Win my car!

writing competitionI have a confession …. and, an announcement!

First, the confession:

I am a little tired of blogging …

I’ve been doing it for 4 years now, but – so far – I have earned $0 from my investment in sweat, blood, and tears.

You may have noticed that I’ve cut back from daily posts, to 2 – 3 times a week … and, sometimes, not at all.


So, I have decided to cast out for somebody to continue writing my blog for me.

I get reasonable SEO rankings, so I want to maintain those and the right person will be able to monetize this blog even better than me …

… and, I’ll split the income 50/50 with the winner.

The winner?

Yes, because I’m also doing this as a competition!

The winner will be the person who sends me the best one page proposal (with a sample of your work and an outline of what you have already written). You can send it to me at:

But, that’s not all …

Since I am planning to upgrade my car [AJC: do the words: Italian, Red, and Ferrari mean anything to you?], I am prepared to let the winner drive my ‘old’ car for a year.

That’s not all …

… after the year, if you’re still writing my blog (which means that I – and my readers – are happy with you), I will simply hand over the keys to the car.

That’s right: if you’re the winner, you get to keep the car!


We will make so much money, together, monetizing this blog that in just one, short year, one little car will hardly matter …

Now, this ain’t no ordinary car; this a 2008 BMW M3 convertible (special edition) in excellent condition:

Screen Shot 2013-04-01 at 3.06.04 PM

So, are you up to the challenge????

Great! Get your proposals in!!!

The winner will be announced next week …

Good Luck 🙂

The ‘No Lease’ car lease …

The wrong way to buy a car is to lease it:

You’re financing a depreciating asset: so, as the car goes DOWN in value over time, your investment in it is going UP, payment by payment.

Dumb, huh?

The frugal way is to buy a used vehicle and run it into the ground.

But, what if you like and can afford to buy a ‘certain quality of car’?

Well, I would never buy a new one, and I would usually buy one of a lesser standard than I can afford, because cars do depreciate and are simply NOT an investment (even when you think they are).

Now, this is a blog for aspiring MULTI-millionaires, so I am going to spare you the usual reasons for buying used rather than new [hint: something to do with depreciation vs future resale value curves], because you can actually afford to buy new!

No, what I have to share works on the assumption that you can afford to buy a new car, but you do have budgetary contraints: i.e. a Number that has to fund your required standard of living for life. You can’t afford (literally) to have your money run out before you do!

If you’re either too rich or too poor for that to apply then this post [AJC: actually, my whole blog] does not apply to you …

But, this post DOES apply if you have a new car budget, be it a new $250,000 Ferrari 458 Italia [yum] or a new $11,000 Chevrolet Aveo [yuk]:

No, the problem is that IF your mindset is to buy a new vehicle, then how do you feed your desires in 3 to 5 years when your ‘new’ car becomes just another ‘used’ car?

However you justified the ‘new car’ purchase – new car smell, new car warranty, new car reliability, new car status – in just 3 to 5 years, the ‘gloss’ will have well and truly worn off, and you will be in exactly the same position as you are in today:

You will want ANOTHER new car!

And, you will want another one – similar to the first one (or better!) every 3 to 5 years thereafter, until you are too old to care about cars anymore … and, take it from me, you will be pretty old when THAT happens 🙂

That’s why, when I ask people to calculate their Number, I ask them to come up with their required annual spending plan (and, multiply by 20), then add in any one-off costs: usually just houses plus your first post-retirement vehicle purchases (what’s your chances of your spouse settling for less than you?).

But, for non-annual repeat purchases (the annual ones should already be in the budget … get it?), I simply ask them to calculate a lease / finance rate for the occasional purchases they are interested in (e.g. cars, around the world trips) as though they were going to finance those purchases, and build that cost into their required annual spending plan (basically, their expected retirement living budget).

This will include your replacement vehicles … the ones that you will need to buy after the first 3 to 5 years in retirement.

How to calculate the correct amount?

It’s actually quite simple:

1. Choose the car from today’s model lists that seems to be likely to suit your purposes from a new car pricing web-site.

Right now, I drive a BMW M3, my next car is likely to be no less expensive. But, I actually want more, so I will build in the cost of a Ferrari 458 Italia (that should pretty much cover me for any other car I decide to ‘graduate’ to as I get older, e.g. top-of-the-line Mercedes). If I didn’t aspire to more in the future then I would use the current list price of a 2011 BMW M3 as my ‘base’.

