Dave, Talk Me out of Buying a Lambo

Summary

Summary of "Dave, Talk Me out of Buying a Lambo" – The Ramsey Show Highlights

Release Date: January 14, 2025

In this engaging episode of The Ramsey Show Highlights, hosted by the Ramsey Network, Dave Ramsey addresses a listener’s desire to purchase a high-end supercar. The conversation delves into financial planning, asset depreciation, and personal values, providing listeners with valuable insights into making substantial financial decisions.

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Guest Introduction: Leon’s Aspiration

The episode features Leon, a successful entrepreneur with a significant net worth, who has reached out with a personal financial aspiration:

• Leon shares his success: “To amass some money over the years through just working and some very nicely timed company acquisitions. And now I would like to make one of my childhood dreams come true. I like to buy a super car that's worth about $250,000.” (00:10)

• Specific Desire: Leon expresses a keen interest in purchasing a used Lamborghini Huracan, estimating the cost between $250,000 to $450,000 based on different models and depreciation rates.

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Financial Overview: Assessing Affordability

Dave Ramsey and Leon discuss Leon’s financial status to evaluate the feasibility of such an expensive purchase:

• Net Worth and Income:

  • Leon’s net worth stands at approximately $3.66 million (including a mortgage).
  • He earns about $300,000 annually, not accounting for a potential 30% bonus. (01:03)
  • Leon is 39 years old, married to a 41-year-old wife, and they have a one-year-old child.

• Mortgage Details:

  • Leon mentions a $739,000 mortgage at a 6.74% interest rate on a house valued at $1.9 million. (05:12)

• Liquid Assets:

  • He holds $2.1 million in brokerage and index funds.
  • $150,000 is kept liquid between checking and savings accounts.
  • Retirement accounts include $510,000 in his 401(k) and $500,000 in his wife’s 401(k).
  • Additionally, he has $500,000 in company RSUs, vesting at approximately one-third each year. (05:37)

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Dave Ramsey’s Financial Guidelines

Dave Ramsey provides Leon with a structured analysis based on his financial principles:

1. Affordability Rule:

   • Ramsey’s Rule: “You generally speak, you do not want to own all the things you have with motors or wheels to be more than about half your annual income.” (02:07)
   • Application: Leon’s intended purchase exceeds half his annual income when considering the higher estimate of $450,000, thereby violating this rule.

2. Burn the Money Test:

   • Concept: Ramsey asks, “If I took this much money and set fire to it, does my life change? If the answer is yes, then it's too expensive.” (02:05)
   • Outcome: Purchasing the car would represent approximately 8% of Leon’s net worth. While Ramsey suggests Leon could afford it without immediate financial ruin, the depreciation in value poses a risk.

3. Depreciation Concern:

   • Ramsey emphasizes, “The 250 is going to be worth 150 in 20 minutes. I mean we already established 450 turned into 250. Right, right.” (02:07)
   • He warns that supercars rapidly lose value, especially in the first ten years, and cautions against the illusion of potential value appreciation.

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Depreciation and Asset Value

Dave Ramsey delves deeper into the depreciation of supercars:

• Rapid Depreciation: “They’re not. They’re going to go down in value.” (02:01)

• Comparison to Classic Cars: Ramsey shares his preference for classic cars, stating, “Thank God I got a 1960 Corvette frame up restoration. Compared to the new Corvette, it’s a piece of crap.” (03:08)

• Modern vs. Antique Quality: He appreciates the reliability and conveniences of modern cars over antique models, highlighting advances like better brakes and power steering.

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Personal Values and Contentment

The discussion shifts to personal motivations behind big purchases:

• Intrinsic vs. Extrinsic Motivation:

  • Ramsey asks Leon, “If no one ever sees this car and only I see it and enjoy it, do I still want it for me? If I’m driving that car, the answer is yes. Because I don’t give a crap what you think. I’m going to enjoy that freaking fine piece of machinery, right?” (04:30)

• Sharon’s Perspective:

  • Sharon, another host, shares her viewpoint: “I just, I don’t think I’d spring for that car at that price right now.” (06:34)
  • She emphasizes the importance of prioritizing financial stability, such as paying off the mortgage, over luxury purchases.

