Should You Buy A New Car?
BY BRANDON VAGNER, CPA, Ph.D., & WALLET WIT FOUNDER
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There are many many factors that go into whether or not you should buy a new car or keep rocking the one you have.
I think it’s best to lead by example…That said, let me explain why I just dumped $1,000 into our $1,000 car. Yes, you read that right. For those that are new to the blog, I’m very fortunate to have a GREAT income, but I still drive a $1,000 car.
Why I Just Dumped $1,000 Into a $1,000 Car
Sticking to Our Financial Plan to Reach Our Goals
The first thing you have to know is that my wife and I are currently saving for a 20% downpayment on a house. The real estate market in Nashville TN is crazy, which means we need a pretty sizable downpayment. Once that step in our financial plan is completed, we’ll be turning our attention toward paying off our only remaining debt, which is the remaining $120,000 mortgage on our first home that we now rent out.
Something to take note of is that we could have sold our rental property and made about $50,000 of profit based on the equity we have in the property. Had we done that we would already have our 20% downpayment for the new home AND we wouldn’t have a $120,000 of debt to pay off, but we didn’t do that because after extensive evaluation we concluded the rental property is a great long term passive income opportunity. We are sacrificing now to have something special in the future.
You can see that we have some major financial goals ahead of us, and a new car would really get us off track considering we don’t believe in payments and would be paying cash for the car. A new truck would definitely be VERY exciting, but it’s just not in the cards for us right now.
The Car is a Good Car
For those that read my blog regularly, you know that I’ve driven the same car for over 10 years. It’s a 2002 Toyota Avalon with 270,000 miles on it that goes by the name “The Blue Whale.”
I’ve kept The Blue Whale in great shape (minus the hail damage) over the decade I’ve owned it and have already performed a lot of necessary routine maintenance. That said, I’m confident in the car from a mechanical perspective and don’t anticipate any major issues in the near future. This was a significant factor for me in the decision process.
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Any Newer Car Would Be a Gamble
I mentioned above that we believe in paying cash for a car. So, if we decided to upgrade cars now, we definitely would NOT be able to pay cash for a brand new car due to the significant financial goals mentioned above that are higher on the priority list. Instead, we would most likely be looking to pay cash for a $5,000 car to keep us on the road until we hit our other financial goals and can eventually save for a nicer car.
Buying any used car is a gamble though. You just don’t know what you’re getting into. An extremely important fact to know is that there is a chance that major issues will go wrong with any used car at every price point.
I’m more confident in my $1,000 car than I am a newer random $5,000 car, because I know what has already been done to my car and how it has been maintained over the years.
Evaluating the Severity of the Current Issue
$1,000 is a lot of money to put into any car. A major factor in all of this is that the required fix is routine maintenance you would have to do on any car over time.
The first issue was that my tires were completely gone and needed replaced. Having quality tires is important for us, because we travel back and forth to St. Louis quite a bit to see family. So, safety on the interstate is something I have to factor in when deciding what tires to go with. We needed good tires that were rated well for both dry and winter conditions. The tires ultimately were about $650 installed.
I also had a ball bearing in the front right that was really bad. Again, this was another safety concern so it was something I had to address. The cost to replace was about $350.
Now, had I been told that I needed a new transmission and the cost would be $3,000, I’d be writing a totally different article. I’d be writing about why I just went out and paid cash for a $5,000 car to get us back on the road AND keep us on track financially.
The Final Decision
Many people fail to realize just how much it costs to purchase a used $5,000 car. If the sticker price is $5,000, you have to realize and factor in that you’re going to spend an additional amount in sales tax and other fees. All those added costs are not much less than the $1,000 I paid to keep my car on the road. So, you have to ask yourself, what car do you trust more? Yours or the random used one you’re about to buy off the lot. For me, the decision was easy. I trust the car that I personally maintained for the past 10 years.
My wife and I bit the bullet and dumped the $1,000 into our $1,000 car. Sometimes in life you’re going to have to take hits like this.
It’s important to avoid taking what appears to be the easy route out, which would have been to just go buy a new car with payments. That’s the easy way out in the short term, but long term it’s a HUGE mistake. Don’t get yourself in car loan debt. Do everything you can to avoid car payments.