Money Matters

Larry Burkett

• Éditeur: Thomas Nelson
• Année: 2001
• ISBN:
  9781418556440
• Sujet: Teologia e religione
• Sous-sujet: Studi biblici

One of America's foremost authorities on financial stewardship, Larry Burkett presents a comprehensive resource in Money Matters. Indexed for easy use, Burkett offers concise answers to the most frequently asked questions from his national radio show. Drawing from over thirty years of Bible and finance study, Burkett provides principles for managing your money in a number of categories, including: housing and automobiles, retirement, budgeting, taxes, business issues and insurance, debt and credit, giving, investments, family and money issues.

Money Matters isn't just for those in need of financial Rx. It's an ideal resource for anyone desiring to align finances with Biblical principles.

1
Automobiles

THE PURCHASE OF AN AUTOMOBILEIS the second largest expense that most families will incur in their lifetimes. In reality, if you take the cumulative total of automobiles purchased during the life span of most people, it may well be the largest single expense that most of them incur. And that’s especially true when you factor in the associated costs of maintenance, gasoline, insurance, and other expenses. It’s important for most families to understand the consequences of making good financial decisions about automobiles.

I believe I can say without fear of contradiction that the vast majority of American families are living well beyond their automobile budgets. They buy new cars when they really can afford only used cars; they finance their cars without any expectations of ever owning a car debt free; and most of them are more concerned with the monthly payments than they are with the retail cost of their cars.

Our motorcar is our supreme form of privacy when away from home.

Marshall McLuhan

Also, in my opinion, car leases are the worst deals available for nonbusiness car buyers.

Question:

Is it a good idea to lease an automobile?

We’re getting ready to buy a new automobile. My husband is a salesman and needs a good car in order to do his day-to-day routine. Unfortunately, we don’t have enough money saved to buy an automobile for cash; neither do we have enough money to make a down payment on a vehicle. Do you think that a lease is a good alternative for families like us?

Answer:

In my opinion, because of the depreciation on the automobile as soon as you drive it off the lot, buying a brand-new car, by whatever means, is not a good deal for the majority of people. Typically, a new automobile will depreciate between 15 and 25 percent of its initial value, depending on the type of car and the retail price, just as a result of titling the vehicle. That’s a lot of depreciation for most people when you figure that a $30,000 automobile may lose as much as $7,000 to $8,000 of its value just as a result of your purchase. That doesn’t seem like a good deal to me.

Further, the difficulty with buying new automobiles is simply compounded in a lease. This is because the dealer and the manufacturer are going to make a profit on each automobile, whether you buy it outright for cash, buy it with a loan, or lease it. The difficulty I see with leasing an automobile is that you usually are paying maximum retail price for the vehicle and financing it at high market rates. And, in the end, you still don’t own it.

Unfortunately, most people are not even concerned with what a vehicle costs them. All they’re concerned about is the monthly payments; and the same is true if they lease. When an automobile is leased, the contract carries with it penalties for excessive mileage—mileage in excess of what was agreed to in the contract, which is usually around 15,000 miles per year. Many families today will put more than 15,000 miles a year on a vehicle, so when they return the car, after the lease period, they owe mileage penalties. They also may owe wear penalties—that’s a penalty to cover the excessive amount of wear and tear on the automobile (in the leaseholder’s opinion).

Another thing to remember is that signing a lease is just as binding as signing a contract to buy a car. If you want to get out of the lease early, you’ll owe early payoff penalties on the vehicle, plus whatever wear and tear is assessed.

One caution I offer to anyone who is already driving a leased vehicle: Don’t allow any other person, friend or otherwise, to assume your lease. Your name is still on that contract, and if that person doesn’t pay, you’re going to pay. If the car has been abused, you’ll be stuck with the bill for the wear and tear as well.

Bottom line, I don’t believe that leased automobiles are an especially good deal. In fact, for most individuals outside of the business environment, leases are a very bad deal. Normally, I don’t recommend leasing a car.

God’s Word says, “Which one of you, when he wants to build a tower, does not first sit down and calculate the cost, to see if he has enough to complete it?” (Luke 14:28). Most people don’t consider the total cost.

Question:

Is it better to keep an old car and repair it or trade for a new one?

My husband and I drive two old cars, one with 150,000 miles and the other with over 180,000 miles. At what point should we decide that it’s no longer profitable to keep these old cars and trade them in for new ones? I’ve heard you say many times that the cheapest vehicle to drive is the one you’re driving, but is that always true? Don’t cars eventually wear out?

Answer:

Yes, you’re absolutely right. There is a point at which it’s a losing proposition to try to maintain an old automobile. That’s particularly true with a car that has in excess of 200,000 miles, because often at that stage metal fatigue sets in and the car begins to disintegrate.

In general, though, the cheapest car to drive is the one you are driving. Of course, that will depend on the specific car you own (some cars are just better than others), how much mileage it has, and your use of the automobile. If you just drive your vehicle around town, a breakdown might not be a major catastrophe. However, if you drive it long distances and use it to make a living, that’s something else.

