Drive Old Cars

May 25, 2006 |Heather Koerner

It's time to buy a car. Since it's likely the second-largest purchase you'll ever make, you better get it right.

The other day at the hair salon, the topic turned to cars.

Since I'm on the hunt for a new car (thanks to a recent unfortunate fender bender), my ears perked up.

Everyone was all aquiver because one of the youngest stylists had just gotten a new car. Evidently, it was a Lexus and it was a beauty.

"So is your boyfriend still getting on you about buying it?" someone asked her.

The boyfriend, apparently, did not see the financial wisdom of this purchase.

"Oh yes," sighed this 20-year-old who had been styling hair for less than six months. "But I just told him to lay off. If he couldn't get over it, I'd rather be on my own in my Lexus than have him by my side in a Pinto."

Everyone roared with laughter.

"I know," sighed a guy a couple of chairs down from me. "I was nuts about my Bronco when I bought it. But I'm six thousand upside down on it now and can't stand to look at it. I've got to find something new."

Everyone nodded and "hmm"ed in sympathy.

At this point, my internal debt alarm was reading off the charts. But before I could begin my mental sermon, though, one image flashed through my mind and stopped me cold. It was me in a shiny silver convertible VW bug with my hair flying in the wind.

My two salon mates had made some whopper poor decisions, true. But I can relate to where those decisions probably originated: a desire for fun. That VW was the car of my high school dreams — and I still salivate when I see one.

When it's time to auto shop, no one jumps for joy to go check out the decade-old Chevys. But I'm not in high school anymore, as much as my Freudian id would like to convince me otherwise. I need transportation and I need to be a good steward. So how can I reconcile the two?

Stop!

First, I need to honestly assess my need for a car.

I really like the Motley Fool web site's first piece of advice for car shoppers: "Don't do it!" I thought that was original — and right on the money.

The fact is most of us don't need a newer car. We may want it, but we don't need it.

This became very clear to me at a recent mechanic visit. We were contemplating replacing our 10-year-old Maxima (yes, the one that would fall victim to the fender bender) because, after all, it was 10 years old.

Much to our surprise, the mechanic reported that our engine was in excellent condition and would probably still run another 100,000 miles. Since the car was paid off, that could mean at least five to eight more years without a car payment. Sweet!

"Does your car have in excess of 200,000 miles?" Crown Ministries asks. "If not, chances are the present car is still in good shape."

Before heading to the car lot, the Motley Fool site recommends that you ask yourself these two questions: Do I really need a vehicle change? Why?

Many of us will give an enthusiastic "You bet!" to the first question, but pause when we get to the second. Unless our transmission is sitting on the garage floor, it's probable that we could put off the purchase — and the incredible expense — of a car for at least a year, if not more.

If you are a two-car family, you might even ask yourself if you could get by with one car. It may seem frightfully 1950s, but when you consider how much money you pay to have one of those cars (if not both) sit in a parking lot all day, you might be motivated to get creative with transportation alternatives.

Avoid the Black Hole

But since my car is now sitting in an auto graveyard, the option of doing nothing is not an option for me. So here's where I need to remember a great piece of financial advice from my past: "Have a nice home. Drive old cars."

I first heard this advice on the radio when I was newly married. I can't remember who said it, but I do remember that the man believed it was his key to financial freedom. His little phrase was simple and it stuck with me.

The gist is that homes usually (emphasis on the "usually") appreciate, or increase in value. They are generally a good investment. (Though one that should be approached with caution.)

Cars are not. They depreciate. A lot. And quickly. They are the black hole of the budget. A lot of money goes in and it never comes out.

On average, new cars lose more than 20 percent of their value the first year, 15 percent the second and so on, according to The Motley Fool web site. After two years, a $20,000 new car will be worth only $13,000. Seven thousand dollars of value gone — almost $300 a month.

Further, if you financed that $20,000, you'll probably owe more than your car is worth (remember Mr. Two-Seats-Down?) for several years.

Despite this, Americans are spending more than ever on their cars. We've doubled our transportation spending since the 1960s — from 10 percent of the family budget to almost 20 percent. Some of this can be attributed to the rise in two- career families. But much of it can also be attributed to our desire for buying newer, fancier cars more often.

According to Crown Ministries, "The average family, during its lifetime, is going to put more money into automobiles than they will put into their homes." That means that our car decisions are extremely important.

Since I know my next car is going to lose value — rapidly — why not purchase accordingly? All the "how to haggle that sneaky car salesman down with brilliant negotiating tactics" advice in the world is not going to save me as much money as simply choosing to buy a cheaper used car. As my radio man said: "Drive old cars."

Cash on the Barrel

Now that I've decided what kind of car I'm going to buy, I have to decide how I'm going to pay for it.

The one thing that many Christian financial experts agree on — and that most people feel they could never do — is to pay cash for cars.

In theory, it sounds great. Who would want to borrow money and pay interest to buy something whose value is sinking faster than the Titanic? But in reality, many Christians scoff at the idea. Yeah, like I could save up enough to pay cash for the entire price of a car.

I was definitely one of the scoffers when I bought my first car. I wanted something nice. Honestly, I felt I deserved something nice. The only way to do that was to borrow the purchase price. So I bought a car and financed it, leaving me with four years of serious payments.

As parenthood approached, my husband and I went on a massive debt killing program and paid the car off. Suddenly, the solution became very clear. Instead of moving on up the auto ladder, we decided to continue making our car payment — but to simply make it to ourselves. Each month, as we fought the urge to covet our neighbor's new Dodge Durango, our savings account grew.

Now that our Maxima has gone to Nissan heaven, we can buy without borrowing. Not an Escalade, mind you. But another, dependable older car. Then, we'll continue the "pay ourselves" process so we can pay cash for our next vehicle as well.

Even beyond saving the interest charges, paying cash will probably also save you money.

I find that when I finance something, I'm less particular about the cost. Oh, why not pay a thousand to have the yard sodded? That only adds a few dollars to my mortgage payment! Instead of concentrating on the thousand, I'm concentrating on the monthly payment.

But when I'm paying cash, I'm much more likely to watch the pennies. Five hundred more dollars just for leather? I'll take the cloth, thank you very much!

It's easy to spend too much money on a car. But considering how much cars cost and how quickly they lose value, we need to make the effort to buy smart. That's what I'm off to try to do. Wish me luck.

Copyright 2006 Heather D. Koerner. All rights reserved.

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