Newsflash; I will not buy a new car this year, or next year, and probably not the year after that. I most likely won’t ever buy a “new” car, and I will delay replacing my current car as long as possible. My current car is worth around $1,000. As a percent of annual income, it is well under 2%. As a percent of our house value it is around 0.7%. I drive a 2000 Toyota Corolla with 235,000+ miles on it. Mrs. C. bought this car for me a little over 3 years ago while I was travelling for work.
- It burns oil, although fairly slowly.
- The windows are crank windows.
- I have to roll down the drivers side window to open the door from the inside.
- There is a sizeable dent on the back quarter panel
- The door panels are rusted at the bottom.
- The front panel is held on with a zip tie; a fix I made during a snow storm when it originally came loose last winter.
- A good chunk of the car paint is spray painted
- It gets roughly 30 MPG
- It transports me where I need to go
- It can fit all 4 kids in it if needed
- I could replace it with a single paycheck.
It’s About Priorities: My largest priority is to build long term wealth. Vehicles become worth less money every single time you use them, and a good chunk of that depreciation happens up front. Having money tied up in an asset that is depreciating is not a good idea for my long term goal. I’ve had this car for just over 3 years now and I could sell it today for about what I paid for it. My depreciation expense is next to nothing.
My Car Is A Symbol:
Driving a car that costs so little in comparison to my income is at this point more symbolic than it is an economic necessity. I could drive around a $5,000 vehicle and still be in line with my overall goal of building my net worth. It’s a reminder every time I sit down in it that I am living like no one else, so that later on I can live like no one else.
Practice What I Preach:
The best sermons are lived. My kids might not remember me preaching the dangers of car loans, but they will grow up knowing that driving an older car is normal and OK. When people ask me how to save money and build some wealth, one of the first steps I recommend is selling the car. I think I would lose some credibility if I drove around in a nice car, especially one with a payment attached. I absolutely don’t want my kids to think that driving new cars is a normal behavior.
Last month my son had a math worksheet that he needed help on. It was a story problem about comparing auto loans. It started out with “Pretend you are buying your first car and will be getting a loan for $15,200.” What the heck! Who drives a $15,000 vehicle as their first car? So I had to stop right there before we got to the math and talk about expectations for what a first car should be and how much my current vehicle costs.
We then went to running the loan options which gave different interest rates for different lengths of time; a 3 year loan, a 4 year loan, and a 5 year loan. After calculating out the total interest paid over the life of the loan and the monthly payments there was a question that stated “Your car payment should not exceed 8% of your gross income, your income is X, which car loan should you get?” The “correct” answer was the 5 year loan because the payment was just under 8% of the monthly gross income provided. The real answer needed to be NONE OF THE ABOVE, I can’t afford this car. Take the 10% down payment and pay cash for a decent $2,500 to $3,000 car.
I Could Buy A New Car Tomorrow:
1. I could pay cash for a new car…granted not a really nice one, but a new one none the less.
2. I could finance a new car and with my credit score and could get no money down 0% financing for a 36 month loan no problem.
3. Many people have told me that they would feel depressed, unmotivated, and poor if they drove around in a similar vehicle. Honestly, driving my car gives me the exact opposite of those feelings.
Buying a new car just doesn’t make sense to me. I have no one I need to impress, and I receive about 95% of the utility a new car could provide me from my current car. I do keep a Jump starter battery pack with me, that I have had for years. I’ve only had to use it once, when it was insanely cold out a couple winters ago.
Taking Care of My Car:
I recently bought new tires on my car, I am keeping up with the oil changes, and will be doing a brake job here shortly. Many people who drive older cars like this just let the maintenance go on them. I think keeping the maintenance up on the car and treating it no different than a more expensive car will certainly prolong its life and allow me to pass this car on to our oldest kid in a couple years when he gets his license. Wow, I feel REALLY old right now. Kid #1 should be taking drivers ed next spring!
Are you comfortable driving an inexpensive car, what’s your current vehicle?