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Conclusion: Balanced Decision-Making

In wrapping up, Dave Ramsey acknowledges that while Leon can afford the Lamborghini, he emphasizes the importance of thoughtful financial decision-making:

• Ramsey’s Approval: “He can do it, he can afford it and it’s not going to ruin him.” (06:37)

• Cautious Encouragement: Ramsey advises that if Leon is purchasing the car for personal enjoyment and not to impress others, and if it aligns with his financial goals without jeopardizing stability, then it may be a justifiable decision.

• Final Thoughts from Sharon: Despite being more conservative, Sharon concedes, “Yeah, go for it.” (07:43), highlighting the subjective nature of financial decisions based on personal values and circumstances.

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Key Takeaways

• Financial Prioritization: Prioritize paying off significant debts like mortgages before making substantial luxury purchases.

• Understanding Depreciation: Recognize that high-value items, especially supercars, depreciate rapidly and their resale value significantly decreases over time.

• Personal Enjoyment vs. Social Perception: Ensure that such purchases are motivated by personal satisfaction rather than a desire to impress others, aligning with one’s financial plans and values.

• Comprehensive Financial Assessment: Always evaluate the impact of large purchases on overall net worth, liquidity, and long-term financial goals.

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This episode serves as a thoughtful exploration of balancing financial success with personal desires, offering listeners practical advice on making informed and responsible financial choices.

Transcript

[Dave Ramsey]

Brought to you by chm, a biblically based alternative to health insurance. Learn [e-mail] budget I've been fortunate enough.

[Leon]

To amass some money over the years through just working and some very nicely timed company acquisitions. And now I would like to make one of my childhood dreams come true. I like to buy a super car that's worth about $250,000.

[Dave Ramsey]

Cool.

[Leon]

Which car specifically? The Lamborghini Huracan. A used one.

[Dave Ramsey]

That's a beast. Yeah, used one. 250. You're right. News. What?

[Leon]

450? I think so. Yeah.

[Dave Ramsey]

Yeah. Okay, cool. So what year model would that be.

[Leon]

While looking on some of these websites? Anywhere from a 2015 to 2017. 2018.

[Dave Ramsey]

Okay, so a 10 year old has lost 200,000 in value.

[Leon]

Yeah. Yes.

[Dave Ramsey]

That's about, that's about right. Okay.

[Leon]

Yeah.

[Dave Ramsey]

And what's your net worth? You sound like you're a bazillionaire or something.

[Leon]

My net worth, So I can break this down. I have a net worth if you include the mortgage, about $3.66 million.

[Dave Ramsey]

Okay. And what do you make in a year?

[Leon]

I make about $300,000 a year, which doesn't include a 30% bonus. It's a single income. I am mar. Married with a one year old child, but my wife is a stay at home mom.

[Dave Ramsey]

And how old are you?

[Leon]

I'm 39 and she is 41.

[Dave Ramsey]

Okay. All right. You can afford the car if you want it. The. The thing is, here's how I. Here's how I look at these. Here's how I decide this. And, and I answer questions on this show like what would I do if I woke up in your shoes? That's how I answer questions. Okay. You said you're how old?

[Leon]

39.

[Dave Ramsey]

Okay, good. Well, you've done really well. Congratulations.

[Leon]

Thank you.

[Dave Ramsey]

There's a couple, couple of rules of thumb. You, generally speaking, you do not want to own all the things you have with motors or wheels to be more than about half your annual income. Now, your income is a little wacky because you've made big chunks of money doing a few deals here or there that don't really include your 300. So this violates that. You know what I'm saying? It's more than half your annual income. So that's one rule I look at. It's not a hard and fast rule. The second thing is the main thing I do today, if Sharon and I are doing something that feels kind of like a weird large purchase that strangely. Or even a Large amount of money we're giving away and generosity, the same thing. We just, we use the burn the money in the middle of the floor thing. If I took this much money and set fire to it, does my life change? If the answer is yes, then it's too expensive.

