Although cars are both necessities and often a pleasure to have, they consume a pretty amazing percent of our hard-earned money every year. The truth is that your approach to cars alone can truly alter your finances.
So how do you win when it comes to car buying? Here are some steps to take that can make a huge difference:
Never buy your cars new. Unless you are rolling in dough, or are absolutely committed to keeping the car for a long time, at least seven or eight years or more, do not buy a new car! It’s a really bad investment.
Ask yourself, what is the real difference between a new car and a two or three-year-old car? Not much, really. The most important difference between a new and a three-year-old car is money, baby, one heck of a lot of money. According to SafeCarGuide.com, new vehicles lose an average of 20% of their value the instant they are driven away from the dealership. When coupled with the average yearly depreciation of 7% to 12%, your first year’s loss is anywhere from 25% to 35%. That translates to a first year $6,000 to $8,000 loss on a $22,500 new vehicle, or a $10,000 to $15,000 loss on a $40,000 one. And that’s for a vehicle only driven the average 13,500 miles. If you drive more than that, your depreciation will be greater (35% to 50% for the first year). And if you finance the car it will add another $1000 to $3000.
Don’t purchase an unnecessarily expensive car for its image. For example, if you compare an Accord or a Camry to the cars costing a lot more, you will usually find them to be as safe and reliable as the more expensive models. As to comfort and handling, you will find there is not that much of a difference. The same goes for “the ultimate” truck or RV. Why would you pay more unless you have more money than you need for the rest of your life? Whatever you get is unlikely to be worth the price you paid for it.
Don’t buy a gas guzzler. If you already own one, consider getting rid of it in favor of a reasonably fuel-efficient model. For the average person driving 16,000 miles per year and paying $4 per gallon, the difference between an inefficient car of 16 miles per gallon and one averaging 28 miles per gallon is $1700 per year, or $2500 pre-tax for the average taxpayer. Put that in your IRA at a 6% return and you end up with $94,000 in 20 years and $202,000 in 30. If you’re carrying credit card debt, as most people do these days, the impact of this money is a lot bigger yet. Once again, you don’t have to wait 20 or 30 years before that much extra money can begin to change the game for you.
Don’t lease. When it comes to car leasing, an experienced salesperson can usually “prove” you win if you lease, even though you may not. They often stand to make a bigger commission if you lease, and the games here can get pretty confusing. The bottom line is that you will save the most if you follow these guidelines. There is almost never a good financial reason to lease.
Never finance through the dealer. Arrange your financing and know the value of your current car before you start to buy. Never finance though the dealer. It’ll almost always cost you thousands more.
Focus on the price. All that really matters is the price you will pay, but it is not where the dealer wants you to focus. He wants you focused on the car, the options, the size of your payment—anything but the price. Don’t get distracted.
Don’t buy unnecessary extras. Options like rust-proofing, extended warrantees, fabric and paint protection, VIN etching, etc. are either unnecessary or way overpriced.
Buy this book. To fully understand the car-buying process I recommended that you buy, read, and follow the detailed advice in Remar Sutton’s book Don’t Get Taken Every Time. You should never buy another car without doing that! I don’t know this guy, but I sure know his book is worthwhile. Less than three bucks on Amazon for one of the best consumer-buying courses you’ll ever find.
Your money is your money; your life is your life. Do you want a “wow” car, or to be able to spend a lot less each year? That money could mean being able to work a month less every year, or be free 10 years sooner to do whatever you want with your days. Cars are one of our largest expenses and offer a lot of opportunity for big savings. As always, spend smart.