Badass vs Dumbass
Master your Financial Kung Fu to be one and not the other.
Go to Sifu’s Notebook for 13 Reasons to Choose a Used Car Over New
Primer: Who are Sifu & Ronin
Episode 20: Sifu Loves His Classics
Sifu: Good morning #1.
Ronin: Morning Sifu. I’m still not convinced I should look at a used car over a new one. I know – you did show me how I can get a great set of older wheels, but I dunno boss.
Sifu: Ronin, this is a big decision and a tough one, so I get it. What I haven’t done yet, is share the critical reasoning behind going used over new. You can’t make a good decision without all the information.
Ronin: Oh, there’s more to learn about this biz?
Sifu: Oh yeah. Before we dive in, what’s with your cousin, Cletus?
Ronin: What about him, boss? You just started giving that big dummy his personal finance lessons, right?
Sifu: Yup, just started. He came in yesterday and I was blown away!
Ronin: What did that idjit do now. With him, the lights are on, but most days, no one’s home. He says he likes the look of his kicks when the laces are untied. I personally think he doesn’t know how to tie them!
Sifu: Hahaha. That character is definitely more Deadpool than Brainiac. What stunned me was how he rolled onto the property. You told me many times that he drives a Stang, but I had no idea it was a classic ’69 Mustang Mach 1.
Ronin: Why is that special, boss?
Sifu: A little history for you, son – there were a lot of cool Mustangs made over the years. The Mustang 5.0 became very popular in the 80’s and 90’s because it was the pure American Muscle Car. It put out impressive power for the day.
Ronin: This is the dope history that they didn’t teach us at school, boss!
Sifu: Yup, I know – school was def not cool. So, the sickest most iconic Mustangs are from 1968 and 1969. First, the ’68 Mustang GT Fastback because Steve McQueen drove that like a bat out of hell in the streets of San Francisco in Bullitt. And, the ’69 Mustang Mach 1, which Cletus drives, is special because it is the car of our favorite hero, John Wick.
Ronin: Whuuuuuut?! Dumbass Cletus is now my new hero!
Sifu: Exactly, #1. That loveable doofus is a whiz at two things, not one. He’s a money making machine AND he knows exceptional cars. Gold star from this teacher.
Ronin: Nice! Maybe his two superpowers are enough to make up for his daily dumbassery. Yin and Yang, am I right, Sifu?
Sifu: Well, it’s a start, but he has much to learn. Let’s hope the sessions with me will help him.
Ronin: 100% they will, boss! Haven’t I come far from the early days?
Sifu: Indeed, #1. You have made some progress, but you too are just beginning your journey. I don’t believe you’ve escaped Dumbass Island quite yet.
Ronin: Doh!
Sifu: The reason I brought up Cletus specifically is because even a dumbass like him understands that you don’t need to buy a new car. In fact, I’m sure he can buy 10 new cars with a call to his banker, but he chose to go used. See, if he can do it, so can you!
Ronin: Oh man, gotta take a page from my dude, Cletus now. What’s the world coming to? Hee-hee.
Sifu: OK, let’s get to the gold! Reasons why going used is one financial badass decision. The most consequential one is the “Opportunity to Invest the Difference”. I am saving that beast for another day, because that’s worth a whole lesson by itself. It is that significant, and deserves a deeper dive.
Ronin: Oh, keep the good stuff until the end, eh?
Sifu: Yessir. But, there are quite a few great ones beside that.
Ronin: Aight! Let’s rock this, Batman!
2. Immediate Depreciation Impact
Sifu: #1, are you aware that new cars lose approximately 20% of their value the moment they are driven off the lot.
Ronin: Say what?! That’s crazy, Captain. I’d be tempted to drive back onto that damned dealer lot and ask for my money back!
Sifu: Heard. Sadly, they would laugh in your face and give you back 80 cents on the dollar. A contract is a contract. You can’t mess with the dealers. They have all the power in this case.
Ronin: Bastardos!
