Where this all comes crashing down is when you reach retirement age and realize that you can't...
I think you’re kind of double counting by adding depreciation along with a payment. The reason lease payments are lower is that you have no equity when you’re done, but hopefully with a loan you’ll not go out and buy a new one right when you pay it off (or before!). If nothing else, I’d only add in the (total depreciation - payment = net depreciation).
there's an issue of there's hardly any cars where your payments would be under that 10% and if you manage to get your payment that low buying the car it's because you have a very long loan term where by the time you pay it off you're going to need to buy a new car because it's worn out so bad. any car with over 150,000 miles can basically be considered dead. it's rare to see cars hit 200k anymore.
You briefly touched on depreciation. I would love if you would share your knowledge from this subject as it pertains to trade in values. Where do KBB-NADA-Black Book compute this value? The salesman sometimes states “well that’s what there getting at the auctions” so my rebuttal is well you need to sell your stuff at wholesale and to be fare a 1000 over that value to keep the lights on. Do they get it from some data base. We the consumer can see what the dealership are asking for their vehicles and the trade value is a lot lower anywhere from 3k to 10k. You state a vehicle from new looses 10% per year from MSRP. but if you look at say a one year old F150 on KBB the depreciation is close to 50% if you decide to trade it.
My car is a 2005 civic ex. Runs well. Its not worth much now. But, it sounds and runs amazing, rides a little rough. I got it in 2012 from my dad. Take good care of my car.
Enjoying your channel! I’m new here, but I’m looking for my next car purchase in this crazy financial climate! My question is this: DEPRECIATION as an expense. I know what it is, but I’m not sure how to estimate it as an expense. Can you explain it or refer me to one of your fab videos that does? Thanks Gentlemen!
Businesses don't necessarily lease cars simply because they are depreciating items. There are several other obvious reasons why companies might prefer leases. One is that they can always have newer, more reliable cars. Another is that unexpected costs are minimized. Another is that they don't have to waste time selling cars. In other words, many of the same reasons why you prefer to lease cars.
Thanks for sharing...informative and entertaining as always. Ray you and I same age...dad taught me to get no longer than 3 year loan...I upped it to 4 a couple of times....but always traded in after pay off...positive trade. Now wife and I both have paid off Rav4s....and yes like your brother done with car payments 😂😂 I hope. I drive so little now a days that if I had to get another car...I would do a lease. You all take care
Yeah insurance is the killer on financed and leased cars. So, most newer cars. I only drive beaters for this reason. Fuck insurance companies they are scum. I was paying 200 a month insurance on a 270 a month leased car.
Full coverage insurance for someone the age of 19 on a VW Passat is more than 400$ a lease payment would be over 300$ and I think that most people would agree that spending 150$ a month on gas to drive 1000 miles a month would be quite reasonable. Considering that a VW Passat is a relatively average car in the grand scheme of things I would say that keeping the 10% rule although nice is not very achievable. If we total up all the expenses with running a car as such we are close to 1000$ a month and I personally don’t know many 19 year olds making 100k a year.
How do you like your Volvo S90? I test drove a Genesis G80 3.8 and was impressed - it's a second slower to 60mph than my Infiniti M35 but is so smoooooth. Maybe I'll go for the 3.3t instead. The Volvo S90 is also on my list.
It probably make sense to lease a car if a person has a very stable income and doesn't have to worry about future life problems popping up. But for most people being out of debt is a better option.
Bro that's if you live in the Midwest. Here in LA people make 5k a month and rent is 3k a month. It sounds great but its not a reality on the west coast
I will never buy a car unless I absolutely need to. My decade old car still works fine to this day and ill keep driving it as long as it runs! Cars are depreciating assets! You won't make money off a car!
Are you suppose to make money on a car? I never thought that way. I always looked for ways to get my transportation as cheap as possible. Many times that was buying a new one at the right time on the right deal at zero interest when available and writing as much off of my taxes as allowed by being an LLC. It might have been a second job, but I made sure it was more than a hobby company. The tax savings often paid one fourth of the cost of the vehicle. Just have to work the system and stay within the rules.
@@patrickboyd3364 What are your yearly maintenance costs on that car? I have a 2013 TL SH-AWD with 60K miles - no major costs - yet. I foresee owing this car a long time.
