+2
Unfortunately, Dave's advice is stupid. It does not take into account increased car repairs from driving older vehicles nor does it account for sales tax from buying the cars.
Going from the $1,500 car to the $6,250 car sounds nice, but in Minnesota, for example, you're going to pay $421 in sales tax (6.75% on that car. There went an entire month of savings. Also, you're going to pay taxes on your mutual fund earnings.
Let's be more realistic. Assuming a nice 8% return on your mutual fund and a 15% capital gains tax, you'll have $4,896 in savings after 10 months of saving $475. During that 10 month period, you had to spend $400 in repairs on your shitty $1,500 car leaving you with $4,496. You decide to sell your car which has now depreciated to $1,200 and have $5,696 for a different car. You buy a $5,335 car (6.75% sales tax brings total to $5,696) and begin saving again for 10 months.
10 months later, you have $4,896 in your mutual fund again (after saving 15% of your gains for taxes) and your $5,335 car has depreciated to $4,500. You also had to spend $400 on repairs again. Figuring in sales tax, you can now buy a $8,838 car.
Obviously you're still gaining ground but nowhere near the rate that Ramsey claims. What about mutual fund fees? What about the increased risk of massive car repairs from driving a $1,500 and $5,335 car for 20 months with no warranty (I've own cars in that price range that have required $1,000+ in repairs in one year)? Title fees from switching cars so often? Etc...