Let me mention another point: If you’re trading in an old vehicle, generally you’re better off to sell it on your own or give it to a nonprofit organization (and write it off on your income tax) than you are trading it in. Usually, if you trade in an old automobile, the dealer will appear to give you something for it but actually will mark up the price of the vehicle you are buying to compensate for it. After all, the dealer has the same problem trying to sell an old used car that you have.

I caution most young families not to buy new cars. Buy an older car, perhaps one to two years old with a reasonable amount of mileage on it. A two-year-old car with reasonable mileage, in my opinion, would be about 20,000 miles; a one-year-old car, about 10,000 to 12,000 miles. There are very good buys in what are called program cars (some call them demos). These are nearly new cars that have been driven by employees of the dealership. They usually put between 8,000 and 12,000 miles on the vehicles and then resell them. Often you’ll get a significant discount on these vehicles (see item 1.2 in the Appendix).

Question:

What do I do with a car that has payments that are too high for us to afford?

About a year ago, we bought a brand-new automobile because our old one was pretty much worn out. We now realize that the payments, almost $190 a month, are far too high for us to afford. However, when we checked the value of the car, we found that we still owe more than the car is worth. What options do we have? Should we take the money out of our 401(k) to pay it off ? Do we have the option to just give the car back and buy another used car?

Answer:

No, you can’t just give the car back. You have a contract. Your purchase contract may not be with a dealer; it may be with a third-party financier, and the financier doesn’t want your car back. If he does get it back, he’s going to sell it at a discount and sue you for the difference.

Automobile:the down payment on a finance company.

Morton Thompson

In most instances, you’re far better off trying to sell the automobile yourself, with the lender’s permission, and surrendering the sales price to the lender. Then you’ll have to sign a note for the deficiency (the difference between what you sold the car for and what you still owe on it). But normally, you’re going to lose less if you sell the car yourself.

You also asked if you should use your 401(k) to pay off your car. Remember that when you prematurely withdraw money from your retirement account, prior to 591.2 years of age, you do pay some stiff penalties: a 10 percent penalty on the early withdrawal of the money, plus federal tax and state income taxes. That’s a large expense to pay for a vehicle. I can’t tell you that you should never use retirement funds, but look for other options first—perhaps a loan from the 401(k) would serve you better.

Unless selling the car and signing a note for the difference would jeopardize your finances, I would not recommend using the 401(k) as an option. You really don’t solve your problem; you just shift it to a new location for a while. Also remember that when you dispose of a car prematurely, even with the lender’s permission, it will go on your credit record for up to seven years, so this is not a thing to take lightly. “Better is a little with the fear of the LORD, than great treasure and turmoil with it” (Proverbs 15:16).

Question:

How much should we pay for the new car we are planning to buy?

Answer:

If you’ll look at the Percentage Guide table in the Appendix (see item 17.0), you’ll notice that you should spend no more than 15 percent of your Net Spendable Income (that’s your income after paying taxes and tithes) on your automobile. Note that the percentage includes the expenses to cover the loan payments, insurance, maintenance, fuel—everything that goes into your vehicle, including its eventual replacement.

It’s very important to select a car you can afford and not be dazzled by the attraction of new ones. The vast majority of American families earning less than $50,000 a year cannot afford to buy a new car—ever! You should buy a good used vehicle—one you have very carefully selected that will meet your needs.

When I buy an automobile, I first check very thoroughly the model I want. The resources I recommend are Consumer Reports magazine, as well as one of the national auto-trade Web sites. Some of these Web sites are listed in item 1.2 in the Appendix. It’s very important that you stay within your budget and select a car you can afford.

“Without consultation, plans are frustrated, but with many counselors they succeed” (Proverbs 15:22).

One of the ways to find a good used car is to ask your friends and family if they have one for sale. Many times they do and just haven’t mentioned it. If you can’t find one among your friends and family, go to your local newspaper and try to buy from an individual. That way, you can talk to the owner, see the car, and drive it before you make a decision to buy. Plus, in most states, there’s no sales tax on private owner sales.

In my opinion, the last place to shop for an automobile is at a dealership, unless you know the dealer personally. It’s not that most dealerships are dishonest; they aren’t. But remember that they buy these cars at used car auctions and rarely know the total history of the automobile, so you won’t know what you’re getting.

Question:

Should we borrow against our home equity loan to pay off the car we purchased that was too expensive?

Answer:

I have to admit that sometimes this is not a bad idea, because quite often you can get a better home equity loan than you can a car loan. And remember also that, in most instances, if you itemize your deductions the home equity loan is deductible on your income tax. So, effectively, you end up paying less for the automobile.

Car sickness:the feeling you get each month when the payment is due.

Anonymous

However, remember this: When you borrow against your home, particularly on a home equity or a second mortgage, the payments can be extended for a longer period of time, meaning that although you’re paying less interest initially, over the long run you may be paying more in absolute dollars.

Also, before you consolidate any loans, I recommend that you get on a good budget...