By Marc Stengel

JULY 27, 1998:  The ads are everywhere: This or that sports car, sport/utility vehicle, or luxury sedan is totally new, totally cool for '98. The reviews pick up where the ads leave off: awesome handling, pavement-peeling performance, drop-dead gorgeous new looks. Heck, I even write a fair share of these road tests myself. I love new cars; and I love driving, buying, and talking new cars. But according to money man and financial-planning guru Dave Ramsey, new cars are for patsies; and he's not afraid to say so in most strenuous terms.

"Kiplinger's Personal Money Management magazine," he pointed out in a recent interview, "says that the typical new car will lose about 60 percent of its value in the first four years. Take a $20,000 sticker price--you've got an $8,000 asset at the end of four years. You're going to lose about 250 bucks a month. If you want to know what that feels like, just roll down the window of your car while you're driving down the Interstate and slip out a $100 bill every week or so. That'll at least give you the effect of what it's like to be trashing your finances."

Ramsey is the funny, frustrating, and fiscally shrewd host of The Money Game, the popular radio call-in show syndicated in 30 states. His best-selling book Financial Peace: Restoring Financial Hope to You and Your Family (Viking) is some 400,000 copies into its fourth printing. Since he readily admits to being a "car guy," you'd think he'd revel in the trappings of success by buying at least one brand-new car. But you'd be dead wrong.

According to Ramsey, whose Brentwood-based company The Lampo Group provides personal financial-planning services and crisis-management advice, "We've found after counseling about 10,000 families in this firm that the No. 1 mistake people under 27 years old make is that they buy a new car. The No. 1 thing we see in this office is not credit-card debt--that's No. 2. The No. 1 abuse of personal finance right now is cars."

This state of affairs is understandable, says Ramsey, because our culture continually reinforces the idea that "you are what you drive. It's an ego thing, no doubt about it." But he adds, "I don't meet millionaires with car payments. And they don't tell me, 'Dave I got rid of my car payments when I became a millionaire.' They tell me, 'I became a millionaire when I got rid of my car payments.' "

For Ramsey, it is the twin ill effects of depreciation and financing that turn a cherry of a new car into a lemon of a deal: "Depreciation just means the thing went down in value. It means 'I lost my butt!' " To get a sense of the rate at which depreciation erodes new-car values, the savvy car shopper need only turn to one of the available used-car pricing guides on the market, like Kelley's Blue Book, the NADA "yellow guide," or publications from Consumer Reports and Kiplinger's. There, in vivid black-and-white, is all the motivation you need, he says, to start hustling for the used car of your dreams.

But don't used cars require a lot more care and maintenance? "A used car is going to require a little bit more love and care, sure," Ramsey admits. "But when you figure the $300 or $400 a month in lost value, and you pay a $378 car payment over 55 months--which is the average according to USA Today--you're talking 700 bucks a month. That's $8,400 a year in maintenance that you'd have to do to a used car to make it a worse deal than buying new."

Lest anyone accuse Ramsey of being a party-pooper, however, he's quick to acknowledge people's legitimate desire to have fun--to enjoy themselves. "The name of my book is Financial Peace," he says, "not I Want to Live in a Cave and Collect Lint. You do have to have a life; I know that." For Ramsey, the path to fiscal responsibility is paved with honest perceptions about the difference between "needs" and "wants": "You need transportation--that's a '76 Pinto," he says. "But you want to have fun. If you can just admit that much, you're halfway there."

So what approach does Ramsey recommend for having your car and keeping your budget too? "Well, a checklist would be, one, if you're going to buy a car, buy it used--2 years old or older, at least. If you're going to do payments one time in your life, make this the last time, because you're going to save from this point forward; so borrow on 12-month terms or less. Period.

"Two, if you are going to buy luxury items like wheels or performance parts or a sound system, do it with cash, or don't do it. If you've gotta borrow the money to buy these things, there's simply no excuse to do that--that's in the Stupid Zone to borrow money for a set of wheels.

"If you can discipline yourself to follow these two rules, then you'll have a car that you don't hate. If you're driving something with big, hairy car payments and six credit-card bills to finance the accessories...you begin to hate the car because of what it's doing to your life. It takes the fun out of the thing.

"So just think of it this way: 'What's the very most car payment I could suck up to?' A lot of times, people tell me $350 to $400. OK, if you take $400 a month and save it for 10 months, even with no interest at all that's $4,000. Four thousand dollars cash will buy you a very decent starter car to get going. Do that for 10 more months, maybe fix up your starter car a little in the meantime--now you've got about eight grand. That's another $4,000 cash and a $4,000 car, since $4,000 cars don't depreciate very fast in 10 months. Trade up if that's what you want to do, and there you go: 20 months into the deal, we're in an $8,000 car with no car payments.

"That's how all this works...if you don't get your wants and needs all crossed up. Growing up is all about being honest; and being mature means not saying 'I need this' when, really, you just want it. Sounds bizarre, doesn't it? A little weird, maybe? Well, let me tell you, the people who are weird enough to do stuff like this are the people who build wealth. And when you build wealth, you can have all the toys you want."

You don't have to speak with Dave Ramsey for very long to appreciate his opinion that building wealth is something everybody can get used to--and that getting a used car to build wealth for you is one of the easiest ways to start.

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