(Guest post by Jason of WorkSaveLive)
I’d be lying to you if I told you I didn’t think that nice cars weren’t baller. While there are those that believe bigger trucks and nicer cars somehow relate to the size of your Johnson, are there any people out there that think some people just like to ride in luxury?
Nicer, newer cars are the craze these days and everybody I meet with that has had the same car for 5+ years is ready to dump their “old beater” and hop right into a 5-year loan for $25,000.
With 16,000,000 new cars being purchased each year, I often wonder why so many people strap themselves to endless payments instead of opting for a debt-free life that may include the ’97 Honda Accord that we roll in.
4 Reasons Why You Should Buy a New Car:
I’ve done quite a bit of digging and read multiple reasons why people SHOULD buy new cars, but I think I’ve come up with a better list and one that will help you really determine if a new car is in your best interest:
1. If You Don’t Understand Depreciation
I know I’m a math nerd and most readers here are financially savvy, but if you didn’t know: new cars lose value faster than Lindsay Lohan’s career.
New cars lose approximately 10% of the value the minute you drive them off the lot and plummet a full 40-60% within the first 4 years of ownership, depending on make and model of course. So, if you recently bought a new $25,000 car, I’d ask you to also consider flushing a $5 bill down the toilet each day just for the fun of it.
In addition to those awesome monthly payments, you’re also giving up a little over $6 in depreciation each day it sits in your driveway.
2. If You Believe Repairing Old Cars Cost More Than a New Car Does
The common belief, at least that I’ve run into, is that cars suddenly die and explode after they’ve hit 100,000 miles. As our vehicle approaches 200,000 miles, however, I’ll tell you that’s simply not true.
Yes, as cars age there is standard maintenance that need to be performed and particularly around 100,000 miles the timing belt and water pump need to be fixed.
But let’s think outside of common perception for a moment: all cars, whether new or old require many of the same maintenance requirements: oil changes, new tires, new brakes, and transmission flushes. So, with all things being equal, the only ADDITIONAL out-of-pocket expenses an older car is going to cost you are things that start to wear out.
Let’s do a little math: you’re paying $350/month, if not more, for your NEW car. That means I have $4,200 a year that I’m saving (since I have 0 car payments) and I can tell you that I’ve NEVER spent that much repairing my vehicle! Heck, I thought I had a bad year two years ago when I dumped $3,200 worth of repairs for BOTH of my old cars, but I’m still making out like a bandit with those numbers.
Yes, I realize that new car dealerships/manufacturers feed off of your fear and therefore come with scheduled maintenance incentives and warranties, but do you really think you’re saving money? If that were true then the car dealerships and manufacturers would be out of business…
3. If You Value Status More Than Having Money
I’ve had the privilege to coach managers of car dealerships and other upper-middle class individuals, and the same holds true for them all: they’d rather be caught dead than pimping anything other than a 5-year or newer car. It’s just not an option for them, and driving a $10,000 paid-for car is like asking them to go streaking through the quads.
The unfortunate reality of our world is that many of us care too much about other peoples’ perception of us. If more people were open and real about their financial situation then we’d all be in better shape.
4. If You’re a Baller
There are those out there that have saved and lived well below their means, and others that make a ridonculous sum of money, and for those people buying a new car (and taking the kick in the face via depreciation) it just doesn’t matter to their overall financial health.
For those people, I salute you. If you want to buy me a new car I’m really loving the new BMW 6 Series Sedan and I wouldn’t say no to a Maserati Quattroporte Sport GT S. …just sayin’.
Should You Buy a New Car?
Of all people, I believe we should live life and enjoy it to its fullest. Saying that, I also know that most Americans are strapped for cash, have trouble building an emergency fund, and can’t even scrounge up the money to max out their Roth IRAs. Pinching pennies and clipping coupons isn’t going to get you to the promised land, but making wise decisions on large purchases (houses and cars) will certainly help free up your budget and give you the flexibility to save and invest.
As you grasp the reality of depreciation and get over the notion that old cars “nickle and dime you to death,” you should instead be thinking that new cars “hundred and five hundred you to death!”
Guest Post by Jason – A financial advisor and Dave Ramsey-trained counselor who blogs over at WorkSaveLive. He aims to educate his readers on a variety of financial topics while sharing his family’s journey out of debt.
(EDITOR’S NOTE: I pretty much agree that buying used – even if it’s just 2 years old – is the smartest way to go financially, but I will say that it’s okay to go with the emotional side too. IF you’re doing it for the right reasons and you’ve got your budget totally on lock. There’s nothing wrong with enjoying that new car smell if you do it responsibly, but 9 times out of 10 it’s usually a bone-head move ;))
(Photo by striatic)
Jay loves talking about money, collecting coins, blasting hip-hop, and hanging out with his three beautiful boys. You can check out all of his online projects at jmoney.biz. Thanks for reading the blog!