Ima say this if you make good income , 500 for carnote + insurance every month shouldnt break your pockets , assuming you making 3k+ , and you factor rent and other expenses. If you make 40k a year you shouldnt spemd no more than 20k on a car but thats minus your down payment as well
You totally missed on the "commuters" and car expense. Anywhere with that kind of public transportation available also has parking issues. Even in smaller cities the cost of leasing a parking space is way more than a studio apartment in my area!!! They better have an answer for parking even before they invest in a car as the fines for trying to park in two hour metered parking can add up to insane levels. I know people who work in St. Louis, MO who get to work two hours early just to get affordable parking at daily rates of $25/day!!! So what is two hours of time plus twenty five bucks worth to you per work day??? In a suburb that happens to be the county seat, monthly parking spots can go for over $800 just to have a legal place to park. Bigger cities often have toll bridges as well, so calculate that in your car expense as well. Seeing a pattern here? Out in rural America parking is not an issue, but milage is a huge one. I have never seen a lease that would work for me. Until the last few years, I would typically drive twenty five to thirty thousand miles per year. So how could a lease work for me??? I buy them and drive them around six or seven years on average in order to make it work. However with my income less than half of Ray's income I have never been able to follow his guidelines of ten percent. There is no way I should be buying new by any guideline around, but I am too old to be under the car on the side of a highway every week. I buy new and build the rest of my budget around that. It is not easy buy I make it work. I remember Ford Credit asking me once how I thought I could afford the payment and when I told him what my monthly rent was he shut up and approved the loan without further questions and that was a zero percent loan. I do not borrow money that I cannot afford. That is why I have a FICO of 840 or so with half of Ray's income. And the truth is I have to have a car. My doctor's office is sixty five miles one way, and I have to visit fairly often at my age. So you figure it out. No taxi service available for that and even if there were, who could afford it???
Never get a loan threw the dealership, go to a bank or credit union, ask if there is penalty for early payoff, ( most say no) take out a 6 year note, with low monthly payments and pay double/ triple monthly payments , it gets payed off in less than 3 years, the bank/credit union will be pissed and it don't improve your credit score rating, but it saves you thousands..
Informative and entertaining but MSRP prices are way too high today. I bought my Honda Accord in 2005 the sticker was 26.5 with trade in value and deposit I got it around 18K still have it today @ 296K and paid it off in 2009. I understand your point about leasing but in long run just a long term rental. I think dealerships should let ppl trade their leases in every year just to drive something new.
Was this video made back in the ‘70’s. I heard you say $50 a month for gas and $100 for insurance. Gas is now over $3.30/gal. for regular gas in Virginia. A 20 gal. tank is already nearly $80. Most people use a tank in one week commuting alone and sitting in traffic. As far as car insurance I’d like to know where you buy your insurance for $100/month at age 24. I’m a senior paying $130/month for full coverage. I recall young males from 17-25 years being at high risk and paying anywhere from $300-$500/month back then for full coverage. Has insurance dropped that much since my early days?
There are plenty of car affordability calculators out there for people to use that will do all this math for you. Car.com has one on their website and the app.
There was a time when I can walk in & buy a new Corvette no questions. But I still drove a 5 yr old beater. I was laser focused to F-I-R-E bc I know my tech job was killing me, not even slowly. If the car set me back on my early retirement goal it was not important to me.
From a financial standpoint leasing never makes sense as you never actually own anything and have constant money going out. Purchasing a new or used vehicle you keep for many years is definitely good money management. In 2012 I purchased a new Subaru Legacy with cash and in 2019 when my daughter needed a vehicle for college I gave her the Legacy. At that point assuming your $380 per month lease I'd be out $32000 and have nothing to give to my daughter.
If you're somebody who really buys a vehicle and then drives it until it dies, then yes purchasing is better than leasing. However, many Americans (maybe most) don't do that. A lot of people frequently change vehicles and have an eternal car payment anyways and many roll with negative equity. At that point, you're better off just getting a new car every 3 years with a lower payment from leasing.
Chasing no car payment I had to learn doesn't make sense. Either lease it and invest the savings or buy a car/truck from a very reliable brand and pay cash for it and hold onto it until death. Lease it and move on!
