Who Wants to Be a Millionaire? Change Your Car Buying Habits.

Many who lament not being able to save any money could save millions by changing the way they buy cars. Often, a small change of habits can make huge differences, like the difference between retiring financially free or having to greet people into Wal-Mart in your later years.

In 2007 Consumer Report studied the difference between buying a new Honda Civic EX and maintaining it for 15 years, versus buying a new one every 5 years. If you kept it 15 years, you'd save about $1400 per year. (They were pretty thorough in this study, figuring in the costs of repairs, etc.) Do that for a lifetime and invest that $1400 at the market average of 10% per year and in 60 years of driving you've got $4.5 million!

Think about this. It's astounding. Just by keeping a car longer, you could save a fortune. Even if you just kept the car for 10 years instead of 5, the savings would be astounding.

One of my cars, a Mazda Millenia, has 230,000 miles on it and is running great. I can't find a good reason to trade it in.

If you want to save even more, do what I do. (Don't turn me off here...I know it's radical.) Think of a car as reliable transportation, period. Forget the image thing. Get over the peer pressure to have a car that reflects a high status - many never get over it, and it costs them millions.

Find a good, trustworthy mechanic who sells used cars that have already depreciated greatly. I bought a car last month with under 80,000 miles for $1400, including four new tires. I buy cars outright, never making payments. It runs great and I hope to get 200,000 miles out of it. But the reason it sold so cheap was that it has a big dent in a part of the car that's difficult and costly to repair. But it doesn't affect the performance of the car in the least. I have no plans to repair it.

I don't feel embarrassed to drive a car like this. I actually feel rather smug for beating the system. I recall recently speaking to a lawyer who'd been downsized out of his practice and had to launch out on his own. Money was suddently tight and he was stuck making huge payments on his exorbitant car. "I thought I was pretty smart when I bought it," he told me. "But now I feel pretty dumb."

One of the reasons that self-made billionaires Warren Buffett and Sam Walton did so well was that they were totally unconcerned about the appearance of wealth. They drove normal cars (Walton drove an old truck), especially in their early days. Their frugal, early decisions paid off over time in both their personal and business finances.

Many people could be having a lot more fun and saving a lot more money if they simply didn't have a car payment. Work toward paying off that car, save up for the next one, and get on the road to financial freedom.

Ramsey Reflections, Part 5

Continuing reflections on Dave Ramsey's Town Hall for Hope...

Takeaway #6: Three Things to Do If You're Losing Hope

1 - Get up! Take action! Get moving!

Don't wait for Congress or the President to rescue you. There's a great place for you to go when you're broke: to work! If you don't have a job, talk to everyone. Think creatively, be proactive.

2 - Don't participate in loser talk!

One survey found that your income will likely be within 10% of your closest friends. Some have "The Spirit of Eeyore" upon them, because they sit around moping with their loser friends.

Read "Who Moved My Cheese?" Our cheese has been moved. We've got to start thinking different. Be a reader. Keep learning.

3 - Learn to Give Again

Give extra during difficult times. If you don't have money, give of your time. Serve the homeless, serve soup at the union mission. Visit someone in a nursing home. The more you give hope, the more hope you'll receive.

Thanks, Dave, for an inspirational, fun-filled, hope-filled evening!

This post by J. Steve Miller, author of Enjoy Your Money: How to Make It, Save It, Invest It and Give It.

On Predicting the Economy

To make business plans or retirement plans or even plan for a summer vacation, we'd like to take into account the future of the economy. If things are to get worse, we need to go conservative. If they'll pick up in six months, we'd like to start paddling out into the surf so that we're ready to catch the next wave of growth and prosperity.

Since we're not economic experts, we rely on the opinions of those who spend their days researching the economy, interviewing people on the economy, and helping to set government policy concerning the economy. That's probably why CNBC has record ratings during this economic crisis. We crave expert advice.

Which brings up an important point: can the experts be trusted when they make pronouncements like, "The next six months will be rough, but I see us getting back to steady, albeit slow growth in the last half of the year."?

Unfortunately, I don't believe there's adequate evidence that the experts can predict the future of the economy. Here's why...

1) Governmental figures and most heads of companies have every reason to bias their reports toward the positive. This is shown on a smaller scale by how CEO's of failing companies keep giving hope to their employees and stockholders, even when all the facts in their grasp tell them that the company will fold completely in six months. If they were to admit that the company's failing, stockholders would immediately sell all their shares and employees would bail for other jobs.

Aren't government officials in the same position? If they felt the evidence led them to think we were headed for a depression that history would label "The Greater Depression," they couldn't speak out about it, lest everyone lose confidence in the economy and sell off all their stocks, thus ushering in an even worse recession.

2) Studies show that experts do a poor job of predicting the economy. Professor Philip Tetlock teaches at the University of California-Berkeley. He's an expert on top experts. For about 19 years (culminating in 2003), he studied 300 academics, economists, policymakers and journalists, to find out how they made their economic forecasts and chart how often they were right. According to Tetlock, "we found that our experts' predictions barely beat random guesses - the statistical equivalent of a dart-throwing chimp.... Ironically the more famous the expert, the less accurate his or her predictions tended to be."(1) Thus, odds are, that expert you heard forecasting the economy on the evening news, if you were to chart his past predictions, would probably have been wrong as often as he was right.