Sifu: Fact. It’s gets better – depreciation continues rapidly in the first year, resulting in a significant loss of value. A new car purchased for $60,000 could lose $12,000 in value immediately. A used car bought at $10,000, which has already undergone this initial depreciation, avoids this massive percentage loss.
Ronin: Hmmm. Sounds like throwing money out the window while driving this amazing new car. Noted.
3. Lower Purchase Price
Sifu: Now, used cars are significantly cheaper than new cars, obviously. This allows you to save money. A new car priced at $70,000 might be available as a used model for $20,000. That’s $50k saved while you can be driving a similar car.
Ronin: So, no new car smell but save 50 stacks! WTF bro. Where do I sign up?
4. Reduced Insurance Costs
Sifu: Are you aware that insurance premiums for new cars are higher due to their higher replacement value. Used cars typically have lower insurance costs. I presume you’d like to keep that extra cash for yourself, am I right?
Ronin. 100%. I can take those savings and plough them back into my investing efforts. Damn! Boss, I think I’m starting to think like you without even thinking about it.
Sifu: Hee-hee. That’s a lot of thinking for you in one day, Ronin. I hope you’re not hurting yourself.
Ronin: Good one, Sifu!
5. Avoiding the New Car “Smell” Trap
Sifu: Now, that new car smell that sucks buyers into making an emotionally driven purchase – Fuhgeddaboudit! You’re paying tens of thousands more for that nasty odor – you got to be kidding me! Did you know that aroma actually comes from the off-gassing of plastics, synthetics, adhesives, sealants other weird-ass VOC’s.
Ronin: Yowza! I wouldn’t doubt that shite stench is terrible for our health. Stanky MoFo’s! I think I’d rather take my honey out on a date, and smell her fragrance for free. Not sure if her fragrance is good for my health, but trust me my dude, I think it’s def good for me 😉
6. Lower Financing Costs
Sifu: Of that, I am 100% certain. Now, if you’re going to get a loan on that new car, the financing rates are typically higher than those for used cars. To boot, a smaller loan amount for a used car generally results in lower interest payments.
Ronin: Yessir, Cash Man. No need to give the bankers more of my money.
7. More Value for Your Money
Sifu: I totally concur, #1. Now, used cars often allow you to buy a higher-end model with all the cool comforts, features and power for the same price as a lower-end new car. You could buy a used luxury car for $15,000 instead of a new economy car for the same price. Save big bucks and enjoy an even better driving experience. You feel that, bro?
Ronin: You kidding me, my man? I can drive in serious style and save a ton of greenbacks. I am so locked and loaded, boss. Ultimate driving machine, daddy’s coming!
8. Reduced Overall Cost of Ownership
Sifu: Now, usually new cars will require less maintenance and repairs than used cars. But, a used car with a reputation for reliability might actually have lower annual maintenance costs compared to a new car that will require expensive repairs after the warranty period ends.
Ronin: Yikes! So, just do my homework beforehand, and save on potential maintenance costs. Done and done!
9. Environmental Impact
Sifu: Now producing new cars consume significant resources and energy. Choosing a used car reduces demand for new car production, benefiting the environment. You young people care about the earth more than us boomers, right? Smaller carbon footprint, sustainable living and all that jazz.
Ronin: You got it, bro. Saving the planet is my side gig. Hee-hee. Yeah, I’m on board, for sure.
10. Historical Reliability
Sifu: If you pick the right older model, they often have a proven track record of reliability based on owner feedback. This track record can inform you about the car’s reliability. A used model with several years of positive reviews is likely to be more reliable than a new model with limited performance history.
Ronin: Avoiding lemons is easier then! Nice.
11. Less Stress Over Wear and Tear
Sifu: Now, new car owners often stress about maintaining the car’s pristine condition. With a used car, you can be more relaxed about everyday wear and tear. Can you imagine getting a scratch or tiny ding in your brand new car – you would take a fit! Now, if it was a few years old, it would still suck but probably not give you road rage. Did that anger management lesson work you, bro?