[Leon]

I see.

[Dave Ramsey]

I think you could lose 8% of your net worth, 250 as a percentage of 3.8 million and, and probably not miss it.

[Leon]

Okay.

[Dave Ramsey]

Because the 250 is going to be worth 150 in 20 minutes. You know that. I mean we already established 450 turned into 250. Right, right. It's going to go down in value. And the bigger it is, the faster it's going to go. I mean, the good news is most of the loss is gone. The 10 first 10 years you're going to lose the most of it. And don't get caught up in the illusion it's going to go up in value. They're not. They're going to go down in value. And let me just tell you, the new ones are better. They don't make them like they used to. Thank God I got a 1960 Corvette frame up restoration. Compared to the new Corvette, it's a piece of crap. I mean, compared, it's a beautiful little antique car. But thank God they don't make them like that anymore. We have like brakes that work and power steering and all kinds of modern conveniences now, you know, and so, you know, it's so number one, can I. If I burn the money in the middle of the floor, does it, does it affect my children, my grandchildren, my wife? No, it doesn't. You can, you can do you can afford the car? I think you can afford the car. Then the last thing I do, Leon, is I ask myself some contentment questions, particularly about cars. Because I'm a car nut. If no one ever sees this car and only I see it and enjoy it, do I still want it for me, if I'm driving that car, the answer is yes. Because I don't give a crap what you think. I'm going to enjoy that freaking fine piece of machinery, Right? But if you're buying it to impress other people, that's a dangerous sign. Spiritually. Agreed.

[Leon]

Agreed.

[Sharon]

Leon, I have two quick questions. Is there anything you haven't told us that we should know?

[Leon]

I mean, I do have the mortgage, which is, you know, it's in California and it is a sizable mortgage of about $739,000 at 6.74%. But the house itself is worth about $1.9 million.

[Sharon]

All right, and then my second question is, how much cash do you have total?

[Leon]

So out of, out of my what I state on the Net Worth, about 2.1 million is in brokerage and index fund. That follows large mid cap US market. And then about 150k is liquid mixed between check and savings. About $510,000 in my 401k, about 500k in my wife's 401k. And so that's liquid and then about 500k in company RSUs which are vesting in approximately 1/3 every year.

[Dave Ramsey]

Before we buy toys, we grow up and pay off the mortgage. So you need to pay off the mortgage too. You got the money in brokerage to pay it off. You got the money in brokerage to, to buy this car and you're still fine. And you've still got the exact same net worth when we're done with this discussion. So until the car goes down in.

[Sharon]

Value and then that's what I was wondering. In this current situation, I would say no. I, I just, I wouldn't do it personally. I, I'd want to have the house.

[Dave Ramsey]

Cleared and, and I pay off the house.

[Sharon]

I know, I know. But I, I don't know. I'm, I'm, I can't believe I'm actually saying a little bit more conservative than you as I love cars. But I, I just, when you walk through that, I personally put myself in the. What would I do if I were him? And I don't think I'd spring for that car at that price right now.

[Dave Ramsey]

I, that's fair.

[Sharon]

But you laid it out.

[Dave Ramsey]

He can do it, he can afford it and it's not going to ruin him. I mean if you call me up and you tell me you make $300,000 a year and I dreamed about it since I was a child, kiss my butt. You know, I'm going to. And you know I got no money and I'm going to go get a car loan to buy that. No, I'm going to rip you to shreds. No, that'd be dumb. Okay. For your own sake, because I love you. But. Yeah, yeah, but I mean. Yeah, really, that's so I honestly, it doesn't make the sale to me because I've had to quit doing that myself. Yeah, I always wanted that since I was a child, you know that that's not justification for spending money you don't have way so go make some money, you know, but, but if you have the money and it's just something you want, then?

[Sharon]

Yeah, go for it.

[Dave Ramsey]

Yeah. I mean, it's, it's not the end of the world, but that, that's the trick. Well done, well done, well done. CHM isn't health insurance, it's a health cost sharing ministry. Check it out for [e-mail] budget.