2. Find the current price of a 5 year old Ferrari F430 (because the 458 Italia wasn’t around 5 years ago) from a used car pricing web-site.

3. Subtract 2. from 1.

4. Find an online auto leasing calculator and use 3. (i.e. the amount over the trade-in of your current auto that you will need to come up with every 3 to 5 years) plus the age of the vehicle that you selected in 2. (i.e. how often you expect to want to changeover cars) plus select an interest rate that is likely to reflect long-term averages for investment returns on your remaining money (6% – 8% is plenty)

5. The calculator should then spit out the monthly amount that you need to add to your required annual spending plan

Now, why should you choose “an interest rate that is likely to reflect long-term averages for investment returns on your remaining money” rather than the expected cost of FINANCING such vehicles?

Didn’t you read the opening paragraph of this post?!

You’re not financing anything, you are SAVING to replace you current auto (or, the one that you first bought when you reached your Number and stopped working), and you are building in the LOST OPPORTUNITY COST of having your cash tied up in your cars rather than sitting in your investment account working for you, and you are accounting for inflation pushing up the price of your future, future, future replacement vehicles.

What if you make a mistake with you future financial position or the price of your next car?

Well, you simply hang on to the cars that you already own for a while longer … or, ‘down-size’, if you have to …. who says that you HAVE to replace your cars every 3 to 5 years?

Now, you can apply this same strategy before you retire: it’s called saving up for your next car (and, the one after that, and the one after …) rather than financing it 😉


PS If you run these numbers again, here’s an even better strategy:

Instead of buying a new car, buy a slightly used – but much better – make and/or model of vehicle. Because I’ve found that cars – just like radiation – have a half-life (but, different for each brand of vehicles) and some depreciate 20% as soon as you drive them off the lot, you may find that you can buy a much better car for the same money albeit 1 to 2 years old. If you choose well, you may find that you are (a) driving a better vehicle and (b) can keep this vehicle for another 4 to 6 years before replacing it (because ‘classic cars’ tend to remain classic long after your shiny new American/Japanese/Korean production-line ‘beauty’ has well and truly gone off the boil). Plug a 6 to 8 year replacement cycle into you calculator v the 4 year one that you chose for new and see what that does for your retirement plans!

Cars and radiation …

half_lifeWhat do cars and radioactive material have in common?

Well, besides each being a potential environmental disaster if not managed well … they both have a half-life:

– For radioactive material, it’s the period of time for a substance undergoing decay to decrease by half,

– For your car, it’s the time it takes for you to lose half your money!

This is because the largest cost of auto ownership is not the finance charges, the taxes, the gas that you put in the tank, or even the tires or repair costs … it’s a largely ‘hidden’ cost called depreciation.

Picture 1

You see ‘depreciation’ when you sell the car as The Amount You Paid less The Amount That You Get Back.

Even the amount that you get back helps to hide the true depreciation cost because you will often trade in the vehicle and the dealer might ‘sweeten’ his offer by giving you a higher trade-in figure than the car is really worth … but, what he is really doing is giving you a discount on the purchase price of the new car (a discount that you may well have received – or exceeded – even if you didn’t offer a trade-in).

Even if the 15% to 20% p.a. depreciation claimed by Debt Free Bible is true, what effect does that have on the value of the vehicle?

Picture 2

The chart shows if you paid $25k for your new car, you can only get $12,800 if you sell it after 3 years, even if you decide to hang on to the car, it has cost you $25,000 – $12,800  = $12,200 …

… or, $4,067 a year!

[ AJC: And, don’t forget all of those other costs that we mentioned: “the finance charges, the taxes, the gas that you put in the tank, or even the tires or repair costs” 😉 ]

So, how accurate is that “15% to 20% p.a. depreciation claimed by Debt Free Bible”?

Well, a paper published by the IAES, which evaluated the depreciation rate of 15 automobile brands available in the USA for the years 2000-2004, yielded 5 tiers of depreciation rates:

Tier One: Honda and Lexus with an average annual depreciation rate of 13.4-14.1%.

Tier Two: Volkswagen and Toyota with an average annual depreciation rate of 16.5-16.8%.

Tier Three: Nissan, Mercedes, BMW, Hyundai, and Mercury with an average depreciation rate of 18.9-21.2%.