Ronin: Yeah, it’s all good, but don’t anyone fucking mess with my whip! Ok ok, I’m chill …
12. Avoiding Buyer’s Remorse
Sifu: New car purchases can lead to buyer’s remorse especially if financial strain becomes apparent later. Buying an affordable used car totally reduces the risk of massive regret.
Ronin: Keep my sanity? Definitely!
13. Better Negotiation Leverage
Sifu: Lastly, negotiating the price of a used car is way easier than trying to haggle with new car dealers. Dealers are often more willing to lower the price of used cars to close a deal. Some new cars have fixed prices too.
Ronin: Yeah, my strategy is to bring second cousin Cletus with me when I hit the dealerships. One look at that dude, and the sales guy is less likely to cheat us. Little do they know, Cletus is only tough on the outside. He wouldn’t hurt a fly.
Sifu: You should bring me instead. I murder all flies.
Ronin: Doh!
Sifu’s Notebook
13 Reasons to Choose a Used Car Over New
When aiming for Financial Independence and Retiring Early (FIRE), smart financial decisions are key. One such decision is opting for a used car at 25-30% of the original price rather than buying new. Here’s a detailed look at why this choice can support your FIRE journey, with two points and an example for each reason.
1. Opportunity to Invest the Difference
- Money saved from buying a used car can be invested for future growth.
- Investing the savings can significantly enhance your FIRE journey.
Example: If you save $40,000 by choosing a used car, investing this amount in the stock market at an average return rate of 9% could result in substantial growth over several years.
2. Immediate Depreciation Impact
- New cars lose approximately 20% of their value the moment they are driven off the lot.
- Depreciation continues rapidly in the first year, resulting in a significant loss of value.
Example: A new car purchased for $50,000 could lose $10,000 in value immediately. A used car bought at $12,000, which has already undergone this initial depreciation, avoids this $10,000 loss.
3. Lower Purchase Price
- Used cars are significantly cheaper than new cars, allowing you to save money.
- Lower purchase price means you can buy a higher-end model or put the difference into investments.
Example: A new car priced at $70,000 might be available as a used model for $20,000. The $50,000 saved can be invested, potentially earning significant returns.
4. Reduced Insurance Costs
- Insurance premiums for new cars are higher due to their higher replacement value.
- Used cars typically have lower insurance costs, reducing your monthly expenses.
5. Avoiding the New Car “Smell” Trap
- The new car smell can lure buyers into making an emotionally driven purchase.
- Focusing on long-term financial benefits rather than short-term sensory experiences leads to better financial decisions.
6. Lower Financing Costs
- Financing rates for new cars are typically higher than those for used cars.
- A smaller loan amount for a used car generally results in lower interest payments.
Example: Financing a new car might have an interest rate of 9%, while a used car might be financed at 7%. This lower rate can save you hundreds of dollars over the life of the loan.
7. More Value for Your Money
- Used cars often allow you to buy a higher-end model for the same price as a lower-end new car.
- This provides better features and comfort without stretching your budget.
Example: You could buy a used luxury car for $18,000 instead of a new economy car for the same price. The luxury car might offer more advanced features and a more enjoyable driving experience.
8. Reduced Overall Cost of Ownership
- Used cars generally have lower maintenance and repair costs compared to new cars.
- New car warranties expire, leading to higher repair costs as the vehicle ages.
9. Environmental Impact
- Manufacturing new cars consumes significant resources and energy.
- Choosing a used car reduces demand for new car production, benefiting the environment.
10. Historical Reliability
- Older models often have a proven track record of reliability based on owner feedback.
- This track record can help you make a more informed decision about the car’s reliability.
11. Less Stress Over Wear and Tear
- New car owners often stress about maintaining the car’s pristine condition.
- With a used car, you can be more relaxed about everyday wear and tear.
12. Avoiding Buyer’s Remorse
- New car purchases can lead to buyer’s remorse if financial strain becomes apparent later.
- A more affordable used car purchase reduces the risk of regret and financial stress.
13. Better Negotiation Leverage
- Negotiating the price of a used car can be easier and more flexible.
- Dealers are often more willing to lower the price of used cars to close a deal.