My guess as to their inability to conjure up an accurate picture of our economic future is that, in order to predict it, they'd have know many facts that nobody can possibly know. For example:

• If our economy did better after government intervention following the last depression, how can we know for certain that the government intervention was the cause of the recovery.
• Since no two economies are ever identical (in a sense, a visit to the past is a visit to a foreign country), how can we know that what worked then will work now?
  
• The world's economies are more entertwined than ever before. How can we know what may happen in another country to either delay or speed our recovery?
  

Those are just three of the difficulties that I see springing up from a veritable Pandora's Box of economic possibilities.

So what do I do in the present economic climate? Despair?

No, I simply do what everyone should have been doing when most economists were predicting more cheery economic futures - don't believe them. Nobody knows. Realize that at any time, things could turn around and we'd be off to a prosperous decade, so that whoever bought up the cheap stocks would look brilliant in retrospect. Alternately realize that at any time, the economy could go to hell and we'll see a repeat of the Great Depression. Then again, things may continue as they are now for some time, neither getting better nor worse.

As author Kurt Vonnegut observed in his novel, Slapstick, "History is merely a list of surprises. It can only prepare us to be surprised again."

In other words, we don't know the future. Once we accept that, we can go about our plans with that in mind. That's why we major on the basics that work in any economy:

• work hard. You never know when you might get sick or your services might no longer be required.
  
• keep sharpening your skills so that you'll be the last one fired in a downturn and the first promoted in good times.
• save all you can.
• keep a large emergency fund on hand in case you lose a job for an extended time.
• don't live beyond your means. Debt is always scary, good times or bad.
  
• diversify your investments. Since the past isn't prologue, we can't know if the long-term gains of stocks or bonds or CD's or real estate will be the same as the past. Since we can't know which will do better, we diversify.
  

Disagree? Agree? Want to add to the discussion? Feel free to post your opinion below.

End Note

1) Eric Schurenberg, Why the Experts Missed the Crash, Money Magazine, February 18, 2009, 4:10 PM, ET.

Saving on Repairs: A Few Simple Questions That Can Save Hundreds of Dollars

When I have to get something repaired - whether it be my dishwasher, car, lawnmower or leaky faucet - I've started asking a few simple questions that are starting to reap benefits. Here's what they are (specific to my lawnmower):

Question #1: When people bring in a lawnmower that won't start, is it typically the same few trouble spots 80% of the time? (They almost always answer "Yes!")

Question #2: What are the typical problems? (Example: clogged air filter, low oil, needs new spark plug.)

Knowing the answers to these questions for my plumbing, lawnmower and furnace (change the dirty filter!) saves me hundreds of dollars.

Example: Yesterday I took my pushmower, which wouldn't start, to the cheap-o repairman down the street who works out of his home (I reasoned: "low overhead can lead to lower prices.") I asked him the questions, to which he replied, "new spark plug, clean air filter, change or put in new oil."

You might think people would be reluctant to share their secrets, but I find them honored by asking for their wisdom within their area of expertise.

Next, he said he wanted to pull off the air filter to check the carburator, so that he could give me a better estimate as to what the repair will run me. As he looked into it, he grimaced to inform me that the carburator was all black, indicating that he'd need to rebuild the carburator. Also, he'd need to do a full service (filters, plug and oil), and oh yes, that blade needs to be replaced. The bottom line - $100 worth of repairs.

It was my turn to grimace as I told him politely that I'd rather not spend so much on something I could buy new for $135, so I put the mower back in my car and went my way. On a whim, I stopped at an Auto Zone and purchased a new spark plug for $1.50. When I got home, I put in the new plug (about a two minute process) and cranked it up. It hummed like a new machine and has worked fine ever since.

A couple of things about that episode keep reminding me of the word "shyster." First, he didn't want to replace the carburator - he wanted to "rebuild" it, meaning that if he did nothing to the existing carburator, I would have never known without being a mechanic and taking it apart. Second, call me a mechanical idiot, but a mower blade has a lot in common with a knife - if you sharpen it and it cuts stuff, it probably needs no further repair.

So, whether I'm dealing with honest repair people or shysters, here are my lessons learned for saving money:

• You often don't have to know everything about a product to be able to do simple, routine repairs.
• Doing a simple repair myself gives me a wonderful feeling of independence and "beating the system."
  
• I can often save myself loads of money - in this case, $98.50, which might be the equivalent of $200 earned, once FICA and taxes are taken out of your earnings.
• Keep asking the question, "What are the most common repairs that most people need?" The answers may save many thousands of dollars over a lifetime.
• Don't brag to your wife or mother after you've made a successful repair. They'll start asking you to fix everything.
  

Other ideas for saving on routine repairs? Post some ideas!