Tier Four: Chevrolet, Chrysler, and Saturn with average annual depreciation rates of 25.4-27.5%.

Tier Five: Dodge, Ford, and Buick with an average annual depreciation rate of 31.1-32.6%.

Now, using these rates, I have calculated the Half-Life of each brand for you, simply by using the Rule of 72 [AJC: divide the depreciation rate into 72; the answer is the number of years it will take to halve the purchase price] ….

Use this table to find 7 Million 7 Years Patented Half-Life For Your Next Car:

Honda / Lexus: 5 Years 3 Months.

Volkswagen / Toyota: 4 Years 4 months

Nissan / Mercedes / BMW / Hyundai / Mercury: 3 years 7 Months.

Chevrolet / Chrysler / Saturn: 2 Years 9 Months.

Dodge / Ford / Buick: 2 Years 3 Months.

Using this information, you could do some very fancy tables about the break-even point of spending more to buy a new (say) Lexus instead of a new (say) Nissan – factoring all the other costs of ownership, if you want to get real fancy – given that you have a couple of years worth of depreciation to play with …

… rather, I would like you to see that you are far better off buying a second-hand vehicle of the type that you are after, so that you can pay half-price 😉

You do this, simply by buying a 4 year, 4 month old Volkswagen, or a 3 year, 3 month old Buick, etc.

Get it?

And, even if you were determined to buy new, you are still probably better off buying a slightly ‘better’ brand used – even if it means going up a tier or two – than you are in buying a new ‘standard’ brand auto.

Sorry GM and Ford, but you are in DEEP trouble, because you simply aren’t competitive!

Can you eat a car?

I’m rapidly becoming the ‘Dear Amy’ of personal finance blogs (don’t let this stop you, I actually love receiving these types of e-mails!); Tam asks:

I am working to pay off my expensive debt which should be paid off in the next six to eight months. However, my dilemma is I LOVE cars. I want to finance (w/ a sizable down payment) a new car after my debt is paid off. I’m trying to talk myself out of it because I know I should be putting that money toward my financial goals but I just keep saying that if I can get this car, then I won’t want anything else and will be satisfied. Deep down, I know this is not true because three years later, they’ll be another new car that I will want. What can I do to stop myself from buying this new car (Nissan 370Z Roadster)?

 Man, what can I say?!

I could point Tam to the post that said not to buy a new car, or to the one that said not to finance, or even to the one that said not to spend more than 5% of your net worth on ‘stuff’ (including your car). 

I’m guessing that any one of these would be reason enough not to buy the car … instead, I just offered Tam the following advice:


Can you eat a car? 😉

Cash Cascade your car?

community7I often get comments from new readers asking where to start: so, I start from the premise that living frugally and working for 20 to 40 more years to retire on the equivalent of $15,000 today isn’t what you had in mind? If it is, then this blog isn’t for you 🙂

OK, so you’re still reading … great! In that case, the place to start is to work out what you want from your life and how much it will cost you to get it; here is a site that shows you how to work all of that out: Visit it (and, join the Community) … not only is this site totally free, I promise that it will be truly Life Changing.

Once you confirm that you do need to make $7 million in 7 years or $3 million in 10 years (or anywhere in between) then you’ll probably want some ‘quick start tips’; well, let’s start with your greatest expense: your house. This post – if you follow all the backlinks – will tell you all you need to know to make sure that your house actually HELPS you get rich(er) quick(er) instead of poorer:

And, if you’re struggling with questions around debt, then this post will totally change the way that you think about ‘good debt and bad debt’:

If you’re still with us after that, then sign up for e-mail updates and trawl through the site to see what you can find, just like this guy did …


waterfall_over_carI’m glad that some people still rummage through my older posts, as the principles of money don’t age (reference the Richest Man In Babylon, for example) …

… so, I was pleased to have this opportunity to renew this discussion when John commented on this post about cars:

I know it has been over a year since you published this but I was wondering if you could comment on a few calculations I did after reading this post. My disagreement is mostly with the Finance Vs Cash option. The buying a used car part I totally get.

Let’s say I wanted to buy a car with an MSRP of 30,000. If I put 10% money down and get a loan of 27000 for 5 years at let’s say 5% APR. At the end of 5 years I will end up paying 33,571 for the car. If I had paid in cash I would have paid 30,000 for he car. The depreciation on the car would be the same in both cases. So I ended up paying 3,571 more for the car by choosing to finance it instead of paying cash.

