Personal Finance

Do not be swayed by salespeople

  • Dave Ramsey

Dear Dave,

Iíll be graduating from college with no debt in a couple of weeks, and I have a good job waiting for me in January. During the last few years, Iíve managed to save almost $25,000 from my part-time jobs while in school. My car is pretty beaten up and old, so Iíve been shopping at a couple of car dealerships recently. Every time I talk to a salesperson, they tell me I should finance something new instead of paying cash for a used car. What should I do?

ó Ethan

Dear Ethan,

I hope youíll keep one very important thing in mind. This is your purchase, not theirs. The only reason they want you to finance something is so theyíll make a lot more money off the deal. Forget what they want. You need to do whatís best for you.

Youíve been a hard-working, smart guy over the last few years. The fact that youíve been able to save nearly $25,000 is proof of that. I donít think you want to throw a big chunk of your savings ó or your new income ó into something thatís going to go down in value like a rock. New cars lose about 60 per cent of their value during the first four years of ownership. That means a $28,000 car would be worth around $11,000 after that period. Thatís not a smart investment.

If I were you, Iíd shop around and pay cash for a nice, slightly used $10,000 car. You can get a great automobile for that kind of money, plus youíll still have the majority of your savings.

Congratulations, young man. Youíve done a great job!

ó Dave

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Dear Dave,

As part of your Baby Steps plan, you always advise people to put 15 per cent of their income towards retirement. Would you explain the details of this, please?

ó Mallory

Dear Mallory,

For starters, Baby Step 4 of my plan involves saving 15 per cent of your gross annual pay for retirement. You donít have to be a complete nerd about this figure. I mean, you probably wonít end up in the poor house if you set aside 12 to 14 per cent. The bottom line is you should be able to save $7,500 a year if you make $50,000 annually. Thatís just a little over $600 a month.

However, the only way you can do this is by giving up stupid things like credit cards and car payments. When you get out of debt, itís easy to set aside an emergency fund of three to six months of expenses ó which is Baby Step 3 ó and start throwing 15 per cent at retirement during Baby Step 4.

Did you know you can retire a millionaire if you save 15 per cent of a $50,000 a year income, and invest it in good growth stock mutual funds starting at age 30? Sounds worth it to me!

ó Dave

ē Dave Ramsey is CEO of Ramsey Solutions. He has authored seven bestselling books, including The Total Money Makeover. The Dave Ramsey Show is heard by more than 14 million listeners each week on 600 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey