Dave Ramsey: Don't do it for the gas mileage
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By Dave Ramsey
Dave SaysBY DAVE RAMSEY
Q: Dear Dave: Is it worth the trouble to sell my old car now and buy a hybrid or another car that gets better gas mileage? I'm getting mixed advice from my friends on this issue. - Ted
A: Dear Ted: Hybrids are a really big deal now, aren't they? Lots of people want to get rid of their $10,000 cars and buy these $25,000 cars so they can save on gas. Let's take a closer look at this.
So, you're going to spend $15,000 extra to save on gas. Did you ever think about how long it will take to get your money back? Let's say you go from averaging 15 miles per gallon to 25 miles per gallon, and you drive 100 miles each week. That will save you about $10 a week at recent, average gas prices. That means it would take almost 29 years to get your money back in this deal. Does this make sense to you? It sure doesn't to me!
Listen, I'm all about saving money on gas. But people have lost their minds if they think it makes sense to go $15,000 into debt - or spend $15,000 cash - to save $10 a week on this kind of deal. The truth is that a lot of people who do this kind of thing aren't as worried about the environment or saving gas as they are about having that "I'm cool in a hybrid" feeling.
Hybrids are a really new technology and that means they're going to improve rapidly. You don't want to buy a first generation hybrid and then have to go through the pain of trying to sell the thing five years from now. Talk about something that's going to go down in value like a rock!
Now, if you're driving an $8,000 car that absolutely drinks gas, and you want to sell it and buy some little $8,000 gas sipper, I'm fine with that. But don't use the gas argument to rationalize buying an expensive new car or even spending a dime more on a different car. Make a lateral move, or better yet a move down in price, and you'll save money from day one.
Q: Dear Dave: Should you skip vacations when you're getting out of debt? Also, once you're debt-free, is there a rule as to what percentage of your income you should use on vacations? - Carl
A: Dear Carl: I think you should put vacations on hold while you're trying to get out of debt. My family and I didn't go on vacation for nearly 10 years while we were getting out of debt. Why? Because we had work to do. We had bills to pay and kids to feed. That's just the way it goes sometimes.
I'm not sure that there's a specific percentage involved on vacation spending. It definitely shouldn't damage your financial foundation, or put you back into debt once you've worked your way out. You don't touch your emergency fund to go on vacation, and you don't stop funding your retirement or saving money so the kids can go to college. You just save up, and pay cash!
In most cases, this kind of plan will almost force your vacation spending to be a reasonable percentage of your income.
For financial help, visit daveramsey.com.