But here’s the thing, by financing the car, I also ended up with 27,000 of cash which I can invest elsewhere. To recover the extra 3,571 that I’ll have to pay on interest for the loan, all I need to do is to put this 27,000 in an investment that can give me an APY of 2.52% only, which is not very difficult to find at all.

This suggests that buying with cash, even for a depreciating asset, does not make all that sense. Am I missing something here?

John is basically putting forward the idea of applying Cash Cascade principles to your car … and, given the parameters that he has set, John is absolutely right: it would be better to finance your car and invest the cash elsewhere …

… at least, in principle.

However, in practice, I’m not so sure that the Cash Cascade actually would suggest that you DO finance the car.

Here’s why:

Reason # 1 : It’s unlikely that you will see 5% APR on a auto loan

5% APR car loans are not unheard of, but they are relatively rare; MSN Money cites the current national averages for auto loans as:

National Averages: Low – 3.99% Average – 6.18% High – 10.49%

So, while auto loans as low as roughly 4% (an internet only ‘special’) are available, most are in the 6% – 10% range; and, don’t forget to factor in any added fees!

Of course, you MAY be able to take a 5% HELOC on your house to raise the cash for the car, but I wouldn’t recommend a short-term loan (i.e. a HELOC) for a long-term use (i.e. financing your car over 2 to 5 years) because the bank can change the terms – or even cancel your HELOC – whenever they feel like it. Then you might be stuck with getting a more conventional loan at a higher rate (there goes your 5% loan!).

On the other hand, a refi may do the trick … but, you need to watch both the 25% Income Rule and the closing/refi costs, which are likely to push you well over the 5% if amortized over the expected life of the car loan (you’d be crazy not to have a 2 to 5 year loan payback expectation).

Reason # 2 : It’s likely that you can beat a 5% APR auto loan

This seems to contradict Reason # 1, but doesn’t …

… you see, if you do find a 5% APR loan, it will most likely be offered by an auto dealer. However, the chances are that it comes with a catch: the car isn’t discounted as much as it could be!

A low (or even zero) APR loan is a very common manufacturer / importer / dealer incentive … but, they do a deal with their finance company (often manufacturer-owned, like GMAC) whereby they pay the differential interest rate for you and up front. Back to the catch: they load the price of the car to offset the pre-paid interest component. Sneaky, huh?

Reason # 3 : Even if you can’t beat the 5% APR auto loan you’d better have the cash ready

But, let’s assume that you go to the Pentagon Federal Credit Union for the only 4% APR rate that I could find that wasn’t loaded with fees, and they do give you the loan …

… you had better have the cash ready to buy an investment reasonably quickly.

If you don’t have already have the cash saved up then you should be prepared to save up until you have the lump-sum cash then decide if you want the car only or both the car and the investment. No point borrowing money for the car and trying to save up for an investment … unless, you really, really, really need the car right now! 🙂

… oh, and if you’ve read all the way to here, then you might want see what my 7 Millionaires … In Training! are up to; kind of like American Idol Meets The Apprentice …except it’s online 🙂

Car or curse? 7 case studies …

fred-flintstone-barney-rubble-carWe all have a car … otherwise, we’d be cycling to work. But how much car? Do you buy new/old or somewhere in-between? After all, our car is one of our largest purchases … if not, largest purchase outside of our own home.

So, here’s 7 case studies from our 7 Millionaires … In Training! ‘grand experiment’.

Let me know what you think …

Scott – like so many of the 7MITs featured here – loves his BMW’s … in fact, even AJC happens to have one, at the moment! The best thing, for Scott, is that his employer provided his current BMW for ‘free’ … but, is there really such a thing as a ‘free lunch’? We explore that very issue …

Ryan also likes BMW’s, which cause Josh to recommend buying a new one because it means NO “maintenance bill for 4 years, 50,000 miles” … is this a good deal?

Josh is obviously the other BMW-fan; we use his post to re-introduce the 5% Rule for cars and other possessions; should Josh have broken the rule to get int his first car? You might be surprised by the answer (it’s in the comments)!

Lee sure knows how to run a truck into the ground! Take a look at his attitude towards financing vehicles and how long you should hold on to your truck for …

Mark – the savvy investor – shows the other BMW-lovers how to buy a good used one off e-Bay and negotiate the price lower AFTER you have already ‘bought it’ … nice!

Diane and I have a discussion around what comes first, the “debt or the car”? It’s moot … Diane know what she needs to do!

Jeff has the cars the boat and the airplane (well, the airplane is supplied by the Navy!) … but, at what point is it better chartering a boat than owning one?!

… oh, and I finally come clean on my own car-related successes and failures, here

Let me know about yours!?


Ferrari in Paris 

When I worked in the corporate world, we sometimes used to show little ‘coffee break’ videos just before going on break between training sessions …

… usually inspiring and entertaining. That’s what has inspired this ‘video on Sundays’ series of posts; think of it as a little ‘coffee break’ between weekly blogging sessions.

 And, thanks to YouTube I found my favorite such video:


PS The only ‘loose’ connection that I can find with finance, though, is the Ferrari that this guy was (really) banging around the streets of Paris … this was filmed on open roads and the guy, a racing car driver, lost his licence for life … apparently, red lights mean nothing to the French!

Calculating your Investment Net Worth

I found a site that I really like; it’s called Net Worth IQ and it’s a social network around calculating (& sharing if you feel so inclined) your net Worth.

 To be conservative in calculating your Net Worth, you should LEAVE OUT:

a) Any ‘equity’ in your house that you NEVER intend to release as investment (i.e. borrow against for purchasing, when the timing is right, income-producing-buy-and-hold-investment-real-estate).

b) Any supposed ‘equity’ that you have in your business.

Let’s call the result your INVESTMENT NET WORTH …

 It’s the only one that matters!


Well,there are only TWO reasons to even bother calculating your Net Worth:

1. To ensure that your ‘portfolio’ matches the Rules of the Rich (e.g. the 20% ‘rule’ on home equity that I talk about in a recent post), and

2. To check whether your INVESTMENT NET WORTH (which should be in passive income-producing investments by then) can FUND your ideal retirement with at least 99% chance that your money won’t run out before you do.

I must confess that for the purposes of the Net Worth IQ site … I broke those two rules, so I should lower my Net Worth by approx. $2.5M, and I may make that change later – I haven’t decided yet.

BUT, I have already done the calcs and am acutely aware that my INVESTMENT NET WORTH can EASILY fund my retirement starting next year (I’ll be 50 … now, that’s old, Man!).

If this makes sense to you … check out some Tips that I have already left on that site and this blog.

Now, what’s YOUR Investment Net Worth … more importantly, can it fund your IDEAL retirement?

Never buy a new car … really.

[pro-player width=’530′ height=’253′ type=’video’][/pro-player]

A quick tip for you …

… never buy new, this is more true for cars and even more true the higher the price of the car.

For example, the sticker price on my car, was $120k, but I looked around (actually, I just did a quick google search or two) and found the exact make/model/year (2007) that I wanted at a specialist dealer.

I found a car, in my own city no less, that was just 6 months old with only 1,700 miles on the clock in perfect condition for less than $90k … $30k buys a lot of enchiladas in anybody’s book!

I don’t think that I just got lucky …

I have found that the higher in price you go, the more fickle the customer … they buy cars on a whim and churn them quickly when they find out they would have rather had a boring ol’ Merc!

This works at pretty much any price range, too. If you want a more standard car, check out the leasing company sales (maybe at auction) for executive vehicles … a downturn means executive redundancies … redundancies means near-new cars available cheap!

The effect is even more pronounced when you buy imports (except for top line Italian sports cars, and certain Mercedes and BMW’s) because they depreciate by as much as 20% the minute that you drive them out of the showroom!

[Hint: next time don’t even go into the dealer’s showroom to buy that new car, just wait for the ‘other guy’ to drive their’s out, then offer him 85% of what he paid … give the poor sap your card … you just might get a call].

I once had a SAAB and every time I tried to sell it the price dropped more than I could accept: the first time I tried to sell it, I wanted $45,000 for it, but was only offered $35,000. So I waited a year …

Then when I tried to sell it for $35,000 I was only offered $25,000; the next year I got sick of waiting and just sold it for only $15,000!

I would rather have been the guy offering $15,000 than the guy selling.

Happy bargain hunting!